A report from DS News. “As the housing market took its twists and turns to close our 2022, Fannie Mae felt the impact of a market in flux. Fannie Mae’s net income decreased $9.3 billion in 2022, compared with 2021, primarily driven by a $11.4 billion shift to provision for credit losses, and a $1.6 billion shift to investment losses, partially offset by a $1.1 billion increase in fair value gains. The GSE’s multifamily business segment recognized a $1.1 billion provision for credit losses, approximately $900 million of which related to the company’s seniors housing portfolio. This provision drove a $52 million net loss for the quarter.”
“The company’s seniors housing portfolio has been disproportionately impacted by recent market conditions. As of December 31, 2022, nearly all of the seniors housing loans in the company’s guaranty book of business were current on their payments. However, a sharp rise in short-term interest rates during the latter half of 2022 put additional stress on its seniors housing portfolio that was already experiencing elevated vacancy rates. As of December 31, 2022, the seniors housing portfolio had an unpaid principal balance of $16.6 billion, which constituted 4% of the company’s multifamily guaranty book of business. Approximately 40% of the seniors housing loans in the company’s multifamily guaranty book as of December 31, 2022 were adjustable-rate mortgages (ARMs).”
KDVR in Colorado. “A new report describes the Denver-area housing market coming down from a sugar high. Denver metro home prices have fallen farther than most of the other 49 largest metro areas, and the length of time it takes them to sell has risen faster than any of them. In the past year, the median sale price for a single-family Denver metro home sunk 5.8%, farther than any other metro except New Orleans. Sellers cannot hope for the return per square foot they could expect last year. The price per square foot for a Denver metro home has fallen 8%. This is the sharpest yearly drop out of the 50 largest metros and twice as much as the next sharpest drop in the Boston area.”
The Miami Herald. “Annual home sales are down in South Florida, forcing more sellers to negotiate prices with buyers. Sellers can blame the housing slowdown on a perfect storm. First and foremost, buyers have had enough. Home prices peaked last summer. Miami-Dade alone had a historically high median sales price of $579,000 for a single-family home in June 2022. More buyers are refusing to pay a premium. Out-of-state, wealthy buyers might have once saved the day with cash deals or sight-unseen offers near the asking price at the height of the pandemic. That’s a distant memory.”
The Las Vegas Business Press. “Despite rising mortgage rates slowing new and existing home sales, a housing expert told the Southern Nevada homebuilding industry that’s temporary. Brian Gordon, a principal at Applied Analysis, will help ease concerns of builders looking to construct more homes amid the current slowdown. His catch phrase is how the housing market is starting to stabilize after its decline. ‘That’s 6,000 people moving here a month, and we’re seeing a lot of positive population growth coming into the market,’ Gordon said. ‘We’re losing people to the tune of 2,000 a month so on the net we’re in the 3,000 to 4,000 range of growth. Those folks have to live somewhere. For all of you, let’s build some houses and hope they buy them.’”
“Nevada ranks No. 7 in the nation with its business tax climate, he said. California is No. 48. ‘As long as they keep screwing up stuff in California, we’ll be OK,’ Gordon said.”
Community Impact in Texas. “After an overactive market and buying frenzy last year, home prices in Cedar Park and Leander—which have been on a steady rise since early 2021—dipped toward the tail end of 2022. In Cedar Park, the peak median price for a house was $535,000 in 2021, and in 2022, the peak price was $604,800, according to ABoR data. Home prices dropped significantly in December to $472,500—a 21.9% decrease. Median home prices in Leander followed a similar trend. In 2021, the peak median price for a home was $502,500 with a peak price of $567,455 in 2022. Prices fell 14.3% to $486,500 in December.”
The Record Chronicle in Texas. “The recent price cuts on homes, which juiced activity, took the median Denton home price down to $349,999 in January. Median Denton home prices have fallen $60,000 (14.6%) from their bubble peak last summer. The data says soft landing island is looking really crowded and terminal rates are not here yet.”
Bisnow Los Angeles in California. “Brookfield, a major office landlord in Downtown Los Angeles, has defaulted on loans linked to two of its Downtown office towers totaling $784M. Subsidiaries of Brookfield DTLA Fund Office Trust Investor defaulted on $465M worth of loans atvthe Gas Company Tower at 555 West Fifth St. and $319M worth of loans in connection with the 777 Tower at 777 South Figueroa St., according to a filing with the Securities and Exchange Commission on Friday. This year is anticipated by a number of industry watchers to be one in which we see a wave of defaults, foreclosures and handing over of keys.”
“‘With rising interest rates and soft underlying market conditions, expect a wave of distressed office properties starting next year as some owners either decide to give back their assets to their lenders or go through the foreclosure process,’ a fourth-quarter office report from Savills noted.”
Market Watch on California. “Roughly 90,000 people left Silicon Valley during the first two years of the COVID-19 pandemic, according to an annual report that found a slowing ‘exodus’ has reverted the tech center’s population to 2013 levels. ‘Yes, there’s an exodus,’ Russell Hancock, chief executive of Joint Venture Silicon Valley, said in a news briefing Tuesday about his group’s latest report. ‘It’s happening.’”
The Intelligencer. “After years of explosive growth, much of the tech world is notably less frothy than it was. Scott Galloway: ‘Well, first off, I advise two VC firms. They want to talk about where we go from here — which investments, which categories. My advice is to sit on their hands and do nothing right now. Because what’s happening in the housing market is happening in the venture market, which is that everybody’s anchoring off. People think, ‘The Smiths sold their house for $800,000 15 months ago, so I should get $800,000.’ Well, no, the market’s changed dramatically. And so even if they put their house up for sale, they don’t want to accept a lower price. Meanwhile, buyers read everything in the news about a recession or housing prices coming down and think, ‘This house is worth $650,000.’ So right now, there’s total stasis. The same thing’s happening in the small-business and entrepreneurship community. Companies that raise money still have capital, but they don’t want to acknowledge that their valuation is probably down 50, 70, maybe even 80 percent.’”
“‘In a world of zero interest rates, where money is free, you end up with Wag. You end up with a cute concept that’s not a business. You end up with Cathie Wood talking about bitcoin at a million dollars. You end up with just all of this crap, and it’s got to get cleaned out.’”
The Globe and Mail. “As hot inflation pushes up interest rates and continues to cool Canada’s housing market, analysts expect mortgage growth to dip further this year. Many Canadians no longer qualify for pricier mortgages. Lenders are required to stress test borrowers to determine whether they can sustain payments at higher interest rates. That pressure is weighing on homebuying. Between higher rates and tighter approval requirements, the number of people qualifying for mortgages at traditional lenders has plummeted from a year ago, according to Frances Hinojosa, a mortgage broker and chief executive of Tribe Financial Group. The pressure is pushing prospective borrowers and those renewing their mortgages to subprime and private lenders with looser lending requirements.”
Better Dwelling. “Canada’s central bank’s latest research paper has mortgage brokers in its crosshairs. In the working paper titled the Role of Intermediaries in Selection Markets: Evidence From Mortgage Lending, they compare broker-client outcomes to branch borrowers. The researchers found that broker-clients are riskier, and are exploited for greater profit. The paper reveals that broker-clients tend to be higher risk and lower income. They also tend to use more leverage, have longer amortizations, and pay more interest. Increased costs are partially attributed by the researchers to ‘steering’ clients to more profitable products. Not exactly a love letter from the central bank. The central bank isn’t just picking on brokers today, but looking to inform policy. They explain that if left unchecked, a toxic industry can lead to market distortions.”
“The paper found that mortgage brokers service a higher risk clientele. ‘Specifically, they have lower income and lower FICOs [credit scores], but buy more expensive homes using longer amortization periods to smooth-out monthly loan payments,’ explains the researchers. Longer amortizations means a longer repayment term. Borrowers do this for lower monthly payments, in exchange for paying more interest. Not a little either—it can add tens of thousands to the cost of a typical home. Despite opting for tools to lower payments, they also found these borrowers tend to hit their total debt service (TDS) limit.”
“‘The simple truth is brokers arrange mortgages in many cases for clients that the Big 6 banks turned down,’ explained mortgage broker Ron Butler, founder of Butler Mortgages. ‘In some cases Brokers steer clients to very expensive Private Mortgage solutions only because it’s easier and pays the same as a B lender like Home Trust. I am serious, some brokers steer clients to the most expensive solution because it’s less work—not even better pay. The bastards are just lazy.’”
Stuff New Zealand. “Fletcher Building is ‘pragmatically pausing’ some of its residential developments as the housing market slows. The company’s residential and development business, which is focused on large scale urban developments in Auckland and Christchurch, reported a 56% drop in pre-tax profit to $49 million in the six months to the end of December. In response to the softening market, the company had slowed or paused work on some residential and apartment developments and limited new land purchase agreements.”
ABC Business in Australia. “Recent home buyer Lorna Zelenak is about to head overseas for a short trip, but she wouldn’t be making the same plans today. ‘We booked this holiday last year … If you had asked me [then], I would have said that I have no issues going on holiday whatsoever,’ Ms Zelenak said. But now? She’s going to continue working remotely in her small business, a Melbourne cosmetic injectables clinic, to ensure she has enough clients booked in for her return. ‘I think I’m going to be worrying a lot about what I’m coming back to … in order to still pay the bills that I am leaving behind. It will definitely be one of my last holidays for a while now.’”
“‘There’s a key group there, particularly people aged between 25 to 45, who have high debt levels, very high levels of gearing, who don’t have a lot of assets,’ economist Shane Oliver told the ABC. Dr Oliver, the chief economist at AMP, estimates about 1 million households, or roughly a third of the 3.3 million with a mortgage, will need to make significant spending cuts to keep up with minimum repayments. ‘That’s a high number — that’s 10 per cent of Australian households that are actually quite vulnerable,’ Dr Oliver said.”
“In its own analysis, published in October’s financial stability review, the RBA estimated 15 per cent of owner-occupiers would have ‘negative spare cash flows’ — or not enough money left over after paying their mortgages. Dr Oliver said the more households went ‘cash-flow negative’ the reater the potential blowback on the banking system. ‘The problem in all this is it takes a while for it to show up … what might look fine one day can suddenly change a month or so later. That’s what really needs to be allowed for here … I must admit, I’m now getting a little bit more concerned.’”