A report from IFR. “The speed of the turnaround is remarkable given Zillow had raised over US$1bn in the securitisation market in the last three months. ‘Everyone is trying to figure out what’s going on. I want to know if the repayment might be accelerated. Will I be protected? I’m not taking a loss in just three months,’ said one investor who participated in the debut issue, ZH Trust 2021-1.”
“A buyside source familiar with the Zillow RMBS said it had been too early for Zillow to tap the RMBS market – especially considering the complex structure and unstable cashflows. But many fund managers had been eager to own paper backed by a higher-yielding asset, even if was unproven. ‘The reach for yield and a kind of leap of faith from debt investors rarely make a good combination,’ the source said.”
The Houston Chronicle in Texas. “Zillow spent millions in Houston picking up homes to sell at a mark-up during a red-hot pandemic housing market. Now, amid cooling home prices, the company has asked for less than what it paid for 63 percent of the 155 Houston homes it hoped to sell, according to Business Insider. If the company were to sell all of the listings at price, it would face a median loss of $12,576 per home, according to the analysis. As home prices stopped rising in several major markets, the company’s hopes for profit turned into damage control.”
The Los Angeles Times in California. “Those who bought homes from Opendoor didn’t always have stellar reviews — including Hazel Aguayo. Aguayo identified a very specific aspect of buying through the company that played to her advantage: Opendoor employees she came into contact with weren’t based in Southern California. That enabled her to successfully negotiate her family’s purchase to about $37,000 below the list price by pointing to other houses listed for sale in a less attractive part of Duarte. ‘Had the agent been local, they would know not to compare this house from those, because this house is in the best neighborhood,’ Aguayo said.”
The Orlando Business Journal in Florida. “The rush of buyers in the U.S. housing market last year and earlier this year was ‘like a gold rush,’ but those days appear to be over, PNC Financial Services Group Senior Economist Abbey Omodunbi told Orlando Business Journal. Local homes sales fell month-over-month for the third straight month in September, dropping 5% to 3,879 sales, according to the Orlando Regional Realtor Association. Meanwhile, the median price fell for the first time since September 2020, ticking down from $320,000 to $318,000.”
“Veronica Figueroa, CEO of Orlando-based real estate firm Figueroa Team by EXP Realty, told OBJ any price declines are unlikely to be an indictment of the market. ‘If we do see a dip in pricing, I don’t really think it’s because the market’s going down. I think we’re going to start seeing a lot more negotiation power and people exchanging time and peace of mind for money.’”
From Fox 17 West Michigan. “If you were trying to buy a house at the beginning of the year and gave up the search, now might be your chance. ‘The competition has gotten a little easier, so people who have been frustrated with the process, which is easy to get into that kind of a situation, moving back into the market may be your smartest move right now,’ CEO of Hall Financial, David Hall, said. If you’re a current homeowner and haven’t taken advantage of the current low-interest rates, Hall suggests refinancing sooner rather than later. Home equity could be better spent elsewhere.”
“‘They’re utilizing all the equity they’ve gained in their home, to pay off some high-interest credit cards. Or maybe do a remodel. But that equity is precious,’ Hall said.”
The Bay View Compass in Wisconsin. “In the past year, local social media has been punctuated with pictures of newly sold Bay View homes that achieved jaw-dropping prices. The fevered market is not unique to Bay View, or Milwaukee. The phenomenon is nationwide. Not all the realtors interviewed for this story see the same market trend over the next year or two years. Karen Block and Cheryl Bennet sense a change, though neither predicts it will be dramatic.”
“‘It’s slowing down,’ Block said. ‘Some of it is seasonality. Some of it could be buyer fatigue, so people have pulled out of the market. Also, (now) there’s 20 percent more homes on the market than there were back in the spring and a year ago, so the old supply and demand. There’s more homes on the market, so there are more buyers who can get in.’”
“Bennet agrees. ‘Inventory has been increasing in Bay View and elsewhere, and that is what has caused our over-the-top seller’s market to ease up lately. It’s a simple matter of supply versus demand. In my experience, it’s still a seller’s market, but it’s not nearly as lopsided as it was. Most buyers are having home inspections again, and I’ve even seen a home sale contingency or two. These are things that (buyers) were giving up in order to be competitive this past summer,’ she said.”
From Curbed New York. “Walk around midtown during the business day, and there are once again people on the streets — this isn’t the full lockdown of April 2020 — but the sandwich-and-salad spots are half-full and the street bustle is muted. It’s ‘a glut of inventory on the commercial side that we’ve really never seen before,’ said Marc Roman, the Douglas Elliman agent who is representing 483 Tenth Avenue. Around that building, ‘vacancy is in the 20 to 30 percent range.’ (It’s 20 percent at 483, roughly double what it was before the pandemic.)”
“And this, he added, was after rents for class B office space — that is, in serviceable older buildings without glitzy lobbies and amenities like 24-hour doormen — in the area dropped by about half, from about $60 per square foot annually to $35.”
From Bisnow London. “The general consensus from interviewees for the report was that the best-quality offices will maintain their rents and capital values, but for secondary assets, the future looks tough. ‘If you’re in tougher real estate, in secondary locations, it is brutal,’ one global fund manager said. If secondary assets do see values fall, the rerating could be quick and dramatic. One opportunity fund investor outlined how secondary offices may suffer a decline in values similar to that of retail, working on the basis that overall occupier demand could drop 20% because of new ways of working.”
“‘You might see 20 to 25% net rental declines for those buildings, and then you could see the cap rate shift up very quickly. You get the double whammy that happened in retail — rents 20% lower and 150 to 200 bps added to the cap rate — and your value is off 40%. And then if any of them have financing, they’re instantly [loan-to-value] under water, which is what happened in the whole retail sector.’”
From Domain News. “Australia’s property market is booming but there are some suburbs bucking the trend, with house prices falling by almost 13 per cent in some postcodes over the past year, new data shows. The inner-city suburb of Brunswick West saw house prices fall by 12.8 per cent over the year to September, the latest Domain House Price Report shows, to a median of $937,000. In North Melbourne, house prices fell 10.5 per cent to a median of $1.15 million.”
“Domain chief of economics and research Nicola Powell said price falls in more premium suburbs, like those in Perth, could start a ripple effect of price falls to other suburbs. ‘What’s really strong in the market cycle is you do get that ripple effect, when prices reach their peak they start to come off – the upper end leads this,’ she said. ‘So some of these more premium areas that have had double-digit price growth over the past year could see falls while other areas moderate.’”
From Jing Daily. “Evergrande, which drove much of China’s seemingly endless property boom, now finds itself saddled with a staggering $300 billion of debt from decades of unrestrained expansion. It also faces suppliers and creditors seeking hundreds of billions of dollars of unpaid bills, as well as more than 70,000 investors and stalled construction on apartments for more than one million home buyers who invested their life savings on the promise of a more prosperous future, which has turned sour.”
“And the hope of the calvary (Beijing) saving the day by bailing them out is looking more and more unlikely, as a government bailout would send the wrong message to a host of other Chinese companies that have grown rich via speculative ventures like Evergrande.”
“Given this, if the Chinese economy suffered some sort of collapse, what would the cost be for global luxury brands — or the world at large? What negative trickle-down effects would this unleash? And how would luxury brands have to pivot to remain profitable or, worst case, simply stay in business with China on tilt? The property market has been a key driver of economic growth in China since the mid-1990s and accounts for around a quarter of the Chinese economy by some metrics. If this goes south, China, and the wider world with it, will suddenly find itself not on shaky ground — but in quicksand. If that time comes, will China have enough buckets to bail out anything?”
The South China Morning Post. “Across China, poorly planned ghost towns filled with unsold homes or faux-historic architecture – part of an initiative meant to boost tourism and local revenue – are facing elimination as Beijing puts them under the microscope. The initiative to develop characteristic towns outside megacities was launched five years ago as part of China’s urbanisation push. Some were built to support manufacturing, esports and e-commerce, but many others looked to tourism, with local authorities keen on selling land and developing real estate – a practice that has long sustained local governments.”
“‘This development approach runs counter to the central government’s repeated warnings to not use the real estate market to stimulate economic growth,’ said Andy Chen, senior analyst with Trivium China, a Beijing-based policy consultancy. ‘Regulators have been tightening real estate developers’ financing channels through a series of policy measures and window guidance in the past two years. That’s why you see so many abandoned or suspended construction projects in these towns.’”
“Xueshan Art Town, located in the scenic city of Lijiang in Yunnan province, was built on land purchased from the local government for 163.5 million yuan in 2012, and the project pulled in 3.5 billion yuan worth of investment. Chinese actor Li Yapeng was among those enticed by what looked to be a lucrative investment.”
“He sank tens of millions of yuan into the town, which boasted picturesque views and quality architecture. But only about 30 private villas were sold in its first two years. Li was forced to sell his land stake to another developer in 2015, and he reportedly still has 40 million yuan (US$6.25 million) worth of debt from the failed real estate project. The new developer’s financial report showed that only 26 square metres of real estate were sold during the first half of 2020, accounting for less than a thousandth of the available space.”
“Many of these so-called characteristic towns have also been abandoned halfway through construction due to lack of funding, or they have faced bankruptcy due to a lack of visitors. Hu Meilin, manager of Shenzhen OCT Culture Group, said during an interview with the National Business Daily that real estate companies jumped on the bandwagon to rapidly develop these characteristic towns, but none of them are particularly successful, and ‘basically 90 per cent of them were doomed to fail.’”