A report from Mortgage News Daily. “Locks are certainly not repeating 2021 levels for January, with initial anecdotal pipeline numbers down 30-40 percent. Are you reducing costs accordingly? When the residential lending market is good, owners think they’re the smartest guys in the room, and in the last two years volume and margins have covered up a lot of faults. (And now, are homeowners all real estate geniuses?) Now, however, effective management is going to be tougher. Mortgage fraud is growing, and I’ve received more than one email about kickbacks on the rise. Great. Never in the history of history of calm down has anyone calmed down by being told to calm down.”
From Business Insider. “82% of millennials regret something about buying their first home, per a new survey. Those who rushed to buy were more likely to have buyer’s remorse, and most regretted their location. With the pressure on to snap up the rare house that was both available and affordable, some buyers didn’t realize they were making a hasty decision until it was too late. Those who rushed to buy were more likely to experience financial remorse, the Clever Real Estate survey found. One in four millennials said their home value decreased while the same amount said that their mortgage was expensive. Since buyers often had to shell out more than the asking price to outdo competition, many are realizing they overpaid.”
The Los Angeles Times. “Four years ago, Aubry Bennion bought a 1950s house on half an acre just north of Salt Lake City. It was small, but she was smitten with the red brick facade with its scalloped trim. Then, in August 2019 came an exciting opportunity: Andy and Candis Meredith, a local couple known for renovating and flipping older homes, were looking for clients for a new TV show they were making for Magnolia Network.”
“Bennion implicitly trusted Magnolia; she had a relationship with the brand dating back several years. ‘For a lot of reasons, I felt like I was part of the Magnolia family,’ she said recently by phone. ‘Probably not anymore.’”
“Were the Merediths simply working parents who took on too much by trying to make a reality show while raising seven kids and renovating a dozen or so properties during a pandemic? Or were they running ‘the equivalent of a construction Ponzi scheme,’ as Kyle Adams, a lawyer for Bennion and the Hawley family, said in an interview with The Times. For the Merediths, the possibility of becoming the next Chip and Joanna may have been dangerously seductive, said Adams: ‘I think they probably had bigger eyes than brains. They saw a shot at fame and publicity, and took way too much on.’”
From CBS San Francisco in California. “A new study by San Francisco’s Office of Budget and Legislative Analysis says that 10% of all the homes in the city are vacant. The data shows the majority of vacancies lie in the Downtown, Mission and South of Mission Districts; the very areas where the most new housing has been constructed. District 5 Supervisor Dean Preston believes a lot of the units were purchased as investments to be held, unoccupied, and resold as housing prices increase.”
“While the activists argue about the best way for the city to force housing growth, realtor Karen Mai said it is the city’s tenant protection policies that are keeping landlords from leasing their properties after rent prices dropped by 25%. ‘They are afraid of renting it to the tenant,’ Mai said. ‘When they want it back, they don’t leave. And it’s going to cost them money to pay them a relocation fee and hire an attorney to evict them.’”
From Bloomberg. “Some potential buyers are walking away from the housing market and finding new investment strategies to grow what would have been a down payment. Sky-high prices for living in Canada gave Trevor Scott, president at the hedge fund Tidefall Capital, another reason to favour stocks over real estate. And then there’s the risk of rising interest rates, he said.”
“While the Bank of Canada did hold interest rates steady at January’s meeting, Governor Tiff Macklem made it clear that interest rates are coming. ‘If rates increase, a lot of these mortgages on million-dollar homes would be difficult to carry,’ Scott added. He’s not the only one who feels this way. Colby Mintram, a partner at Volt Strategic Partners, also jumped into the stock market after he decided it would be more advantageous than buying a home. ‘I’m not paying $1 million to own a one-bedroom apartment,’ he said.”
The Real Deal. “Miami developers Ophir Sternberg and Ricardo Dunin spent about four years and millions of dollars trying to turn a resort on Nicaragua’s Pacific coast into a swanky ecotourism hot spot. They failed. Left behind was a detritus of debt, unpaid taxes, missing funds, unpaid vendors and unfinished construction. The American retirees, outdoor enthusiasts and animal lovers who owned the villas were forced to clean up the mess.”
“All the while, an ownership dispute with Armel González, a local businessman, has only made it more difficult for villa owners to sell their units. One key contention: some of the owners say they were threatened by machete-wielding laborers. That never happened, according to González. The owners have tried to move on. The resort, now fully built and operating as a hotel, has hosted weddings and events.”
“But owners say all the lingering issues around land ownership have left them in purgatory. They cannot sell the properties, which require constant upkeep because of their proximity to the ocean. One owner, who requested anonymity because he didn’t want to be defined by his investment, said he ‘owns a degrading wood house in a tropical rainforest.’ ‘I didn’t believe it would be this bad,’ he said. ‘We’re fundamentally locked into a cycle of doom for quite some time.’”
From Bristol Live in the UK. “Experts are warning that the rising interest rates, rising taxes and the increased cost of living could see the bubble burst by the autumn. The key concern for Graham Cox, founder of the Bristol-based Self-Employed Mortgage Hub, is that the currently low interest rates will have to rise, and coupled with inflation, rising taxes and the skyrocketing cost of living, people will not be able to afford a property leading to a drop in prices.”
“Mr Cox said: ‘My view is that people have become complacent about low interest rates and they can’t, they won’t stay that way forever. People are borrowing up to the hilt; they’re borrowing huge sums of money to buy a house now. And I don’t think people realise how much it’s only the low [cost of] credit that is propping up the housing market.’”
From Macau Business. “Around 7 per cent of all homes in Macau – a total of 16,655 – were empty at the end of June 2021, a ‘high’ percentage, admitted a study by the University of Macau. According to a statement from the Directorate of Policy Studies and Regional Development, Macau stands out for having an even higher unemployment rate in noble areas of the islands of Coloane and Taipa, reaching a maximum of 30.3 per cent in Taipa village.”
“The percentage of ‘large’ houses, with an area of more than 150 square meters, which were empty is also high (17.2 per cent) due to ‘the high price that residents can hardly afford,’ says the study.”
From UBS. “This paper examines our default outlook for 2022, expectations for rising stars and fallen angels. The UBS-AM default study is based on a proprietary, bond by bond analysis conducted by our dedicated team of credit analysts. The team utilizes reference indices to form a comprehensive, bottom-up estimate of defaults and distressed exchanges by industry. In Asia ex Japan, we expect an approx. 15% default rate.”
“Within Asia ex-Japan HY, the real estate sector is an outlier at a 28% expected default rate, mostly emanating from China. Our view is credit losses from potential defaults within the sector are already largely reflected in current pricing. On average we expect recoveries of between 30-40pct of face value with any large variance from our range likely driven by asset quality and government intervention.”