A report from News for Jax in Florida. “Jonathan Daugherty, a realtor in St. Johns County, said housing fallout is leading to better deals. The future homeowner can no longer afford the home, and in some cases, the buyer is losing their down payment, too. ‘Through no fault of the builder and no fault of the buyer, the transaction can’t happen,’ Daugherty said.”
“But the house still needs to be sold. The banks want the money they gave builders in advance to construct the home. The home goes back on the market in hopes of being sold at a lower price to a new buyer. Daugherty said a home that was originally $500,000 is now selling near $475,000, creating an opportunity to for a new homeowner — if they can afford the higher interest rates.”
The Coeur d’Alene Press in Idaho. “There are far more homes on the market compared to a year ago. Active residential listings as of Oct. 5 totaled 1,014, nearly double the 544 Oct. 13, 2021. The days of homes receiving multiple offers over listing price are gone. Lindsay Allen, president of the Coeur d’Alene Regional Realtors, said the local real estate market ‘is on the leading edge of the market cool down. Most of the cities that saw a big boom during COVID are seeing the cool down first. Cd’A has been on this trajectory for a few months now.’ She said price reductions, cancellations and terminated transactions are up.”
“But Allen said, ‘Homes that are priced aggressively and are well-maintained are still selling in a traditionally small amount of time. Sellers and agents must be really careful to not overprice things now or you’ll be chasing the market.’ She expects housing prices will continue to decline. ‘We can’t have high rates and high prices,’ Allen said.”
NBC New York. “Home prices in the Big Apple remain some of the highest in the country, but new figures on the state of the market show a shift in the city’s priciest neighborhoods, including one that saw a drop in sale prices by nearly 50 percent. Tucked away below Prospect Park, Brooklyn’s Fiske Terrace might be unfamiliar to even some living in the city, but the enclave boasts some of the highest average home prices in the city. In the span of just one year, the neighborhood sank in median price from $1.65 million to $905,000.”
The Modesto Bee. “The California Association of Realtors reports the median sale price (meaning half the homes sold for more and half for less) at $445,000 for single-family homes in the Modesto area this September. That is down from $460,000 in August. In San Joaquin County, September’s median home sale price was $515,000, a drop of some $45,000 from the pandemic high point of $560,000 in May this year, or about an 8% decrease in prices. In Merced County, September’s median home sale price was $377,000, a dip of some $37,250 from their pandemic high point of $414,250 in May of this year, or about a 9% decrease.”
“Across California, the statewide median selling price for a single-family home was $821,680 in September, down from this year’s peak median statewide sale price of $900,170 from this May.”
The Reporter Herald in Colorado. “University Flats, a 262-bed student-housing complex at 1758 Sixth Ave., has been ordered by a Weld County District Court judge into receivership after lawsuits against the property owner that alleged loan defaults and mechanics liens. In an order dated Oct. 24, Judge Shannon Lyons ordered that Nelson Partners LLC, the owners of the property through the affiliate Greeley Land LLC, turn the complex over to a receiver “to protect the value of the Real Property and to market and sell the Real Property to satisfy the claims of creditors with respect to the Real Property.”
“In her order, Lyons wrote that while University Flats is about 90% leased, Nelson had failed to make payments to any of its creditors for the property.”
From WSYX in Ohio. “Two Columbus towers plagued with problems could be taken out of the hands of current owners. This comes as current tenants claim they’re being subjected to intimidation for speaking out against what they call unsafe and unlivable conditions on the property. In a new foreclosure complaint filed against current owners last week, lender Lument Commercial Mortgage Trust shared a link to the Problem Solvers’ investigation. The suit states, ‘This ownership group has not only screwed over the residents who live in (the former) Sawyer Towers, they’re also not paying their mortgage,’ City Attorney Zach Klein told Problem Solvers.”
From Bisnow. “Residential investment subtracted 1.37 percentage points from GDP growth, the largest drag since 2007. ‘Residential investment declined for the sixth straight quarter, and by the most since the second quarter of 2020, and was attributed to residential construction and broker commissions,’ Mortgage Bankers Association Chief Economist Joel Kan said. The biggest current issue for the industry in the near term is the cost and availability of debt, said MSCI Chief Economist-Real Assets Jim Costello. ‘Take away 60% of the capital stack and you are going to have a bad day,’ Costello said. ‘It isn’t that bad yet, but everyone I talk with is concerned about financing.’”
Bisnow Boston on Massachusetts. “Higher interest rates and economic volatility are leading to a slowdown in new construction projects in Greater Boston, developers say. ‘The hope is that these headwinds can at least reduce the pricing on the new acquisition side and land side, and I know some people who have overleveraged in their portfolios and got rid of some things,’ said Richard Taylor, managing partner at Nubian Square Development. ‘You might be able to pick up some things that otherwise were not available.’”
“Samuels & Associates President Joel Sklar said Boston has had one of the hottest markets for development in the past 10 years. Sklar said construction and land costs have made it harder for site selection and development even though the market has seen a lot of activity. ‘It’s been a challenge to get to green lights on deals because of the cost,’ Sklar said. ‘If someone handed me a project that was ready to go and I had to close on it, I don’t think that’s happening.’”
“Brian Salyards, executive director at PGIM Real Estate Finance, said lenders have become more conservative as costs have risen. ‘It’s getting more and more challenging to get conviction behind some of those deals that are trying to get done,’ Salyards said. ‘Next year, we are gonna do a lot of fishing and golfing.’”
The Baltimore Fishbowl in Maryland. “Developers have shelved plans to build a four-story addition to the Harbor Hill Apartments in Federal Hill, citing ‘market conditions’ as the reason for not moving ahead. Owners of the apartment building at 301 Warren Ave. notified residents that they won’t be proceeding as previously scheduled with work on an expansion that would have been constructed on a parking lot they own. It’s a potential sign that south Baltimore’s hot rental housing market, which has seen hundreds of apartments created in recent years, may be cooling off.”
“In recent months, rising interest rates and supply chain disruptions have prompted some developers to rethink construction plans. Analysts have also raised questions about the potential glut of market-rate apartments in Baltimore and asked where all the renters are coming from. At the same time, other developers are announcing plans to build still more apartments in south Baltimore.”
Hawaii Real Estate Dreams. “The dramatic news in Kona sales for September is the extreme drop-off in cash closings. Only 31% compared to 49% last month and that was low against previous months that had been running in the 50’s. Cash is a trailing indicator of a market that is losing confidence. In the first quarter, we did not have one sale between $900k and a million. We did have 15 sales between $1 million and $1.2 million. In the third quarter things had changed. We had 15 sales in the $900K to $1 million range, and only 8 sales in the $1 million to $1.2 million range… so a significant shift to back under a million, at least in houses of this caliber.”
“House sales for the year are at 188 total compared to 315 this time last year, a 42% drop! Condos are down in sales by 32%.”
From Bloomberg. “Real estate lender Romspen Investment Corp. has cut back on its dealmaking in Canada after rising interest rates caused a spike in non-performing loans. The firm, backed by New York-based TIG Advisors, is acting ‘defensively’ to match the current economic environment in the country, Romspen Managing Partner Derek Jenkin said in an interview. ‘We’re being very selective in what we finance at this time in Canada.’”
“Romspen is one of Canada’s largest specialty managers of private mortgage funds, providing pre-development, construction and other loans for commercial and residential projects. As of June 30, the assets of its flagship Romspen Mortgage Investment Fund were divided almost evenly between Canadian and US loans. Almost all of its loans have terms of two years or less, but the number of borrowers that stopped making interest payments spiked in recent months. Non-performing loans are in the ‘ballpark’ of 40%, Jenkin said, above the fund’s typical range of 20% to 25%.”
“Financial stress for developers has forced Romspen to limit the cash investors can pull from the flagship fund. ‘The fund has honored over C$700 million of redemptions over the past 18 months,’ the firm told unitholders in a letter. To preserve liquidity, the firm created a ‘runoff pool’ for investors who want to get their money out; Romspen will funnel cash to that vehicle as loans are repaid or properties are sold. It’s a similar approach to the one it adopted during the early months of the pandemic and the 2008 financial crisis.”
“Real estate deals will take many months longer to close, creating a ‘ripple effect’ for developers and lenders, Jenkin said. Romspen’s borrowers have sought to increase their loan amounts up to the negotiated ceiling so they can continue their projects, he said.”
The Globe and Mail. “It seemed inevitable. The fifty basis point rate hike by the Bank of Canada might have surprised those who expected a larger increase. Still, it has a lot of people perplexed. Some are even angry. What hasn’t been talked about as much, however, is what impact the unco-ordinated and simultaneous rate hikes by central banks around the world could have on global financial and currency markets. In a tightly knit global financial system, what might be the impact of all of these central banks slamming on their monetary brakes at the same time? Could there be a negative feedback loop at work, with well-intended monetary policy actions having unintended impacts on a larger scale?”
“Financial crises, like the mortgage-induced one in 2008, are unpredictable. If we were able to predict them, they wouldn’t happen. Looking back on it, all of the ingredients of a crisis were present: an over-leveraged market, reckless lending and questionable practices within the shadow banking system. And when the trigger was pulled, the entire global economy was flung into panic. In the wake of every financial crisis, the refrain rings out: we should have seen this coming!”
The Jamaica Observer. “In the last decade Government policies of easy money, reduced taxes, lax regulations and a relentless drive to transfer public funds to private developers have caused house prices, which bear no real relationship to the decline in the rest of the economy, to rise to heights never before reached — in effect creating a bubble. And as household debt skyrocketed, financial sector profits exploded and economic growth remained anaemic, fortune-seekers, margin-gatherers and sundry other hustlers and scofflaws joined in the mad rush for gold. Like sharks in a feeding frenzy, they came to the feast armed with earthmovers, backhoes and front-end loaders. Pristine beauty was soon replaced with garish monstrosities of concrete and steel.”
“This increased exposure, which places the financial system at enormous risk, is reflective of the greater appetite of obligatory brood parasites for the type of lending which crowds out investment in the real economy, stifles growth, imposes a drag on socio-economic development, and foments social unrest. Almost all the metrics used by the BOJ — level of household indebtedness, loan quality and the capacity of households to service debt — show that at its current level and cost, household debt is unsustainable. Interestingly, both the IMF and the central bank tell us that public debt is sustainable.”
“But now as inflation becomes unhinged, money tightens, the buying power of borrowers collapses, the economy descends into a state of stagflation and anomie takes hold in the society, house prices have begun to fall. The excesses and iniquities of the real estate/industrial complex are being exposed, investors are melting away, and promises are turning to dust. Speculators are fleeing to safety and yield-seekers have flown north.”
“There is a lot of room in the building but neither bed nor breakfast is being had. Scores of luxury apartments and townhouses lie empty, the product of venal politicians overdosed on market ideology and seduced by the siren songs of property developers — even when investors have started to realise that they have bought into a mirage, and that their overpriced Khrushchyovkas have brought them little satisfaction and even less income.”
“Soon, pretty soon, it will be made clear to many, as prices plunge, that their equity is negative; few will be willing and able to buy; and the crumbling totems of hubris, greed and folly will become scars on the once-joyful hills. Financial distress will set in, confidence will be shattered, and a bailout demanded.”
“In its 2020 financial stability report the BOJ published the results of its ’empirical assessment of a housing price bubble’ which, according to it, may be said to exist when ‘excessive public expectations of future price increases cause prices to be temporarily elevated’: or when ‘housing prices grow faster than the fundamentals [of the economy] can explain.’ While concluding that there was no evidence of a bubble in housing market prices ‘at that time,’ the bank issued a warning that, ‘given the deterioration in macroeconomic conditions, prices in the housing market expected to soften in the near term.’ This ‘softening,’ the bank noted, was consistent with the statistical evidence of a fall-off in prices in Kingston and St Andrew due to the novel coronavirus pandemic.”