A weekend topic starting with Fortune. “Last year, months before the Federal Reserve began raising interest rates to combat inflation, former Treasury Secretary Larry Summers warned that inflation was already a problem, and would get a lot worse in 2022. His predictions were accurate. If Summers is right, his index would have huge implications for how far the Federal Reserve may have to go to fix inflation. It could mean that the Fed would have to resort to the same extreme means employed by the central bank to tame inflation in the 1980s under former Chairman Paul Volcker.”
From Bloomberg. “US Treasuries tumbled, sending 2-year yields surging by the most since 2009, after an unexpected jump in inflation increased speculation the Federal Reserve will need to raise interest rates more aggressively over the next few months. ‘We are looking at a stagflationary environment,’ Michael Darda, the chief economist at MKM Partners, said on Bloomberg television. ‘The Fed is still behind the curve.’”
The Sydney Morning Herald. “Former Reserve Bank of Australia governor Ian Macfarlane says recent mortgage borrowers at risk of being squeezed by higher interest rates should not prevent the central bank from raising rates to the appropriate level, as it tries to slow the economy and dampen inflation. Macfarlane said ‘easy money’ in Australia had triggered a surge in housing lending. While he did not express a firm view on how high the cash rate would rise, Macfarlane said the RBA’s decisions on interest rates could not be ‘held hostage’ by the most recent or marginal borrowers.”
“‘I think the central point I want to make is that you can’t allow the marginal mortgage borrower to determine the central bank’s ability to change interest rates. They can’t be really held hostage by the most recent mortgage borrower.’”
The Canadian Press. “High household debt and elevated housing prices have become bigger vulnerabilities in the past year, but the economy can still handle the rising interest rates needed to tame inflation, Bank of Canada governor Tiff Macklem said. ‘Our primary focus is getting inflation back to target. You know, monetary policy is not housing policy,’ he said. ‘The increases in housing prices we’ve seen have been unsustainably elevated and we are expecting to see some moderation in housing activity and frankly, that would be healthy.’”
The Toronto Star in Canada. “The average home price in Burlington dropped by 14.75 per cent, from $1.3 million in April to more than $1.1 million in May. In May, Toronto area home sales plunged 38.8 per cent annually as rising interest rates pushed down the average sale price of all houses and condos to $1.21 million, a $121,000 drop from the February market peak of $1.33 million, according to a recent TRREB report.”
The Denver Gazette. “The sudden rise in mortgage rates has homebuyers and potential sellers asking their real estate agents whether Colorado’s red-hot market is cooling off. ‘I think we hit a peak in late March or early April,’ said Sunny Banka, who tracks data on Aurora and Arapahoe counties on behalf of the Colorado Association of Realtors. Banka notes that over recent weeks, she’s getting 25 emails a day from agents announcing price reductions on homes.”
“‘What I’m paying attention to is how drastically the average price has changed,’ said Matt Leprino, spokesman for the Colorado Association of Realtors ‘When we suddenly see average prices, which had gone up $100,000 a month in Denver, drop off, it means the really expensive homes have hit the wall,’ Leprino said. ‘On a $3 million property, when you have huge interest rate shifts, we’re talking really big-buck changes between payments.’”
“‘We’re definitely seeing more inventory and a lot of price reductions,’ said Amy Berglund, managing broker of Re/Max Professionals’ City Properties office in Denver’s Highlands neighborhood, a popular area luring younger homebuyers with its abundance of dining and its proximity to Lower Downtown. ‘Properties have fallen out of contract and come back on the market,’ said Berglund. “There is still very strong buyer demand, but they’re being much more picky, and their purchasing power is a little diminished, so they’re taking more time.’”
“That, said Berglund, is causing sellers to panic a little: ‘Things are not flying off the shelf; rather it’s more indication of a return to a normal market.’ In Steamboat Springs and Routt County, sellers were offering price reductions and were accepting contingency offers, according to the CAR report. ‘I think this is more the simple seasonal shift,’ said Leprino. ‘When you’re starting to see price reductions, we’re on the other side, and have reached our cap.’”
From Mansion Global. “After an epic two-year run—not just in Austin but in major cities around the country—the luxury real-estate market is finally cooling. Real-estate agents in places like New York, Los Angeles, and the Hamptons say the frenzied deal making and record-setting prices that characterized the past few years has eased, thanks to a growing disconnect between what sellers want and what buyers will pay.”
“According to Redfin, the biggest drops in luxury sales took place in Nassau County, N.Y., where sales slid 43.5% for the three-month period between Feb. 1 and April 30, 2022, compared with the year-earlier period, followed by Oakland, Calif., with a 35.1% decline. During the same period in Dallas and Austin, where values skyrocketed during the pandemic, sales slipped 33.9% and 33%, respectively, and West Palm Beach’s luxury sales were down 32.8%, Redfin data show.”
“Drew Meyers, of the Los Angeles brokerage Westside Estate Agency, said the uncertainty has led some sellers to rush to list properties to try to catch the tail end of the hot market. Mr. Meyers says he has three sellers with property that will be priced at between $6 million and roughly $50 million that are pushing up the listing dates for their properties. ‘They want to get this stuff done and get it listed while the market is hot. They don’t know what the future holds,’ he said.”
“In May, contracts on Manhattan condos priced between $10 million and $19.99 million were down 41.2% compared with contracts in May 2021, while inventory jumped 42.9%, according to Miller Samuel data. In the Hamptons, contracts on single-family homes in that price range in May dropped 83.3% year-over-year while listings were up 20% compared with the year prior.”
“‘It’s a hard fall from grace,’ said Cody Vichinsky, president of Bespoke Real Estate, who said that in the Hamptons’ previously frothy market, some C-quality properties hit the market with A-quality prices. But at a certain point, buyers won’t pay double the prior sale price in a short period of time, Mr. Vichinsky said. He cited a newly-built house in Watermill, listed in the $30 million range, that has been on the market for a year. He said the seller turned down his client’s offer of $28 million. ‘I bet he’s kicking himself now for not taking it,’ Mr. Vichinsky said. ‘He was hypnotized by what the headlines were saying.’”
“Richard Steinberg, a luxury real-estate agent at Compass, said he has been having ‘the price-reduction conversation’ with clients on at least 50% of his exclusive listings. Without offers or the promise of deals, many of them will have no choice but to listen, he said. Mr. Steinberg said he sees the greatest reduction in activity on properties priced between $2 million and $5 million, a price range in which he says buyers typically rely on mortgage financing and are dealing with increased interest rates. Above $5 million, buyers are less concerned about interest rates, but they are expecting that the shifts in the financial markets will result in bargains on the real-estate front.”
“In West Palm Beach, which has experienced a flurry of investment, Redfin data show the number of luxury sales slipped 32.8% year-over-year for the three months ending April 30. Agent Erin Sykes, of Nest Seekers International, described the last few weeks of economic turmoil as a ‘reality check’ for sellers who want 20% to 30% price appreciation on their property in just a few months’ time. When prices were rising, people saw real-estate investing as a way to get rich quick. ‘They saw it as a game that could never be lost and we all know that real estate is not invincible,’ she said.”
A press release. “For a luxury buyer, a higher mortgage rate can mean a monthly housing bill that’s thousands of dollars more expensive. The year-over-year cooldown is also a reflection of the market for high-end homes coming back to earth following a nearly 80% surge in sales a year ago. ‘The pool of people qualified to purchase luxury properties is shrinking because the stock market is falling and mortgage rates are rising,’ said Elena Fleck, a Redfin real estate agent in West Palm Beach, FL.”
The Dallas Morning News. “Homebuyers struggling to find something may finally start to see some relief with a sharp annual increase in listings. Active single-family home listings in the Dallas-Fort Worth area rose 26% year over year in May, with 10,560 homes on the market at the end of the month, according to the Texas Real Estate Research Center at Texas A&M University and the North Texas Real Estate Information System. ‘There is a degree of healthiness that is coming back to the market,’ said Chris Kelly, CEO of Ebby Halliday Realtors. ‘It’s still going to be a competitive marketplace, but I don’t think it’s going to feel like quite the circus as it has over the last year and a half.’”
“Agents have seen some homes that would have had 20 offers last year now only get a handful in recent weeks, said Bryan Pacholski, senior managing director for Compass in Dallas. Pacholski said that, with overall inflation, homebuyers are beginning to reassess their budgets. ‘There’s just a level of exhaustion around all of it,’ he said. ‘Buyers’ urgency has changed.’”