A report from Yahoo Finance. “Personal finance expert Suze Orman thinks the housing market holds promise for U.S. consumers even though she says ‘the tables have turned a little.’ ‘You’re not going to see a house go on the market, again, in my opinion, and get 30 offers over the asking price,’ Orman said. ‘I think now maybe you’ll see three, four offers — maybe you have to lower your asking price a little bit.’”
The Review Journal. “Following a prolonged hot streak, Las Vegas’ housing market is hitting the brakes. Sales are down, available inventory is up, and more sellers are slashing their prices amid a sharp jump in mortgage rates that have pushed up buyers’ borrowing costs. Builders logged 767 net home sales — new purchase contracts minus cancellations — in Southern Nevada in May, down 16 percent from April during the typically busy spring buying season, according to Las Vegas-based Home Builders Research. The monthly sales tally in May was the lowest of the year, the firm reported.”
“‘A sharp pullback in sales is the latest evidence that waning home affordability is forcing the housing market to pump the brakes,’ said Nicole Bachaud, economist at Zillow. A key question for Las Vegas is where home values will head. Following the buying binge of the past year-plus, plenty of people are likely wondering what their house will be worth a year or two from now. Your guess is as good as mine.”
The Coeur d’Alene Press in Idaho. “It might be because of the interest rates. It might be because of the inventory. It might even be because of ‘Top Gun: Maverick.’ OK, home prices in North Idaho have nothing to do with a smash-hit Tom Cruise blockbuster. The other things, however, factor into the area’s recent rush on price reductions. As noted in our fall miniseries, ‘Price-cut-a-palooza,’ a price reduction rarely means something is “wrong” with a property. In some cases, the home may have been priced just a bit high to begin with, which some agents do on purpose to gauge market interest. Any one of the listings mentioned here could be a viable ‘forever home’ for the right buyer (only now with a lower price than a couple weeks ago!).”
“This week, we examine midtown Coeur d’Alene, south of Interstate 90 on both sides of Government Way, and inching toward downtown. This includes a few options near the Ponderosa Springs Golf Course. Close to the course (but closer to 15th Street are three price drops in more of the starter home category. One is an updated duplex with both units for sale together at just under $600,000, down $26,000. There’s also two single family homes in the area, each with two bedrooms and around 1,000-1,100 square feet. One dropped $25,000 to $325,000 last week, while the other older home, now with some recently added updates, comes to $395,000 after a $30,000 price cut last week.”
“We could keep listing new price cuts, but for now we’ll close on a pocket of price drops in midtown just off Fourth Street and near Interstate 90 access. The smallest home, a two-bedroom with 900 square feet, dropped $15K to $350,000. Two more homes in the neighborhood, each three bedrooms and around 1,700 square feet, dropped $15K to $410,000 and $10K to $440,000, respectively. Finally, a charming three-bedroom, 1,800-square-foot home recently dropped nearly $50,000 to $520,000.”
The Gilbert Sun News in Arizona. “The race to balance is well underway in the Valley with many homeowners asking what might happen to the equity that they’ve built up in their home. Meanwhile, buyers are pleasantly surprised by the increase in inventory and the potential to negotiate and we find both parties trying to establish their footing as seller’s hang on to the fact that there still are not enough houses for everyone who wants one.”
“We’ve watched closely as inventory has risen over the last two months due in part to buyer demand falling and in part due to new listings coming to the market at an increasingly rapid pace and have seen declining sales volume, increased number of price reductions, listing cancellations and expirations, increased days inventory, and the flattening of active list price dollar per square foot.”
“Here in Gilbert, we’re seeing about three times the inventory we saw last quarter and about 30% more inventory than we saw two years ago.”
The Mountain Democrat. “The country is headed into a recession, according to a recent survey of 49 economists by Financial Times, and the California Association of Realtors is actively promoting a seminar for agents titled, ‘How to survive the coming real estate market crash.’”
The Globe and Mail. “An obscure feature of variable-rate mortgages may push up the monthly payments for an increasing number of borrowers. It’s called the ‘trigger rate’ – the interest rate level that, when surpassed, causes a mortgage holder’s monthly payments to change. The trigger rate has been largely ignored for decades, because the last time Canadians had to deal with fast-rising rates was the late 1970s. But that is changing. ‘This trigger rate, once reached, causes the bank to do a check-in with the client to advise adjustments need to be made to the payments to keep it on track,’ said Frances Hinojosa, co-founder of mortgage brokerage Tribe Financial Group. ‘This could be a variation of either a lump-sum payment or adjustments to their mortgage payment.’”
“In today’s rising interest-rate environment, less and less is going to principal. Because the monthly payment remains the same, the lender will lengthen the time it takes to repay the loan. When the amortization exceeds the maximum period, or if the monthly payment amount does not cover the interest, then the lender must increase the monthly amount.”
“Big Canadian lenders, including Royal Bank and Toronto-Dominion Bank, say they are working on strategies with their borrowers. TD spokesperson Mohammed Nakhooda said the bank ensures that their variable-rate borrowers are ‘paying down principal no matter where rates go.’”
From CTV News. “Real estate prices have already started to soften amid an aggressive interest rate tightening cycle being taken by the Bank of Canada. Urbanation President Shaun Hildebrand said that Toronto has been in the midst of a ‘condo boom’ for some time, so overall supply should remain strong with about 87,000 units currently under construction and 33,000 more in the pre-construction stage.”
“But he warned that there will be some ‘collateral damage’ due to the fact that ‘costs are rising very quickly at a time that prices are starting to soften.’ In that case he said that buyers will be entitled to have their deposits returned to them under Ontario law, but not necessarily with appreciation. ‘Unfortunately, it could be years between when that deposit is paid and when they actually get their money back and in the interim prices could have escalated quite a bit and they are not usually able to get that appreciation from that deposit, which in some cases shoves the purchasers out of the market,’ he said.”
From Bisnow London. “The years between 2013 and 2017 in the global commercial real estate market were, in large part, defined by the waves of capital pouring into the world’s gateway cities from China. When Chinese real estate firms placed billions in huge bets on trophy office assets and luxury residential developments in London, New York, Los Angeles and San Francisco, it wasn’t just a big deal for real estate. Like many of the deals signed in that era, ABP’s investment has gone sour. The first 700K SF phase of that scheme has been built and lies empty. ABP’s lender foreclosed on a £98M loan and put the 21 empty offices into receivership.”
“It is just one of myriad examples of big purchase and development schemes undertaken by Chinese firms between 2013 and 2017 that have hit the rocks recently. Lenders have foreclosed on loans and taken back some projects, while other Chinese firms have sold assets at a loss or seen big developments go billions of dollars over budget.”
“More than five years after those controls were put in place, as new deals have largely dried up, the deals from the era of frenzy continue to plague the developers who made them, resulting in astronomical losses. A canary in the coal mine was the 2019 sale by conglomerate HNA of two London office assets for well below the price it paid just a few years earlier. Those sales both closed before the pandemic, when the London office market was still healthy and robust.”
“Chinese developer Oceanwide earlier this year lost control of a site where it planned a supertall luxury residential tower in lower Manhattan following a debt default. Lenders also took over the company’s stalled, semi-complete project in the heart of San Francisco. The Oceanwide Center was supposed to be the city’s second-tallest skyscraper, but it currently sits as an abandoned construction site.”
“There are many other examples, and in many ways this is a story that real estate in the UK and U.S. has seen before; overseas investors going big into a market and getting their fingers burned is a regular part of the real estate cycle. ‘There are a lot of reasons that explain why these investors are the first to get toasted when the cycle moves the other way,’ said Colin Lau, the founder of Hong Kong-based Bei Capital.”
From ABC News in Australia. “Sarah Ibrahim is worried about what will happen when her fixed rate ends in January. Ms Ibrahim and her partner took on a home loan of more than $1.5 million in Sydney, with a deposit of 10 per cent. They are among almost 40 per cent of Australians with mortgages who have locked in ultra-low fixed rates and will roll off them as soon as next year, and potentially face a world of financial pain. ‘We fixed the majority of our mortgage for two years, and we assumed that in the next few years, they wouldn’t really go up much,’ Ms Ibrahim told ABC News.”
“She and her husband had been saving for a deposit for years and finally broke into the Sydney property market at the end of 2019. ‘It took us years of going to auctions, it took us years of going to inspections, and years of savings, and a lot of bulk shopping and buying second-hand clothes and not buying certain things. Sacrifices were made,’ she said.”
“Ms Ibrahim says she relied on repeated statements from the Reserve Bank that interest rates would not go up until 2024. But now the RBA has stated that the cash rate will lift to 2.5 per cent and possibly more, until it can get inflation down within its target band of 2 to 3 per cent.”
“For Ms Ibrahim and her family that means a rise of almost $20,000 a year on their mortgage repayments. ‘That has been really anxiety-inducing — to think that interest rates will go up by that much and that we would have to try to weather such a large increase at a time when there [are] obviously other upward pressures in relation to the cost of living,’ Ms Ibrahim said. ‘It’s been really stressful thinking about that and thinking about how we’re going to manage such a loan.’”
“Financial counsellors are worried that with more people coming off fixed rates and variable rates heading above 5 per cent, more people will default on their home loans. Financial Counselling Australia chief executive Fiona Guthrie said ‘a lot of people have borrowed to the hilt’ and she is shocked banks have been letting people borrow six or more times their incomes with very low deposits.”
“Ms Guthrie said they are already seeing signs of people in financial stress and that is set to worsen under higher interest rates. ‘We’ve also got [the cost of] petrol going up, the cost of food going up, the cost of electricity [rising], so all of those factors are playing into what could be quite serious financial problems for a group of people in our community,’ she said. ‘People are going to have to tighten their belts, and sometimes quite substantially. And we are particularly worried that for some people, it might be enough to tip them over the edge so that they can’t pay their mortgage.’”