A weekend topic starting with Yahoo Finance. “Fannie Mae Chief Economist Doug Duncan joins Yahoo Finance Live. ‘We saw something on the order of 18% increase in house prices in 2021 following about a 15% increase in 2020. Our estimate is that in 2022, the increase in prices will be somewhere in the 7% to 8% range. It sounds sort of funny to say way down to seven or eight, which is much higher than the long-term average.’”
“‘For housing, we characterize this as a pivot. Several things are changing. First of all, all of the income transfers from the stimulus are over. So that’s going to be withdrawn as a growth driver. The Fed is obviously changing posture. So monetary tightening is going to be the story, not monetary easing. That suggests that rates are going to rise.’”
From Hamptons in New York. “Effective January 1, 2022, the Federal Housing Finance Agency increased the baseline conforming loan limits for single-family homes in high-cost areas from $647,200 to $970,800. Steven Bodziner, Counsel for Bridge Abstract: ‘I believe the increased limits will affect the market, possibly, in a negativeway. Human nature is to maximize, sometimes dangerously so, leveraging on home purchases. With more money financed, that 20% down can buy ‘more house.’ Great strategy until the next downturn.”
“Scott Russell, Supervisor, Town of Southold: ‘I am sure the Federal Housing Finance Agency will have a difficult time explaining to the taxpayers why it is putting their money at risk backing mortgages extended to buyers of homes which cost nearly $1 million. Regardless of how robust the housing market is, if you can afford to look in that price range, you don’t need government-backed loans. During the economic crisis of 2008, both Fannie Mae and Freddie Mac cost the taxpayers nearly 200 billion dollars just to remain solvent and the debt limit was much lower. Overall, it is a poorly thought out plan that undermines itself. Because these loans are government-backed, the risk to the lenders will be less which means the interest rates will be lower. If people can borrow at a lower interest rate, then they will be willing to pay more for a house, pushing prices even higher.’”
The Boston Globe in Massachusetts. “The US arm of Spanish banking giant Santander is doing something unusual for a brick-and-mortar bank: It’s getting out of the home lending business. Santander Bank National Association, as the bank’s Boston-based US operation is known, informed customers and community groups of the change this week, soon after Santander investors were informed during an earnings presentation on Wednesday morning. The bank will stop issuing new residential mortgages and home equity lines of credit as of Feb. 11, although it will still serve existing home-loan customers, as it seeks to focus on what it hopes will be more profitable business lines.”
“Hundreds of jobs are being eliminated, though the exact number is unclear. Figures provided by The Warren Group show Santander was the 11th largest home lender in 2018 in Massachusetts, but its ranking fell to 32nd in 2021. Mortgage brokers, not traditional banks, dominated the top 10 in 2021, led by Rocket Mortgage. Santander US chief executive Tim Wennes told trade publication American Banker that bank officials ‘didn’t see a clear path to above cost-of-capital returns’ with the home-loan origination business.”
The Glendale Star in Arizona. “For the week ending Dec. 26, 7% of Maricopa County sellers contributed to their buyer’s closing costs — a significant jump from 4% on Nov. 28, and the highest we’ve seen since February 2021.”
The San Jose Spotlight. “San Jose residents have yet to use a law that lets them build denser developments in single-family neighborhoods—at least for now. On Jan. 1, Senate Bill 9 went into effect across California. The law allows residents to subdivide lots to create up to four housing units per parcel. But after all the hullabaloo, it seems no one has applied to build one of these projects. ‘No applications to build a duplex on a single-family lot under SB 9; no applications to create a subdivision under SB 9,’ city spokesperson Cheryl Wessling told San José Spotlight.”
From KRON 4 in California. “A new report shows more than 40,000 homes in San Francisco are sitting vacant, nearly one out every ten residential units. According to the city’s Budget and Legislative Analyst, the total number of vacant units in San Francisco has increased by 20% since 2015, to roughly 40,500 units in 2019. ‘This report makes clear what we have long suspected – real estate speculators and wealthy people with second homes are holding thousands of units off the market,’ said Supervisor Dean Preston, who commissioned the study.”
From CalMatters. “After a nearly two years of working from home, I began commuting to the new CalMatters office in downtown Sacramento, one we were to occupy 22 months ago, but has been mostly vacant since. It’s not exactly a ghost town, but downtown Sacramento is eerily quiet these days. Streets have only light traffic and parking lots and garages are half-full at best. A little sandwich shop I had often frequented used to have lunchtime lines stretching out into the sidewalk, but last week I was the only customer.”
“The only positive change I noticed while returning to the area that’s been my working home for nearly a half-century is dozens of new apartment and condo complexes. They may be downtown Sacramento’s salvation — if they can attract enough new residents to the troubled area.”
From Better Dwelling. “Canada’s oldest bank sees today’s real estate markets having a lot in common with the late 1980s bubble. In a research note to its financial markets customers, the Bank of Montreal (BMO) highlights the similar trajectory homes have made. ‘We’re in the midst of getting January reports from the major Canadian real estate boards, and all indications are that the market today is as fevered as it has been through this whole pandemic episode,’ said Robert Kavcic, a senior economist at BMO.”
“‘It’s pretty clear that expectations of home price growth have been allowed to root for too long, aided by too-loose policy. Even OSFI is now warning about speculative activity in the market, which has long been confirmed by survey data, transaction-level data and our own eyes,’ he adds. Canada’s last major real estate crash was in the early 90s. BMO charted the indexed home price growth during that period, to show how similar growth has been. Then showed how those prices have moved since the start of each real estate bubble in years.”
“‘Note that the late-1980s is an infamous period in Canadian housing market history,’ he says. Real average house prices ballooned almost 100% in four years through 1989. The current trajectory (using January 2019 as the starting point) is keeping right on pace with that past episode, which ultimately ended at the hands of Bank of Canada tightening.’”
“Canada’s housing supply shortage is real, but the extent is greatly exaggerated. Especially when it’s used to justify this level of home price growth. ‘For the supply-side activists, the current psychology boosts demand while at the same time holding back listings,’ he said. When price growth slows, the bank expects that to change. ‘Why sell today when you’ll get 10% more tomorrow? … When policy finally breaks this sentiment, you might be surprised how quickly the ‘lack of supply’ problem goes away,’ says Kavcic.”
From Prosper Australia. “Coalition MP Jason Falinski, chair of the federal government’s Housing Supply and Affordability Inquiry, talks the talk when it comes to housing. ‘We have created some of the least-affordable housing in the world… it is akin to intergenerational theft.’ The government touted the inquiry as a genuine investigation into the cause of Australia’s housing woes. However, Falinski had already decided what the solution was even before the inquiry began.”
“A neutral inquiry would not have included the word ‘Supply’ in the title. Instead it would have focused on affordability – the key issue. It is an issue Falinski has been pushing relentlessly over the past few months in the mainstream media – with headlines such as: ‘Irresponsible’ to boost immigration without more new homes’ (Daily Telegraph, 20/10/21); ‘Planning restrictions, not investors pushing up prices: housing affordability chair’ (Sydney Morning Herald, 8/1/2022); and ‘if you don’t have supply…there’s only one way for house prices to go and that’s up’ (Sky News, 29/11/2021).”
“But here’s some facts that are inconvenient for Falinski’s s narrative. Our most recent Speculative Vacancies report found that 69,004 properties in Victoria alone were likely vacant in 2019, based on water usage of less than 50 litres a day. That number of properties could house more than 185,000 people, dwarfing the 80,000 people on Victoria’s public housing waiting list. There’s evidently plenty of supply, but it is not being made available to the market.”
“Speculative vacancies are when private landlords don’t make their properties available to the market but sit on them in the expectation that prices will continue to rise. With prices increasing $660 per day, there’s not much need to rent them out. Prosper’s numbers on vacancies are backed up by the victorian Valuer General. But despite more than a decade of lobbying for government to analyse these hidden speculative vacancies, little has been done.”
“Moreover, our numbers don’t reflect the whole housing supply story. Large land banks in master planned communities are not included in its study. The Melbourne Urban Development report notes that 25 years of supply is available. This is 40% more than is required to provide affordable housing, according to Plan Melbourne.”
“All of this and barely a mention at the inquiry on the impact of AirBnB, tearing at the fabric of so many tourism hotspots. With no commercial zoning required for short term lets, it’s become a free for all to turn our communities into party zones. Government has provided no leadership on what impact this has had on long term rental supply.”
“Falinski has also lamented that red tape and regulations are hindering land rezoning, and thus limiting supply. Yet take the case of Sydney. The number of dwellings approved by the planning system have exceeded by more than 100,000 the number of dwellings built in the past nine years. Similar trends exist in Queensland. All this land already rezoned, ready to be subdivided and turned into housing. Why aren’t the developers just getting on with building homes? Because flooding the market with sufficient homes would stabilise prices or even lead to price drops. Such ‘land banking’ is logical in the current system – and thus prices continue to rise.”
“As Dr Cameron Murray, a research fellow at The University of Sydney points out, what developers claim in the media is quite often the complete opposite from what they say in their annual reports – because developers are legally required to be honest with shareholders. Dr Murray writes: ‘Developers never claim in annual reports that planning regulations are stopping them meeting housing supply targets. Often they say the opposite; that they are banking a certain project because they can get a better yield down the track.’”
“Take the timing of property sales in the master planned community of Jordan Springs, Western Sydney. An analysis by Dr Murray found that by minimising sales when the property market was uncertain, and maximising sales during buoyant times, developers pocketed an extra $137 million from just 2,131 sales. This added $68,000 to each mortgage. Will this finding and the relevant policy recommendations make it into Falinski’s report?”
“As to Falinski’s argument that investors are not driving unaffordability, many eminent economists disagree. The tax system is currently designed to incentivise speculation in real estate – from the 50 per cent discount on capital gains to record low land taxes in once affordable communities. Negative gearing is also a key player, where Australia is one of the few nations that allows all property-related costs to be written off against one’s income and not just against the property’s profit.”