A report from Fox 4 South Florida. “Homes are flying off the market Florida real estate market, resembling the years leading to the 2008 housing market crash. Realtor Kayinah Destine with Twin Metro Realty says lenders have stricter guidelines now to prevent that from happening again. ‘The credit scores to qualify has gone up. It used to be at a 650 in order to qualify for certain programs. Now it’s increased to 680,’ she said.”
“Along with a higher credit score, buyers are also paying higher prices this year. Destine’s noticed it in Lehigh Acres. ‘A home that in July was for $237,000 it appraised for, is now appraising at $262,000.’”
“That’s a ten percent jump in matter of months. But, Florida Gulf Coast University finance professor Tom Smythe says the price hikes don’t compare to those that caused the real estate bubble in 2006. ‘That price increase has to be sustained over at least a couple of years,’ he said. Contrary to the 2008 market crash, real estate price hikes started around 2002, 2003 and continued through 2006.”
From Bloomberg on New York. “JPMorgan Chase & Co. is getting bearish on Manhattan apartments. The lender will tighten the terms of mortgages it finances for most co-operatives and condominiums in the borough, according to a Nov. 4 notice sent to loan professionals. Chase will limit jumbo loans to 70% of the sale price starting next week, down from 80%.”
“Slackening buyer demand has sent Manhattan sales plummeting during the Covid-19 pandemic. The change suggests JPMorgan sees more price declines to come in the borough. It could also depress deals further by forcing buyers to come up with bigger downpayments when they are already stretching to purchase in one of the costliest U.S. housing markets.”
“Banks have already started tightening some terms but none have made a change as sweeping as JPMorgan’s. Many lenders have limited their focus to financing of newly built condos in Manhattan, which have proliferated faster than the number of buyers interested in acquiring them. Since Covid-19 shuttered New York City, some lenders to those luxury projects have demanded purchasers show enough cash in the bank to cover 18 months of mortgage payments in the event of a job loss, said Stephen Kliegerman, president of Brown Harris Stevens Development Marketing, who confirmed Chase’s new lending rules. Others have limited the use of back-door price concessions, such as payment of closing fees, that developers sometimes offer as enticements to close a deal.”
“‘Every single lender is ratcheting up their risk requirements,’ said Orest Tomaselli, chief executive officer of National Condo Advisors, which helps developers of new apartments comply with lender rules. ‘Right now, if you look out 24 months, can you say what the value of a new construction condo unit would be in Manhattan? I would think that a lot of these units would see a greater than 30% reduction in price.’”
“JPMorgan’s decision to require 30% downpayments will likely prompt additional lenders to follow, he said. ‘It absolutely is impactful for every single lender in the marketplace,’ Tomasellli said. ‘They will all eventually get somewhere near the same place.’”
The New York Post. “This glamorous Upper East Side penthouse, formerly owned by Broadway producer and socialite Terry Allen Kramer, is back on the market with a dramatic $13 million price chop. The 6,241-square-foot penthouse at 15 E. 69th St. asked $45 million last year. It’s now asking $32 million with a different brokerage firm.”
From CTV Calgary in Canada. “They may not come as a surprise to those following 2020’s unemployment levels, but new statistics show the number of Albertans unable to make their home payments is skyrocketing. According to the Canadian Bankers Association (CBA), almost 800,000 Canadians have needed flexibility with at least one payment this year. In Alberta, that flexibility has resulted in thousands of mortgage deferrals.”
“‘Alberta has led the country at almost one in five mortgages being deferred,’ Mark Kalinowski with the Credit Counselling Society said. ‘It’s been a rough go, simply with the oil and gas (downturn). When you add COVID-19 on top of it, it’s been a double whammy.’”
“Deferral rates seem to be continuing down a dark road. Numbers from the Canada Mortgage and Housing Corporation (CMHC) confirm as much. Amongst CMHC-insured mortgages, 18 per cent of Calgarian homeowners have had to defer a payment. When compared to other major cities in the country, Calgary trails only Edmonton, at 21 per cent.”
“And it seems at least some of that struggle is already showing. The percentage of mortgages in arrears — that’s unpaid for three months or more — is also way up. ‘There is going to be trouble on the horizon for a number of people,’ Kalinowski said.”
“Many experts believe the deferral programs have saved Albertans from losing their homes. But those programs offer only temporary relief. ‘It’s very possible these foreclosure rates will increase later as pandemic measures increase,’ CMHC senior analyst Michael Mak said. ‘We’re also expecting sales will decrease, rental rates will also decrease while vacancies increase and home prices might take a hit.’”
From Better Dwelling in Canada. “Condo buyers in Canada’s largest real estate markets might be breaking a sweat. In April, Canada Mortgage and Housing Corporation (CMHC) warned first-time buyers about buying a condo at this time. Despite the warning, many went ahead and bought one in May. If they made the minimum downpayment, there’s a good chance most of their money is gone. In Toronto, after months of payments, these buyers are virtually underwater. Vancouver owners are doing a little better, but not by much.”
“Today we’re looking at the performance of condo prices with a minimum downpayment. The estimates use a 2.00% mortgage rate, with a 25 year amortization, and the benchmark price. Included is mandatory insurance fee, and the minimum downpayment is used. The minimum downpayment in Toronto and Vancouver is higher than 5% in some cases, due to insurance rules. However, we did go with the absolute minimum you can put down.”
“Important to note these aren’t a comprehensive list of costs, nor value assessment. Notably absent are transfer fees, legal, and maintenance. Interest payments aren’t included for the after-payment calculations either, just the principal contribution. The investment losses would most likely be larger if forced to sell. Especially in the event of an equity shortage, in which case the person is forced to ‘top up’ to sell.”
“Let’s look at the downpayment first, since many of these units were sold as ways to use leverage to make money fast. Across Greater Toronto, the return on investment with a minimum downpayment currently stands at a loss of 112.36%. For condos in the City of Toronto, it’s even higher at a loss of 125.09%. More simply put, the downpayment is gone on a typical condo bought right after the CMHC warned you not to buy.”
“Greater Vancouver is doing a little better than Toronto. Across REBGV, the return on the minimum downpayment for a typical condo is a loss of 56.49%. In the City, it’s much higher. Vancouver East stands at a loss of 82.53%, and Vancouver West works out to a loss of 80.82%. While not as bad as Toronto, a similar observation can be made – city units are doing worse than suburban ones.”
“Of course, that doesn’t include the payments people have made since buying. While it doesn’t eliminate losses, or change returns, principal contributed changes the equity. A typical TRREB condo buyer in May has $3,863 in equity, or about 0.66% of the current value. In the City of Toronto, a typical buyer has $20, or roughly 0% equity left. A typical City of Toronto condo owner has about 4 boxes of OREOs worth of equity, Greater Toronto buyers across the board, would be wiped out with another month like October.”
From the Keene Sentinel in New Hampshire. “The residential real estate market in the Monadnock Region — and over in Vermont — is hot, hot, hot! One real estate agent I know told me homes that only a year ago languished for lack of lookers now command top prices, some from buyers who bid on them sight unseen. A guy in Brattleboro told me his friend sold a run-down hovel in Bellows Falls for twice the asking price slapped on it last year.”
“I know exactly, to the day, when this boom will end — the day I put our house up for sale. This is a true story (as opposed to all the false stories I tell). When we moved to Keene in October 1988, there was a huge boom in real estate, which started about 1985, and all the local Yankees were screwing newcomers with horribly overpriced, shoddy construction. We scrimped together a down payment and bought a nice, albeit very small, house in West Keene. We’d just left the closing at an attorney’s office, and I picked up a copy of The Keene Sentinel and, no lie, a front-page headline proclaimed ‘Recession Officially Starts, Feds Say.’”
“We spent eight years in that house and sold it for 25 percent less than we paid. Now, that’s an investment! Fortunately, we remained in the same depressed real estate market and bought a nicer, bigger house that had also been ravaged by the big bust in real estate.”
“Advance the clock 20 years and we decided to put that house up for sale. It’s a fine house in a good neighborhood and you know what happened? Nothing. We didn’t even get one miserable lowball offer, even though we lowered the price and I offered to work for the new owner as an indentured servant for six months. As it turned out we didn’t mind, as we realized that we were emotionally attached to the place, even though the garage door collapsed on me, sending me to the emergency room, and a new roof cost me the equivalent of two years tuition at an Ivy League school.”
“Here’s what’s going to happen to this boom, and I’ll set my watch to it. The big cities will get their acts together, come back into their own, and most of the people who fled to this area will wake up and realize that life in banjo country isn’t what they thought it would be. It will take about two winters for them to figure out it’s damn cold out here, potholes get as big as World War I trenches, and most of the natives consider sophisticated culture to be watching television and going to Dunkin’ for their ‘Dunkies.’ Oh, and yeah, when the temperatures plummet below 10 degrees, they wear their window curtains to the store. They also visit the public library only when they need to use the restrooms.”
“Some greedy people are buying up real estate with the idea they’ll be kingpin landlords, but you already know what’s going to happen to them when the bust comes, as it always does — the good tenants will flee and it will take months, maybe even years, to evict the malingerers who don’t feel like paying the rent. And the whole time you have to keep fixing the plumbing. Remember, too, that the Keene City Council just passed an ordinance that could punish you if the wild tenants keep throwing out-of-control parties.”
“I feel about real estate investing much as I do about gambling down at Foxwoods. For every great story of someone winning thousands, there’s a hundred people sitting in their cars out in the parking lot, looking at their ATM withdrawal slips and wondering how they’re going to afford to go to dinner.”