It’s Friday desk clearing time for this blogger. “Today iBuyers are the ones getting shafted. Laurie Tayrien and her husband bought a home in Phoenix for $485,000 in November. Only five months earlier, Opendoor had purchased it for $646,800. That’s a 25% loss for the iBuyer.”
“The housing market in Georgetown and across Central Texas took a turn to finish out the year as the cost of homes dropped and for-sale signs sat in the ground longer. ‘There were five homes and 400 people out there shopping for them,’ said Michael Howard, branch manager at Main Street Mortgage in Georgetown. ‘Now we’ve got the opposite, where there are five buyers out there looking and 500 homes to choose from.’”
“Purchases of homes by investors in the U.S. fell by 45.8% year over year in the fourth quarter, according to Redfin. The last time investor purchases dropped so significantly was in 2008. ‘A lot of investors are on hold because they still see home prices declining,’ said Elena Fleck, a Redfin agent based in Palm Beach, Fla.”
“Ponder the second half of home pricing in the last six months of 2022 where 90% of 186 U.S. housing markets had price drops, according to my trusty spreadsheet’s review of stats from the National Association of Realtors. In the second half of the year, the national median sales price was off 8.2%, dropping to $379,000. The worst performance nationwide was a 21.9% drop in the formerly red-hot market of Austin, Texas. San Francisco was next (down 20.6%), then Boulder, Colo. (off 18.6%), San Jose (down 17%) and Spokane, Wash., (off 15%).”
“In fact, 13% of these 186 markets had double-digit price drops. Think of the folks who bought early in 2022 in these markets. They’ve lost significant equity in their new home. But the home sales industry is often shy about discussing price cuts. That’s too bad. More widespread admissions that prices are down would likely increase demand from folks who think ownership dreams are hopeless. Also, an increased acknowledgment of recent depreciation might get potential sellers to be more realistic about pricing their sought-after homes. Sadly, I fear, too much emphasis is put on ownership’s investment potential. So, talking up price cuts might scare away folks looking at a home’s wealth-creation prospects.”
“Whatcom County‘s median home sale price fluctuated wildly throughout January, with median home sale prices changing by almost $150,000 in a two-week span. December’s median home sale price was $544,950 on Dec. 19 and skyrocketed to $682,000 in just two weeks on Jan. 2, according to Redfin. Whatcom’s median home sale prices dropped back down in January to $515,000 on Jan. 23., a $167,000 drop in three weeks. Across Washington state, home prices have decreased by 12.8% between June and December, as December reached a median home value price of $552,200, according to RedFin.”
“The median sales price for Maui County single-family homes in January was $1.2 million, a 0.4% increase from the same month last year, according to the Realtors Association of Maui. Meanwhile, Oʻahu’s median sales price decreased nearly 8% to $970,000, Kauaʻi dropped about 14% to $809,500. Maui County median sales prices for condominiums last month decreased nearly 8% to $657,500. O’ahu fell about 3% to $495,000.”
“Fernanda Santos and Gustavo Pereira of London, Ont., knew the housing market was wildly overpriced in March 2022, but felt pressured to become owners, so they bought a three-bedroom home in the east end for $730,000. ‘Everybody said to us you should buy as soon as you can — doesn’t matter if you like it or not, just buy and get into the market,’ Santos, 34, recalled. Today, they’re sitting on a mortgage with a variable rate (currently at 5.6 per cent) on a house that has fallen in value by an estimated $150,000, and paying $4,400 a month — $1,600 more than they had anticipated. ‘That’s not what we dreamed about,’ said Santos. ‘It’s just been a nightmare for us.’”
“As well, housing prices have dropped considerably since the couple bought their home. In fact, sales in January were the lowest for that month since 2009, down 37.1 per cent compared with a year ago, the Canadian Real Estate Association said this week. On the weekends, the couple’s work isn’t done. Both drive for UberEats and Instacart in an effort to offset their bills. ‘When you have like 60 per cent of your full income going toward your mortgage, you pretty much don’t have anything left, plus we have to eat, right?’ said Santos.”
“‘At present, the market has yet to reach its pricing bottom, but it is forming one, which is likely to appear in 2023,’ said Nguyen Thi Bich Ngoc, general director of Sen Vang Group.This year cash flow has been an issue for the real estate market, as many companies are relying mainly on borrowed money, and the market has yet to witness any major merger and acquisition deals. According to Giap Van Kiem, chairman of AVLand Group, when the market entered a difficult period, many investors hit troubles due to the recent land fever in many areas. At this stage, they need to be brave enough to cut losses to protect capital and find profitable opportunities, instead of trying to wait for prices to increase.”
“While land plots are of interest to many, high profits often come with great risks. Therefore, investors need to determine the market sentiment in advance and boldly cut losses to minimise the damages, according to Kiem. ‘If you don’t want to get stuck, you have to reduce the burden and incur fewer losses. Therefore, those who have invested at the top of the cycle should cut their losses as quickly as possible to find new opportunities,’ Kiem stressed.”
“In its marketing materials, Tonu Civil Construction described owner/director Sullivan Halaifonua as its secret weapon. ‘Although he established Tonu Civil only two years ago to fulfil a dream, Sullivan has been in the industry all his adult life,’ one article said. ‘His ability to develop and maintain strong personal and working relationships with clients is legendary. He believes clients should be able to have what they want at a reasonable cost and is constantly looking at ways Tonu can offer reduced prices.’”
“In the end though, he admits he reduced prices too far. The dream turned to a nightmare. By early this year Tonu, which did groundworks and laid pipes and culverts for residential developers in Canterbury, was insolvent. Before calling in the liquidators two weeks ago, Halaifonua reluctantly laid off his staff – at least they wouldn’t be left out of pocket.”
“The likes of Fletcher Concrete, Placemakers, Cirtex Industries, Commercial Vehicle Holdings and A1 Diggers had placed securities over the goods they’d supplied. There’s another $40,000 owed to Inland Revenue. Others aren’t so fortunate: there is $600,000 owed to unsecured creditors. Liquidator Brenton Hunt quickly discovered that some projects in recent months had run at a deficit, which had caused stress on the working capital of the company; a number of trade creditors had the company on stop credit. It’s an increasingly familiar story.”
“On Ryecotes Mead, a cul-de-sac in a south London suburb, there is a three-bedroom flat available as a leasehold that encapsulates the current condition of the British housing market. Trudi, the estate agent, opens the door with a tight smile. ‘You could rent it out to someone with an expensive car,’ says Trudi, extending her arms into the space.”
“In 2002, you could buy a place on Ryecotes Mead for £200,000. Now, the owners want a cool million ($1.74 million). Somehow, just by existing, this flat has spent two decades making more money than the average worker. Last year, lender Halifax offered the cheapest mortgage ever, fixed at 0.83 per cent for two years. But to borrow the same amount today would cost (at the 4.95 per cent Halifax now offers for a two-year fixed) an extra £4916 a year.”
“A young woman from Manchester – the archetypal first-time buyer, the person on whom the whole edifice of housing wealth depends – told BBC Question Time and the country she was being quoted an interest rate of 10.5 per cent for a mortgage. The audience moaned as if witnessing a physical injury.”
“The same is happening across the world, as central bankers make borrowing more expensive in an attempt to curb inflation. In Sweden – where the government is much less active in its support of the market than in the UK – house prices have fallen 17 per cent from last year’s peak.”
“The housing market is hard to predict. Ben Bernanke, as economic adviser to George W. Bush, told Congress in 2005 there was ‘no bubble to burst’ in the US housing market; in 2008, as chairman of the Federal Reserve, he predicted that problems in the sub-prime mortgage sector would be ‘limited,’ and have no effect on the wider US economy.”
“But Britain’s property boom is different; almost everyone involved knows that it is a mass exercise in self-deception, our economy’s biggest lie. Real wages have hardly risen for more than 20 years – and the pensions of today’s workers are mostly paper-thin – but the dizzying rise of the property market has offered a substitute for economic growth. It was a substitute people accepted because it seemed permanent: the expensive house that sucked up a lifetime’s wages became the savings account, the pension, the inheritance. That wealth is now beginning to dissolve.”
“This is reality of the post-2008 economy, where houses have become financial assets rather than goods. The simple laws of supply and demand have ceased to apply, and people have been incentivised to keep an expensive property because it’s their biggest and most dependable asset. In an era of stagnant real wages, the house has become the bank.”