A weekend topic starting with WFTS in Florida. “The current market has made it hard to predict how much a house would sell for, which is causing Zillow to lose money. The company currently owns at least 100 homes in the greater Tampa Bay area, that it’s now trying to sell…quickly. ‘People start calling realtors saying ‘Hey, I want to buy a Zillow home I hear they got to sell them so I’m gonna offer them a low-ball offer.’ That’s just not realistic in my opinion. Houses will be sold. They’ll be absorbed in the market,’ said Stephen McWilliam, founder of Florida State Realty Group.”
“Experts say this type of operation only benefits people looking to sell their house quickly and they encourage those who have a little more time, to seek out a realtor who knows your local housing market. ‘It’s been a success for decades and it will be successful for decades into the future in my opinion,’ said McWilliam.”
From WFTS 9 in Florida. “The yellow five-bedroom house on East Harding Street sits empty and unassuming, attracting little attention in the middle of Orlando’s Hourglass District. For months, though, this home has been the talk of the neighborhood. A sign outside the front door offers the first clue. ‘Owned by Zillow,’ it reads. No one is interested in the home. In fact, the East Harding Street house signifies the collapse of the budding real estate empire.”
“The East Harding Street home was originally listed by its owner for $285,000, neighbor John Miller recalled. The chatter in his community began after the Zillow sign appeared at the end of the driveway. The website listed the price of the sale: $445,000, 56% above the asking price. Miller remembered crews coming in to touch up the paint and replace a few ceiling fans after the sale went through, but nothing major. Then, Zillow relisted the house for $510,000. ‘It’s also kind of disgusting,’ Miller said. ‘For them to buy a property at the price that they did and not really do anything in the way to increase the value of the home, and then list it for that price.’”
“The process worked, though, because of the market frenzy. With homes getting 10 or more offers on their first day and prices increasing 12% annually, the company could afford to pay, knowing it would make it back and push nearby comparisons higher. Until it didn’t.”
“‘They projected that the market would keep going up at the rate that it’s been going up for the last 12 months,’ said real estate agent Ray Lopez. ‘Zillow kept paying top dollar over asking. So, they ended up getting these houses, trying to put them back on the market. They couldn’t sell them at anything close to what they bought them for.’”
From The Real Deal. “Everyone seems to be betting the house on a new home these days. Multibillion-dollar private equity firms. Joe Schmo house-flippers. Even savvy tech firms. Everyone except Ivy Zelman, that is. The analyst who called the top of the housing market in 2005 is once again waving a red flag. It’s beyond contrarian: She’s pretty much in a category of one.”
“‘The perception that housing is drastically undersupplied and that a strong demographic picture lies ahead is creating a false sense of security,’ according to a report by Zelman’s firm. ‘By our math, both single-family and multi-family production are already ahead of normalized demand and estimates of a housing deficit are grossly exaggerated.’”
“Homebuilders, the National Association of Realtors and Freddie Mac are pushing a now-familiar narrative that soaring demand for scarce housing is driving up prices. The problem is on the other side of the equation, says Zelman — it’s impossible to determine real demand because of all the new players. Private-equity firms are acquiring, and sometimes building, properties as rental homes. iBuyers like Zillow and Opendoor use algorithm-driven purchases to quickly buy homes, although Zillow’s flawed methodology led it to overpay in Phoenix by as much as $65,000.”
“Prices can only rise so far before potential homeowners simply can’t come up with the cash. Zelman said she recently spoke to a homebuilder in Boise, Idaho who is producing 2,000 homes a year. The builder said home prices are reaching unsustainable levels. ‘They said it was like a light switch, like the market just literally turned off,’ said Zelman.”
“Combine this with the near-certainty of rising mortgage rates and homeownership becomes even more unaffordable. Most homeowners are locked in at a rate below 4 percent because of record low interest rates by the Federal Reserve and billions of dollars in purchases of mortgage backed securities. ‘Rates matter,’ said Zelman. ‘We think the market has been juiced.’”
From News.com.au. “The outlook for first home buyers is looking ‘pretty bleak’ and much will depend on how Australia handles its border re-opening. Property prices in Australia have already grown by about 21 per cent this year. This has led to ‘stupid’ prices being paid for some properties, with many home buyers now faced with huge mortgages that will take decades to pay off. ‘A lot depends on immigration levels and how quickly they come back but the big factor driving prices — interest rates — has done its dash and is probably over,’ said AMP Capital chief economist Shane Oliver.”
“The undersupply of new dwellings has also been reversed, with an oversupply present in some area that should also help affordability. Prior to the pandemic it was already difficult for young people to get into the market but now they will be taking on even bigger mortgages that will take longer to pay off. ‘It seems grossly unfair that the country has allowed this situation to develop, especially with so much spare land around,’ Mr Oliver said.”
The Geopolitical Monitor. “Much of Western foreign policy and commentary is predicated on the idea that China’s economic, political and diplomatic heft will inevitably continue to increase. An Evergrande-shaped hole, however, could puncture this conventional wisdom. Evergrande’s plight, the result of years of binging on debt and building without considering financial viability, also sheds light on an alternative story of China’s meteoric rise: one built upon an innately broken system, whose problems can no longer be suppressed by a mixture of statist engineering at home and easy money from abroad.”
“Evergrande represents one of many brewing crises of China’s own making, as the country circles closer towards a middle-income trap and further away from a market economy. At home, food and energy prices are rising, squeezing China’s middle class. The looming emergency sparked by the rapid decline of China’s working-age population, thanks to decades of short-sighted policies, can no longer be papered over. The pandemic—and its economic fallout—has amplified these disruptions and laid bare China’s dependency on a globalized system of trade that bodes poorly for its foreign aspirations.”
“Perhaps most seriously, China’s heavy-handed foreign policy and opaque lending practices have undermined its own flagship Belt and Road Initiative (BRI), raising questions whether the worldwide network of infrastructure investment will ever match Beijing’s grandiose ambitions. Djibouti is one of many countries experiencing ‘buyer’s remorse.’ Nestled in the strategic chokepoint between the Red Sea and Gulf of Aden, the tiny country has received little-to-no benefit from the projects which have left it with debts to Beijing equaling some 70% of its GDP.”
“Ironically, it’s China’s own policies which are currently undermining its economic heft and sparking an inflection point. As one analyst warned, the Evergrande crisis ‘is the beginning of the end of China’s growth model as we know it.’ On the outside, China is looking to transform its economy to a global consumer market that rivals the EU and US. The reality, however, may be as hollow as one of Evergrande’s half-finished apartment complexes.”
The Globe and Mail in Canada. “The problem with Financial Literacy Month is that it allows the conversation about smart money habits to be co-opted by the very companies that effectively force us to raise our financial literacy game. Mostly, the big banks. This month, you’ll see them pumping out polls, interviews, videos and other content designed to have their brands and their people associated with empowering Canadians to make smarter money decisions.”
“This mercenary side of Financial Literacy Month helps create a fictional idea of banks and their clients working harmoniously toward the client’s personal success. We should not rule out the possibility of people in banking selling and advising in a way that puts customers first. But the top priority of a bank is to continually increase revenues, profits and dividends paid to shareholders. A proven way to gloss over this reality is to build an image of banks as cheerful helpers.”
“Banks offering budgeting tips distracts us from looking at how they push debt on customers via credit lines and other borrowing products. Banks talking about how to save money distracts from the subatomic interest levels paid on many savings accounts. Banks talking about the dream of home ownership papers over the fact that they will happily mortgage you to the eyelids.”
“Banks assess affordability by comparing your income with your housing costs and total debt. If you come down on the right side of their thresholds, it simply means you are not considered a default risk. In no way is a mortgage thumbs up from your banker an assurance that you can carry a mortgage plus daycare, savings and other expenses of everyday life.”
“Our home equity lines of credit are designed to let you stay in debt indefinitely. Unlike a loan, where each payment covers both interest and repayment of principal, HELOCs allow a minimum payment of interest only each month. Make that interest-only payment regularly and you might carry your HELOC debt right through your working years and into retirement.”