A report from Bloomberg. “Institutional landlords are canceling contracts and getting more particular about purchases. The tech-powered home flippers known as iBuyers are slashing asking prices to clear inventory. Small-time property hounds are passing on homes they would have bought three months ago because higher borrowing costs make it harder to turn a profit.”
“Scott Arnold, who represents institutional landlords as a broker in Dallas, said a California-based investor canceled 20 contracts after mortgage rates jumped in June. The company lost about $3,000 per property because of deposits it put down to express interest, he said. Arnold has been left scrambling to pacify sellers, who were faced with the unappealing prospect of relisting homes in a softening market.”
“The investors ‘want to reassess the market to make certain we aren’t going into a severe recession,’ Arnold said. ‘They are waiting for the market to slide so that they can buy at a lower price. And they believe the interest rates will go back down a little bit.’”
The Brownsville Herald in Texas. “The Rio Grande Valley was already struggling with housing affordability, and now higher mortgage interest rates are making it worse. Nick Mitchell-Bennett, executive director of the Brownsville-based nonprofit Come Dream Come Build, which helps low- to moderate-income families become homeowners, said that prior to 2020 housing prices in Brownsville were rising about 3 percent a year, with roughly a 35 percent increase between 2009 and 2020. Then came the pandemic.”
“‘Then when COVID hit and everything surrounding it, that really shot prices up,’ he said. ‘Depending on the individual RGV market, anywhere between 40 to 60 percent in just 12 months.’”
The East Cobb News in Georgia. “We submitted the following questions in bold to the East Cobb office of Harry Norman Realtors. ‘We are seeing a slight uptick in the number of listings that have come on the market in our area. We were so low in inventory at the beginning of the year, that the slight uptick is noticeable. This is seen in homes being on the market for a longer period of time and price reductions. I believe the price reductions are a sign of ambitious sellers, not depreciation. Our local market is showing signs of being right in line with 2019, a fabulous year in real estate in our market and in the nation. The years 2020 and 2021 just happen to have been abnormal markets that took off to a supersonic speed. I think we are now back to turbo jet speed.”
The Daily Mail. “Bidding wars for homes have dropped to their lowest rate in more than two years, in another sign of the cooling housing market, according to an industry report. ‘The market is wildly different than it was a few months ago. Buyers are competing with one to two other offers instead of four to eight. Some aren’t facing competition at all,’ said Alexis Malin, a Redfin real estate agent representing buyers in Jacksonville, Florida. ‘There’s not the same sense of urgency. House hunters are scheduling tours four days in advance instead of one, and they’re becoming much more selective. If a home doesn’t check all of their boxes, they’re waiting until they find one that does. Six months ago, buyers were taking any house they could get.’”
The Islander News in Florida. “The top-selling property in Key Biscayne and Brickell from Aug. 1 to 5, a 3 bed/4.5 bath/ Ocean Club condo unit, sold for $5 million, although the closing price was $400,000 below the asking price. Fourteen residential deals closed during the period, with most sold for under the asking price as the area real estate market continues to cool off.”
Colorado Biz Magazine. “The news that there are no longer any single-family homes in the Denver area for $300,000 or less is, frankly, horrifying. As the median price for area homes has crept to the $1 million mark, what these two facts together mean is that even a $500,000 home is in a sketchy neighborhood. Trouble is, the state’s smaller towns – Fort Collins, Greeley, Glenwood Springs, Pueblo, you name it – are having their own housing inflation and are quickly becoming unaffordable as well, if they are not already there. I hate to point out the obvious, so I’ll let an old college friend do the honors: he hadn’t been in Colorado since our college days at DU, but on a recent trip here he observed that the Front Range, which used to be distinct cities and towns with farms and ranches in between, is now just one giant metroplex. And not in a good way.”
“Like so many things in a wacky economy that is undergoing a massive and historic alteration – even before the onset of the COVID pandemic – this kind of housing market is simply unsustainable. My own house, according to Zillow, increased in value by 25% each of the last two years—more than 50% in 20 months—and in his environment, I’m not so sure it wouldn’t actually garner another 10% to 20% if it actually hit the market in an over-listing frenzy.”
“That’s a good word for all of this—frenzy. If you look that word up in the dictionary you’ll find it means ‘a temporary madness.’ Hey, you can get away with murder with a ‘temporary madness,’ so just think of the disruption as it applies to housing. Oh, we had it bad 40+ years ago – mortgage interest rates in the mid-teens – but geez!, what’s going on now is insane.”
The Turlock Journal in California. “Thirteen, contrary to popular culture, is a lucky number. Especially when it comes to buyers who barely qualify to purchase a home. It’s because Proposition 13 protects them just as much as it does someone that has resided in the same home for the past 30 years.”
“If you doubt that, let’s take a trip down memory lane with a detour through Manteca’s red-hot resale neighborhood. It’s the one southeast of Woodward Avenue and South Main Street where several homes have closed escrow in excess of $1.1 million in recent months. A similar home located within two blocks to the ones that went for $1.1 million sold three years ago for a tad under $700,000.”
“If Proposition 13 weren’t in place, their property assessment would soar by $400,000 to reflect the most current market value based on the $1.1 million same price of the home located within two blocks. Using the basic property tax rate of 1 percent, the family that bought their house four years ago and stayed put would see their property taxes increase $4,000 since they purchased it instead of $300 in a four-year period.”
“It underscores one indisputable truth that proponents of abolishing Proposition 13 conveniently forget. If you take away Proposition 13 protection there would be literally hundreds of thousands of older people as well as families who aren’t making big buck paychecks who are barely getting by to stay fed and keep a roof over their head thrown out of what is currently affordable housing for them.”
The Toronto Star in Canada. “The first sign was the decrease in the number of showings on our listings. Around mid-April, just after the Bank of Canada increased the prime interest rate by 0.5 per cent — the largest increase in 22 years — I listed a condo in the Upper Beaches neighbourhood of Toronto for $649,000, an entry level price that during the last few years would have attracted dozens of showings and multiple bids on offer night.”
“In the one week this condo was on the market, we had only six showings. However, on offer night three of the agents who showed it submitted offers and the unit sold for $800,000. My client and I felt very lucky to have attracted potential buyers, and the eventual winner, after getting just a handful of showings. I knew this was a sign of things to come.”
“This led to a trend of terminating the listing, then relisting the same house at a higher price. On our Toronto Regional Real Estate Board’s update page, we were seeing more terminated listings than sales. When the homes were relisted, it was common to see the new price anywhere from $200,000 to $500,000 more than the original asking price. A lot of these sellers had already bought another home and needed the proceeds they estimated from their current homes to complete the transaction on their new home.”
“Long closings became a problem too. We also started seeing appraisals conducted for lending institutions coming in much lower than the actual purchase prices. This happened on a property that my team member Jenn Scaife sold to her client. The purchase price was $750,000 in March, but when the home was appraised just before the closing in June, it came in at only $620,000. This left the buyers scrambling to come up with a larger down payment and our mortgage agent being very creative in presenting a new scenario to the lender. The sellers, who had insisted on the long closing, also agreed to reduce the purchase price to make the deal happen.”
“I’m a member of a few realtor Facebook groups where agents were sharing some other harsh realities and fallout from the changing market. Some posted about buyers not being able to close deals and risking losing their deposits because they couldn’t sell their homes to pay for the properties they had bought. Others posted about buyers simply walking away from firm purchases before completion date because they felt they had overpaid in the height of the market. It’s going to be a busy couple of years for litigation lawyers.”
“There are a lot of agents who are still in denial. In some instances, we’re seeing the same old marketing strategies — properties coming on the market underpriced with offer dates set a week later. The majority of these are not selling, and going through the process I mentioned earlier of getting terminated and relisted.”
The Globe and Mail. “The power balance in Canada’s real estate market has tilted toward buyers, but the sellers are actually the ones driving prices down at the moment. ‘Sellers are leading the market decline,’ says John Pasalis, president of Realosophy Realty. ‘They’re starting to price lower than the competition just so they can sell.’ Mr. Pasalis recalled the story of two Toronto buyers he representedwho bid on a small, two-bedroom house in the city’s east end. After some cajoling by Mr. Pasalis, they responded with a counter-offer of $1.15-million. The buyers couldn’t go higher than $1.05-million, so the deal died.”
“One month later, Mr. Pasalis received a call from the listing agent, advising him that the sellers were now willing to sell for $1.05-million. When Mr. Pasalis informed the clients, they were ecstatic. But he also advised them that house prices had declined further during that month. ‘When we looked at the sales, we weren’t as comfortable with that value any more,’ says Mr. Pasalis, who pointed out that slightly nicer houses were now selling for that amount. ‘They agreed with us.’”
“The buyers changed their offer to $999,000. The sellers spurned them again and relisted the house with an asking price of $1.05-million. Meanwhile, the buyers began to see more properties popping up in their price range in the west end, where they preferred to live. Areas that had been too expensive in the past were suddenly within their budget. The east-end house sat for one more month until it finally sold for $920,000. His advice to buyers is to be patient – and a little bit greedy.”
“Demand from investors played an outsized role in pushing up prices during the pandemic, Farah Omran, economist with Bank of Nova Scotia notes, and some speculators have also been quick to exit with interest rates rising. As demand from investors vanished, sales slowed more abruptly than many market watchers expected. At the same time, people with an urgent need to sell may be dragging down prices at the moment. A homeowner who purchased another property without selling an existing home first might feel pressured to secure a deal. Some areas have already seen their markets tumble 20 per cent and may have another 20 to go, she says.”
Stuff New Zealand. “New home build inquiries have declined steeply since last year, and residential construction intentions have plummeted – but the industry expects it will avoid a global financial crisis-style crash this time around. ANZ’s latest business outlook shows residential construction intentions have plummeted to a fresh low, down to a net -73.7% in July from -57.9% in June. The bank’s chief economist, Sharon Zollner, said it was a ‘truly spectacular crash’ in sentiment, and the outlook for house building had hit a brick wall.”
“Building Industry Federation chief executive Julien Leys says the decline in new build inquiries is marked. Some group home builders, which do 50 to 100 home developments, have seen orders drop off the cliff, he says. ‘One builder had 48 homes that people had signed up for, and those buyers have all now walked away from them. That is a huge change in order numbers, and it hits hard. The level of demand has fallen, and an industry slowdown is on the way.’”
The South China Morning Post. “The average vacancy rate in mainland China is 12.1 per cent, according to BRI, meaning millions of empty units could flood the market. Now the property boom is over, the unoccupied homes are beginning to feel like a burden for their anxious owners. Liu Hong and her parents own four homes in different cities across mainline China. At any one time, as many as three of them are unoccupied. The 36-year-old, who works as an auditor in Shanghai, bought a flat in her hometown of Harbin in northern Heilongjiang province 13 years ago for 320,000 yuan (US$47,500). It stands just two blocks away from her parents’ place, which was given to her father for free by the school he taught at three decades ago – a common practice in mainland China at the time.”
“Liu bought herself a two-bedroom apartment in Shanghai for 2.6 million yuan when the market was sizzling in 2015, after deciding to settle down in the city. When both Harbin and Shanghai are too cold, between October and April, her parents travel to Haikou, in southern China’s Hainan province, where they own a small holiday home. ‘It is not easy to find a tenant or buyer in Harbin. So we just leave our old apartments there, empty for years. Theoretically, our family alone has two or three homes no one stays in throughout the year,’ Liu said.”
“The family’s situation is far from unique. By most estimates, there are tens of millions of flats sitting empty in mainland China. The rate translates to some 50 million unoccupied flats. Capital Economics, a research and consultancy firm based in London, would put the number far higher still. It estimated last year that mainland China was host to about 30 million unsold properties, while about 100 million more were likely to have been bought but not occupied.”
“All of this is bad news for Liu and others like her. Homeowners across China may find it difficult to find buyers to take on their empty units as the boom era for the housing market runs out of steam. The fact there are millions of homes gathering dust across the country is beyond doubt. Feng He, 26, a middle-school teacher, said her family owns a three-story, semi-detached house in Kunshan, a city in coastal Jiangsu province, that has been sitting idle since 2017. It is being saved both as a retirement home for her parents and an investment for herself.”
“‘It feels secure to have them, and if any [financial] uncertainty happens in the future, you can exchange the property for money,’ said Feng. As an only child, she believes she will eventually take over all four properties under her family’s name, including the 4 million-yuan luxury house standing empty in Kunshan. For years, people like Liu and Feng and their families worshipped at the altar of property, generally referred to as Zhuan Tou, or bricks, in China, driving home prices up 2.5 times over the past decade alone.”
“They believed it would do no harm to buy an extra home at any time in any place, even if they did not urgently require one. But now the boom time is over, the unused houses are beginning to feel less like a blessing.Liu’s family are struggling to sell one of their vacant units. ‘Our old apartment in Harbin has not received a single inquiry so far this year,’ she said. None of this bodes well for anyone wanting to offload their unused properties. ‘I am a bit worried that the [vacant units] might become a burden one day if we get stuck with these apartments for years and have to pay maintenance fees and tax,’ said Liu.”