A weekend topic starting with the Long Beach Business Journal in California. “The Long Beach housing market appears to be cooling slightly from its pandemic peak—at least as far as pricing goes. But lenders say interest in home finance is still strong. ‘We’re dealing with a lot of people who have had forbearance, and now they’re refinancing out of it,’ said Adam Evans, a loan officer who focuses mostly on refinancing. ‘I have clients that didn’t make a payment for a year on a $300,000 mortgage, and they’ve added $50,000 in forbearance payments.’”
“In addition to the loans themselves being more sound this time around, Evans said, ‘we kind of learned from that, and what the [Federal Reserve] did—what the government did this time was say, ‘We’re not going to let anyone default.’ So the way the situation was handled was completely different.’”
“Evans said, the way he sees it, the financial relief that has allowed people to avoid foreclosures has also driven up prices—not just in the housing market, but with inflation more generally. ‘The prices in housing, in my opinion, isn’t rising as much by supply and demand,’ he said, ‘as much as it’s rising by the monetary policy that’s been put in place, where we’ve been pushing so much money in the system.’”
“‘As long as inventory is low, we’re not going to see a downturn,’ Fox said. ‘That might happen in other places in the country, but this is Southern California.’ That’s not to say, though, that prices will keep skyrocketing on the same trajectory as they have been. ‘My personal opinion is: It’s a little crazy. It’s a little absurd,’ Greg Fox, a regional manager for America’s Home Loans in Long Beach said of the current market. ‘But this is California. Everybody wants to be in California. So I don’t think we’re going to see, necessarily, a downturn, per se. I think we just might see some stabilization right now in the markets, as far as pricing of housing. I think we’re going to see sideways movement for a while.’”
“Fox also acknowledged the tricky spot the Fed now finds itself in. ‘The government’s kind of damned if they do, damned if they don’t,’ Fox said of bringing up interest rates. ‘In the past, we have seen certain times when there has been a dramatic and violent spike up of interest rates, and when that happens … the real estate market just completely comes to a crashing halt. Refinances die in a day. Things literally just stop until things normalize again. I’m extremely fearful of spikes like that.’”
Two reports from the Globe and Mail. “Canada’s bank regulator said it is not changing the mortgage stress test, calling the borrowing rules ‘adequate,’ even as home prices continue to accelerate and household debt rapidly increases. ‘If they qualified last week, they qualify this week,’ said Leah Zlatkin, mortgage broker with Brite Mortgage Inc., who works in the Toronto region. ‘This is great news for people who are waiting to buy.’”
“Our government could have made it tougher today to get a mortgage, but chose not to. Is that something to celebrate or did policy makers just drop the ball? Critics of Friday’s decision argue that the more home prices detach from long-term fundamentals, the harder they’ll fall when real estate listings revert to above average levels. And lest we forget, rate hikes can be kryptonite for home prices. The prime rate and the national average home price have more than a 75-per-cent negative correlation.”
“If you’re out there mortgage shopping, there’s no need to stress about the stress test, at least from a qualifying standpoint. If you want to get around it, all you have to do is: Visit a credit union that doesn’t impose the federal stress test; Have 35-per-cent to 50-per-cent equity – in which cases some banks will allow you to have higher ratios of debt to income; or· Choose a non-prime lender that allows for higher debt ratios.”
“The availability of these loopholes, as well as home buyers taking on ‘worrying’ amounts of indebtedness (the Bank of Canada’s words), are why many will argue regulators should have made the stress test at least nominally more stringent.”
From Newsroom New Zealand. “Changes to the Credit Contracts and Consumer Finance Act that came into effect this month were intended to protect cash-strapped borrowers from rapacious High St loan sharks. But some observers argue they are having an unintended consequence for those seeking to borrow to buy a home. It comes as borrowing hits all-time record highs. The Real Estate Institute reported this week that across the whole country, median house prices hit a new record of $925,000, up 23.8 percent in a year. And the average Auckland house is now $1.3m.”
“‘For the banking sector, they may be a bit more risk adverse around lending to people that are deemed a bit more high risk,’ says Jeremy Couchman, an economist at Kiwibank. ‘And so they don’t lend. So that restricts credit further, in the near term. Banks need to be confident applicants will be able to live within their means if taking on a mortgage means they will have to markedly reduce discretionary spending. Borrowers may have to demonstrate that they can before taking on a mortgage, rather than a bank just taking the applicant’s word for it.’”
From Bisnow London. “On retiring from the real estate industry, Neil Turner challenged himself to write a novel and created a thriller packed with murder, blackmail, sex and an angry but nuanced portrayal of the causes of the 2008 financial crisis, and the role real estate played in that economic calamity. ‘I’m still angry, to some extent, about what happened in the financial crisis. It wasn’t an accident, it was man-made, and there were some people behaving badly,’ Turner said.”
“None of the investment bankers or mortgage lenders who created the sub-prime crisis are jailed, or even face much in the way of a financial penalty even though, in one scene, a U.S. senator exposes in forensic detail how banks knew that the financial derivatives they were selling to clients were likely to fail, an episode drawn from the real Congressional inquiry into the GFC.”
“In the book, the scene is nuanced: the investment banker-turned-Treasury secretary, Chuck Whitman, points out that the general public benefitted from subprime mortgages and no one was complaining when house prices were rising, fuelling a consumer spending boom. For Turner, the blame lies more with the financial system that profited from selling these mortgages and subprime bonds.”
“‘The congressional inquiry really angered me,’ he said. ‘It really tore into Goldman Sachs, because it showed the banks were selling rubbish, and knew they were selling rubbish, because they were betting against it to fail, and you don’t need a Ph.D. in finance to understand that. Nobody was ever prosecuted criminally, but they knew what they were doing, and apart from a few hefty fines, they walked away.’”
From Aaron Layman at the Denton Record Chronicle in Texas. “Financialization hit the local real estate market again in November. Denton home sales slid for a second month, falling 18% from a year ago. Pending contracts for sales in Denton slid for a third consecutive month, down 14% year-over-year. A return of seasonality is not the only reason home sales have fallen recently. The local real estate market is suffering from the overt financialization of America’s housing stock in general. Prices have been chopping back and forth near record highs. I have been helping some local home sellers cash in on these lofty prices before the Fed pulls the rug on liquidity.”
“You may have read about Taylor Morrison Home Corp. and Christopher Todd Communities teaming up to build 316 new single-family rentals in Denton. These are precisely the type of affordable, single-family homes the local real estate market needs. Sorry, but no soup for you, prospective home buyer. This is another build-to-rent community where the developer and builder are searching for yield in our hyper-financialized housing market. There were several thousand homes like this started across the Dallas-Fort Worth area during the past year.”
“Denton County rents for single-family leases posted a 13% jump from November of last year. Data from RealPage shows average apartment rents in the DFW area are up 16% year-over-year. Rents for some of the newest apartments in North Texas are up more than 20% from the same time a year ago. Occupancy is reportedly over 97%. Nope. No inflation there.”
“This all comes at a cost. The Federal Reserve still has rates at the floor while they are printing money hand over fist. The real tightening has barely started. Our reckless Federal Open Market Committee (FOMC) has now been forced into tapering those massive asset purchases sooner than they planned. Workers are revolting as they see the purchasing power of their wages get pummeled by spiraling inflation. Real average hourly earnings are actually negative accounting for inflation.”
“Double-digit inflation can pose a real challenge if you aren’t wealthy enough to trade E-minis at a million per clip, as one former Fed official was doing. Trading in S&P futures contracts is not something your typical American worker has the luxury of doing. Buying assets that keep rising in price becomes even more challenging as your purchasing power and disposable income fall further behind.”
“Adjusted for inflation, we have the lowest mortgage rates in a generation. This should help you understand why many home builders and investors are keen on rushing into the build-to-rent space. Builders and private equity parasites have a spectacular opportunity to lock in super low rates on capital and squeeze even more Americans for inflated rent. Starting to get the picture? This is the house, or the housing market, the Federal Reserve built. It’s hyper-financialized and structured to benefit existing asset owners by design.”
“When they weren’t too busy trading on their personal accounts for pandemic profits, Fed officials have been busy gaslighting the American public. Earlier this year inflation was ‘transitory.’ Now the transitory narrative has been retired, and the financial media are telling you that inflation is actually good for you. Just don’t pay attention to the reality that the government is trying to take $1 out of every $14 you earn in addition to billing you for taxes. Fun times indeed.”
“‘This elite-generated social control maintains the status quo because the status quo benefits and validates those who created and sit atop it. People rise to prominence when they parrot the orthodoxy rather than critically analyze it. Intellectual regurgitation is prized over independent thought. Real change in politics or society cannot occur under the orthodoxy because if it did, it would threaten the legitimacy of the professional class and all of the systems that helped them achieve their status.’— Kristine Mattis, the Cult of the Professional Class.”