A report from the Seattle Times in Washington. “The failures of Silicon Valley Bank and Signature Bank have reverberated across Seattle’s housing market. Even as regulators rush to stabilize banks, some buyers may wonder if ‘these are just sort of the first cracks in the financial crisis system that could turn into pushing home values down further,’ said Redfin deputy chief economist Taylor Marr. ‘You don’t want to buy a home right before it’s about to crash in value.’”
The Real Deal. “New York Community Bank’s deal to buy loans from the Signature Bank excludes the failed institution’s multifamily mortgages.The snub could signal problems with those loans, which primarily cover the troubled rent-stabilized sector, or simply that NYCB didn’t want to be overweighted in that area. Either way, it may diminish hope for workouts among the many rent-stabilized building owners facing distress. Commercial brokers expect the fallout from resets and maturities to crop up later this year, when loans issued before the 2019 rent law start to come up.”
“‘This is like a train wreck in slow motion,’ said Billy Schur, president of owner group the Bronx Realty Advisory Board said of the rent-stabilized sector. ‘Once someone starts with the default, I don’t see how they’re getting out of trouble.’”
Mansion Global. “Miami Beach is still hot, but the cooling market is translating into price reductions. Of the Florida city’s 86 listings priced at $10 million and up on the market, 34 homes, or 40%, have received a price cut, according to data compiled by The Corcoran Group based on information from the Miami MLS. The average price reduction from the original list price is 14%, according to the data, but ranges from 1% to 36%. ‘In general, luxury properties are staying on the market longer,’ said Eloy Carmenate of the Corcoran Group. During the height of the pandemic, ‘there was a frantic pace of home sales, and this pace was just not sustainable, so we are seeing time on the market normalizing.’”
The Orange County Register. “California home prices are now 18% off their all-time high, but sales activity has risen in three consecutive months. Source: My trusty spreadsheet reviewed the California Association of Realtors’ February home sales report for existing, single-family homes. Debate: Is California’s housing market recovering from its bubble bursting? The California median benchmark is 18% off its $900,000 peak of May 2022, just 10 months earlier. Compare that dip with the 10-month drops off in previous peaks: 1991: Prices fell 6% in 10 months, with losses that grew to 20% over 69 months. 2007: Prices fell 30% in 10 months, with losses that grew to 59% in 21 months.”
Community Impact in Texas. “The housing market in the city of Austin is beginning to stabilize as median sales prices drop and monthly housing inventory climbs toward healthy levels, a February report from the Austin Board of Realtors shows. Throughout the Austin-Round Rock area, monthly housing inventory increased from 0.4 months in February 2022 to 2.6 months of inventory in February 2023. The median home price dropped 12.2% year over year to $436,419. In the city of Austin, the median home price fell 6% year over year from $565,000 in February 2022 to $530,000 in February 2023.”
The Journal Now in North Carolina. “The cost of buying a single-family rental property in Forsyth County has dropped over the past year, according to a first-quarter report released last week by Attom Data Solutions. The average price was $221,000 for a three-bedroom home that had served as a rental property, down 5.9% from $235,000 in the first quarter of 2022. There were 591 homes sold in the five-county Winston-Salem MSA during the first quarter, down from 1,625 a year ago. Those homes likely were owned either by individuals flipping a property or private-equity groups who have been acquired homes in the local market since the Great Recession of 2008-11.”
From AFP. “With its cactus-filled garden and breathtaking views of the rocky peaks of the Arizona desert, Wendy and Vance Walker’s home in the Rio Verde Foothills seemed to be a little slice of paradise. Until the water was cut off. The neighboring city of Scottsdale decided it could no longer afford to sell its dwindling supply from the Colorado River, as a decades-long drought bites the American West. For three months, the couple have eaten from disposable paper plates, had lightning-quick showers only every few days and collected rainwater to flush their toilets. ‘A lot of people don’t take the drought seriously,’ said Wendy, as she stood in the kitchen of their $600,000 home.”
“Fellow resident Rusty Childress said the problem stemmed from head-in-the-sand development. Childress says developers exploit legal loopholes and continue to build in the area, despite not being able to guarantee the luxury homes they sell will have water. ‘Buyer beware! No water in Rio Verde,’ reads a sign he put up in front of his house warning people who come to tour the half-built housing estates nearby. ‘We’re getting drunk on growth here,’ he says.”
From Newsweek. “The road to hell, the proverb goes, is paved with good intentions. And through Jerome H. Powell’s stewardship of the Federal Reserve, it would appear America could soon arrive at that destination. ‘We have a fragile system, there is no doubt,’ Thomas Hoenig, who served as vice chairman of the Federal Deposit Insurance Corporation from 2012 until 2018, told Newsweek. ‘It’s been over a decade of low interest rates. That is part of the problem. It is self-caused.’”
Pittsburgh Quarterly. “Is it just me or was there anything about the collapse of Silicon Valley Bank that wasn’t annoying in the extreme? The executive team at SVB behaved more like a couple of bros at the frat house than like bankers who were stewarding Other People’s Money. But then the Fed began raising rates, which was an obvious double whammy for SVB. As one hedge fund manager who shorted SVB put it, ‘They went for an extra 4 basis points and blew up the bank.’”
“For 30 years the US Fed has merrily fed us easy money policies, then expressed shock – shock! – that those policies led to disaster-after-disaster: the Tech Bust of 2000-02, the Global Financial Crisis of 2008-09, the Crypto Collapse of 2022, and now the second largest bank collapse in our history. Monkeys throwing darts at the Fed’s plot charts could have done better than that.”
“But that’s just for starters. While the slow–motion disaster was rolling itself out at SVB, where were the armies of banking examiners our tax dollars are paying for? Where were the bank stress tests that are required even of small banks like SVB? Where, in short, was the Fed? Under the haystack, fast asleep. Note that this was the Fed’s second colossal blunder in two years – ignoring the inflation threat until it was too late, and now presiding over a major and preventable bank failure.”
“The venture community in Silicon Valley believe themselves to be true Masters of the Universe – smarter, farther-seeing, deeper-understanding than us ordinary mortals. Yet these visionaries blithely deposited billions of dollars of investor capital in the worst-managed bank in America. When that bank inevitably failed, these Masters of the Universe howled for a taxpayer bailout. In conference calls with federal regulators, they whined about what could happen if large depositors lost their money: the venture firms’ portfolio companies wouldn’t be able to make payroll, employees would threaten to quit, the venture firms might have to prop the companies up with cash out of their own coffers!”
“One sage even predicted a ‘bloodbath’ if the regulators didn’t make all SVB’s depositors whole. To which I respond by referring my readers to the immortal word of Eddie Murphy who, when informed that Michael Jackson was furiously angry with him, replied: ‘So?’”
From Bloomberg. “For decades, Switzerland has sold itself as a haven of legal certainty for bond and equity investors. The collapse of Credit Suisse Group AG revealed some unpleasant home truths. In the race to secure UBS Group AG’s purchase of its smaller rival over the weekend, the government invoked the need for stability and emergency legislation to override two key aspects of open markets: competition law and shareholder rights. Then bondholders discovered that $17 billion worth of so-called Additional Tier 1 debt was worthless.”
“‘Foreign investors may wonder if Switzerland is a banana republic where the rule of law doesn’t apply,’ said Peter V. Kunz, a professor specialized in economic law at the University of Bern. The country ‘is not endangered, but there might be the risk of lawsuits’ because authorities ‘intervened here on very thin ice.’ ‘A lot of lawsuits will be coming from this, which will highlight the erratic and selfish behavior of Swiss authorities in this saga,’ said Jacob Kirkegaard, senior fellow at the Peterson Institute for International Economics.”
South Peace News. “Housing and real estate sales in the Peace River region are expected to pick up in 2023, says one local realtor. Layne Gardner predicts the real estate market in the Peace Country region will be stronger than other areas across Canada. ‘The 2022 real estate market in the Peace Country started out the year carrying over much of the strength we saw in the market in 2021,’ Gardner says. ‘It was not until the fourth quarter of 2022 that we saw declines year over year. But the effects of the negativity surrounding interest rate increases and the talk of a housing bubble started to take hold and the year finished with monthly sales declines from October to December.’”
The Squamish Chief in Canada. “Earlier this week, the British Columbia Real Estate Association (BCREA) dropped their February report on the province’s real estate market. Home sales in British Columbia dropped 46.5% year over year in February, and at $941,575, the provincial average sale price in February 2023 was 14.7% lower than it was a year ago. Squamish is hanging in there. Looking at the overall average price in February, it is still over a million bucks. Over the course of one month, it is down not even 4%. Over three months, it’s not even down 5%. Over a year, it is down about 11%. Over three years, the average price in Squamish is still up 27.5%, which is still kind of unheard-of growth.”
“I think with real estate, and it’s basically how everything in the economy works, it’s really the story of how much money people can borrow. And when it gets harder to borrow money, and when mortgages get more expensive, then those houses just become out of reach. I mean, if you’re taking a $1.2 million mortgage, when interest rates are 5%, it’s a very different story than doing it two years ago when they were 2%. And it really just squeezes the life out of the markets.”
The Globe and Mail. “If history has shown anything when it comes to financial mayhem, it’s that the first draft often gets it wrong. ‘These things always get defined in retrospect, not in the moment,’ said Eric Hilt, a professor of economics at Wellesley College in Massachusetts, who teaches American economic and financial history. The current confusion stems in part from the fact that we don’t yet know what troubles might lurk on the balance sheets of other banks. The sharp increase in interest rates over the past year and other credit tightening measures have brought a great unravelling of the cheap money era.”
“As J.P. Morgan chief economist Michael Feroli said this week: ‘There’s an old saying: Whenever the Fed hits the brakes, someone goes through the windshield.’”