A weekend topic starting with the Columbus Dispatch in Ohio. “The people behind the Issue 7 green-energy initiative on Tuesday’s ballot have remained largely secretive. Two of their leaders have been mired in major personal financial problems that have dogged them for the past 14 years. John A. Clarke Jr. and his wife, Irene Gil-Llamas, the married couple who are the key players behind the ballot measure, filed an unsuccessful multimillion-dollar bankruptcy during the 2007 housing crash. In September 2020, the couple took out a $500,000 line of credit on their home, records show. That’s almost the entire $503,800 value that the Franklin County Auditor’s office places on the 121-year-old house.”
From KSL on Utah. “The latest housing data shows the median-priced home in Utah’s most populated county increased to $550,000 in the third quarter of 2021. That’s a new high — and a 28% jump from the median price of $430,000 in the same time period from 2020. But the number of home sales has plummeted by double-digit percentages. That indicates Utah’s market has ‘stabilized,’ from the ‘big feeding frenzy’ of 2020, said Matt Ulrich, president of the Salt Lake Board of Realtors.”
“‘For buyers, for sellers, for agents it was just nuts. It was chaos,’ Ulrich said of 2020. ‘Now, it’s normalizing. It’s stabilizing.’ Ulrich called the market of 2021 more ‘maintainable’ than 2020’s. ‘Nobody wants to see prices going up 25%.’”
The San Tan Sun News in Arizona. “The Cromford Report, which closely tracks the housing market in Maricopa and Pinal counties, reported last week that listings have risen above 8,000 for the first time in more than nine months. One of the more startling finds by Cromford in recent weeks shows how iBuyers have surged as a market force, commanding more than a third of the the Valley’s inventory of homes for sale.”
“Cromford also indicated that investors have found a version of ‘flipping’ with new builds. ‘We are seeing many examples of brand-new homes being re-sold at much higher prices shortly after their initial purchase,’ it reported. ‘One specialist investor has resold a dozen new homes for a profit of more than $600,000. We can expect more developers imposing contract terms to try to prevent this in future.’ For now, though, ‘the fact that developer prices are usually fixed at contract signing is limiting their ability to sell at market price.’”
“While the median sale price for re-sale homes was $415,000 in September – up 26 percent from a year ago – the new home median price was $412,000 – only 11 percent higher than September 2020.”
From Business Insider. “Zillow has listed a staggering 93% of the hundreds of Phoenix homes it owns at a loss.”
The Herald Review in Arizona. “Like most of the country in the middle of a nationwide real estate boom, Cochise County real estate has been on a skyrocketing tear for the last year. With selling prices of nearly two dozen single family homes and agricultural land in the last two weeks of October fetching prices of more than $400,000 — along with several soaring upward to $7 million— the county’s real estate market doesn’t seem to be slowing down anytime soon.”
“According to the Cochise County Recorder’s website, 16 single family residences in Sierra Vista sold in October for well more than $300,000, and five were purchased for more than $400,000. Two homes fetched $615,000.”
“Rural communities like Willcox and most notably, Hereford, have seen explosive sales figures on single family residences and land. As of Oct. 25, 12 of 24 properties sold in Hereford this month fetched between $400,000 and $3 million, while the ranching community of Willcox in the Sulfur Springs Valley has seen single family homes sell for $600,000.”
The Charleston Business Journal in South Carolina. “Paul Ryll said he and other appraisers in the Upstate have been overwhelmed with appraisal orders since at least May or June 2020. At first, it was home loan refinancing that created a surge in his business. ‘People could basically sit at home and apply online, do most of the refinancing work at their computer,’ he said. ‘With everyone being home so much more and interest rates being so low, we saw a big increase in refi appraisals at the beginning of the lockdowns.’”
“Ryll has developed an online software platform that aims to streamline the appraisal process. During the pandemic, many lenders allowed more desktop appraisals, which means an appraiser is not required to do an on-site inspection, but can accept photos and data from a real estate agent or home inspector to begin the appraisal process.”
“He said appraisers were reluctant in the past to accept data from third parties not specifically trained to take those measurements because the appraiser was still liable for any mistakes made. But new language in federal lending guidelines has now passed that liability to the data collector, so certified appraisers have more protection in that regard.”
The New England Real Estate Journal. “The Mass. Association of Realtors (MAR) notes in an August 2021 press release: ‘Median sale prices continue to drop, but remain higher than the year’s previous data shows.’ The Warren Group CEO states: ‘prices have gotten higher than a lot of people can afford. Increasingly the people who can afford to buy have already done so and the rest are ready to give up on home shopping.’ The above signals, along with other indicators, that some price leveling off may be occurring. There are certainly enough buyers that have purchased at the market’s very tip to cause concern if markets begin to cool off more meaningfully.”
“A recent Wall Street Journal article (Soaring Home Prices are Roiling Appraisals and Upending Sales) notes: ‘An unusually high number of homes across the country are being appraised below their agreed-upon sales prices, causing a number of deals to collapse.’ A seller is quoted in the article as saying: ‘This whole appraisal process, it’s just so subjective.’ [this quote just had to be included!] A chief appraiser notes that within recent memory, there isn’t a time when there have been so many buyers who are willing to pay so much more than what the market data indicates.”
From NBC Los Angeles in California. “One Orange County real estate company owner has agreed to plead guilty and another has been indicted in connection with what federal prosecutors Friday said was a Ponzi scheme revolving around a property-flipping investment plan. Brett Reed Barber, 42, of Costa Mesa was arraigned following his arrest Thursday and is expected to be released from custody Friday, said Thom Mrozek, a spokesman for the U.S. Attorney’s Office. A trial date has been set for Dec. 21. Louis Alfonso Zimmerle, 62, of Sacramento, has agreed in a plea deal filed Thursday to admit to a felony count of wire fraud, according to Mrozek.”
“The two raised at least $13.5 million from about 105 investors since June 2019, according to the SEC. The two promised annual returns on their investment of 10%, with Barber accused of assuring them ‘that their investments were safe and the returns guaranteed,’ the SEC alleged.”
“‘Since BNZ’s inception, however, BNZ has not been profitable because its investments — when Barber and Zimmerle actually made investments — have not generated enough profit to return investor principal and pay the promised returns,’ according to the SEC. ‘In fact, from June 2019 through February 2020, defendants raised $6.9 million from investors, but invested only $2.7 million and generated less than $5,000 in profits from those investments.”’
“The two are accused of taking in investor cash to repay other investors in a Ponzi scheme, prosecutors said. After March of last year, they raised $6.6 million more while ‘misleading investors about BNZ’s profitability, and continuing to make Ponzi-like payments to investors and lavish payments to themselves,’ the SEC alleged.”
From Reuters. “Australia’s central bank on Friday lost all control of the yield target key to its stimulus policy as bonds suffered their biggest shellacking in decades and markets howled for rate hikes as soon as April. Scenting capitulation, speculators sent the yield sky-rocketing to 0.75% while yields on three-year bonds recorded their biggest monthly increase since 1994.”
“All eyes were now on the RBA’s policy meeting on Nov.2 where investors were wagering it would call time on yield curve control (YCC) and its guidance of no rate rises until 2024. ‘The only conclusion we can draw is that the YCC regime is about to be formally dumped at next week’s meeting,’ said Ben Jarman, a rate strategist at JPMorgan. ‘If so this is a startling about-face,’ he added.”
From DMSA Deutsche Markt Screening Agentur. “For the second time in a week, China Evergrande Group has apparently technically defaulted on interest payments to international investors. This further manifests the bankruptcy of the real estate developer. The real estate group has accumulated a mountain of debt totaling $305 billion. In the eight weeks to the end of the year alone, nearly $338 million in interest will be due. Should the Evergrande insolvency not only drag down China’s real estate sector, but the entire economy of the country, we will see even bankruptcies of major international banks – such as HSBC, fears DMSA senior analyst Dr. Marco Metzler.”
“Today, the grace period for overdue interest of $47.5 million on an off-shore bond issued by the second largest real estate developer in China ended. But there has been no official confirmation of any payment of that interest by the close of business at Hong Kong banks. There are only unconfirmed media reports about an interest payment that is said to have been instructed today. However, Evergrande has not officially confirmed this payment yet. No wonder, for example, that a recent report in the Financial Times today doubts that the money has actually paid to creditors. ‘This is basically the same game as a week ago,’ notes DMSA senior analyst Dr. Marco Metzler.”
“‘Thus, the bankruptcy has apparently already technically occurred,’ analyzes Metzler. The developer had already previously given no more information on whether it can still avoid a payment default. Efforts to raise further capital have also largely failed. For example, the plan to sell a majority stake in its real estate management subsidiary.”
“A study by rating agency Standard & Poor’s dated Oct. 27, 2021, shows that China’s real estate developers alone are due to redeem paper with a face value of $40 billion by the end of the year. According to a study by Goldman Sachs, the foreign debts of Chinese real estate developers total around 197 billion US dollars.”
“‘Given such volumes and the low creditworthiness of many Chinese real estate developers, it is to be expected that interest and redemption of the international bonds issued by Chinese real estate developers will almost completely default,’ warns Metzler. ‘Especially since there are hardly any possibilities to collect the debts in China.’”
“But it may not stop at $22.5 billion in write-downs. If one also considers the limited possibilities of international banks to access assets in China (see above), there is much more at stake for HSBC: the default of the entire portfolio of Chinese corporate loans. And that, after all, is worth around $196 billion.”
“‘Such immense lending to Chinese companies, without a guaranteed possibility of accessing collateral in China itself in the event of bankruptcy, is irresponsible in my view,’ says financial expert Metzler. With a return of five percent, HSBC would have to write off around 186 billion dollars in this case. That would correspond to almost the entire equity capital of the bank. And would probably lead immediately to its bankruptcy. This would make HSBC a victim of the Chinese financial virus, which would then spread rapidly throughout the international financial markets. ‘The Great Reset – the final meltdown of the current global financial system – has long since ceased to be a purely intellectual thought experiment,’ concludes Dr. Metzler.