A report from KXTV in California. “‘These homes we’re in now… when they went up originally in 2018 just before the pandemic, they were running anywhere from high $300,000 to low $400,000,’ realtor Dana Harward explained as she drove around a popular suburban neighborhood in Natomas. Those same homes are selling for double. ‘This one sold for $745,000,’ Harward said, pointing to a home. ‘It felt like a piranha feeding frenzy.’”
“Today, rates sit around 6%, which means interest rates are still double from where they stood during the pandemic. ‘It’s completely changed the market,’ said appraiser and housing analyst Ryan Lundquist. ‘Earlier in the year we were reporting really aggressive housing stats, massive demand and then mortgage rates said, ‘Hold my beer.’ And we’re in this market where the honeymoon is over. It’s like they’re targeting housing as the sacrificial lamb on the altar.’”
The Real Deal on California. “Coretrust Capital Partners lost control of its prized 48-story Downtown Los Angeles office tower in foreclosure to Oaktree, according to a source familiar with the matter. The foreclosure is among the growing signs of distress facing the Downtown Los Angeles office market, which has struggled since the onset of the pandemic. About 210,000 square feet, or 23 percent, of 444 South Flower is currently vacant, according to a LoopNet listing. Oaktree, led by Howard Marks, is known for buying the debt of troubled companies. Marks told the Financial Times this summer that he is ‘starting to behave aggressively’ because loan prices have fallen.”
The Tampa Bay Times. “This time last year, it seemed like the entire Tampa Bay area was caught up in a home buying frenzy. But as we enter 2023, the tide has changed considerably. If you’ve had no luck finding a home in your budget on the resale market, consider broadening your search to include spec homes. ‘Builders are desperate right now to sell because they don’t want to lose money on the construction they’ve already started,’ said Lei Wedge, a professor of finance at the University of South Florida Muma College of Business. This means many builders are dropping their sales prices. Wedge said some builders are even offering to subsidize mortgage rates for a certain number of months in order to seal the deal.”
The Review Journal. “Las Vegas homebuilders ended 2022 with sharp drops in sales and construction plans from year-earlier levels, capping a dramatic change for the once-heated market. In Southern Nevada, sales totals dropped hard in 2022. Sellers increasingly slashed their prices and available inventory soared. Amid the slowdown, builders offered more incentives to buyers and higher commissions to agents who brought them in, real estate sources said. ‘We are all aware of the general state of the housing market these days, and that 2022 showed a steady decline in activity on basically all fronts,’ the firm’s president, Andrew Smith, said in the report.”
From Contractor Mag. “Multifamily starts are predicted to fall in 2023, following an unsustainable high level of production last year, according to the National Association of Home Builders (NAHB). There are currently 943,000 apartments under construction, up 24.9% compared to a year ago (755,000). This is the highest count of apartments under construction since 1974.”
The San Antonio Report in Texas. “Apartment renters soon could see relief after more than a year of extreme growth in rent costs in San Antonio and across the country. The average apartment rent in San Antonio during 2022 rose to $1,200 as the cost of rent grew by 15.5% in 2021 and at the start of 2022. That’s an ‘unheard of’ amount for the area, said Cindi Reed, director of sales at Apartmentdata.com. ‘Everything was extreme — we were just riding this wave in 2021,’ Reed said. ‘Prices kept going up. Renters were just paying whatever was asked.’”
“During the last half of 2022, however, rent prices began to level off. Interest rates started to climb. Occupancy levels, which also rose in 2021, fell 2.7% by December of last year. ‘Everything’s just kind of stopped,’ she said. In San Antonio, the 2021 absorption rate nearly doubled as demand for apartment housing outstripped supply. Then, last year, the absorption rate dropped into negative territory, indicating declining demand as almost 6,000 new units were built. ‘We all are watching absorption because if we’re overbuilding, that’s a problem,’ Reed said.”
The Detroit Free Press. “Flagstar Bank’s new owner confirmed Tuesday that it did a significant number of employee layoffs late last week when it restructured its mortgage division to adjust to the nationwide downturn in the mortgage business since 2021. Flagstar’s mortgage division is now under 800 employees, down from a high of 2,100 in 2021, back when mortgage rates were at historic lows and the business was booming. ‘We are in one of the toughest mortgage markets of the last 25 years,’ said Lee Smith, a longtime Flagstar executive and now president of the combined bank’s mortgage division.”
The New York Post. “Real-estate brokers are heading for the door in droves as the nation’s housing market cools — even in the usually scorching market of Miami. The number of ‘active’ agents in the Florida city plunged by 36% in the fourth quarter of last year compared to the same span in 2021, according to a new study. Only 20% of all 22,286 Miami brokers were active in the fourth quarter of 2022, the study found. Agent Story found that the number of active agents has cratered in other major markets as well, including in Los Angeles. The firm found that there were 27% percent fewer active brokers in the California city in the fourth quarter of 2022 compared to the same period in 2021.”
Beat of Hawaii. “This week, Hawaii’s largest, fast-growing, and now controversial vacation rental management company, Vacasa, laid off 17% of its 7,600 U.S. employees in, among other things, a sign of weakness for the Hawaii vacation rental sector. It isn’t clear whether that will be enough to fix the company’s profound problems. Not only that, but the industry has been struck with waning demand and downward price pressure after rates rose too high, too fast. Vacasa was not long ago the darling of the vacation rental sector. It seemed that nothing could stop them until very recently. Sales growth as recently at the end of 2021 was a staggering 81% year over year.”
“Last fall, they started layoffs and warned of weakening sales and unexpectedly high costs. The CEO, Rob Greyber, also warned that many other problems would take time to get in check. As a result of this and vacation industry-wide pressure, among other things, Vacasa’s stock had taken a beating, down 82% compared to when it went public. The company has also lost most of its value, from $4B to $760M. Greyber said ‘I am optimistic about Vacasa’s potential.’ BOH: We hear the words but no longer hear the music.”
“When we last wrote about Vacasa, some of the comments included: ‘We rented a Vacasa property… and it was in bad condition when we arrived. We didn’t stay in the house, and they have not returned us a reasonable refund. Not sure we will ever use them again.’ ‘Not surprising that Vacasa stock plummeted. I have used them 2x’s. Needless to say, I was very disappointed when they changed weekly rentals to daily rental rates that were almost twice the amount than before. So I basically paid the same amount for 4 days that I used to pay for 7. Especially since I found numerous cleaning flaws. Kitchen stove vent/fan caked with bugs/grease that could fall into your pot while cooking. Just 1 example. I clean for a living, so am very detail oriented on specific things that really matter. I actually got a cleaning refund a year ago because of ‘terrible cleaning’ by their team.’”
“It’s worth noting that there is a Vacasa Fraud victims page on Facebook for those interested. The most recent comment on that page from two days ago reads, ‘Vacasa is looking to sell and was already rejected by at least one company, an international vacation rental company.’”
The Toronto Star. “Areas in the GTA suburbs that saw skyrocketing home prices during the pandemic are now facing a real estate crash with Scugog leading the pack at a whopping 44 per cent plummet in average sales price from the February 2022 peak to December 2022. According to data from the Toronto Regional Real Estate Board, all home prices across the GTA have plunged an average of 21 per cent to $1.05 million in December from the sales price peak last February of $1.33 million as the Bank of Canada rapidly hiked interest rates to fight inflation.”
“During the pandemic, with more people working remotely, there was a flight from urban centres and a subsequent spike in suburban house prices as homeowners pursued a bigger bang for their buck, experts say. That run-up, until February 2022, saw prices skyrocket in Durham, Peel, and York. The bubble burst when the economy reopened and interest rates began to climb.”
“‘There was a sizable shift in the pandemic for homebuyer demand. Typically, the higher the rise in prices the larger the fall,’ said Karen Yolevski, chief operating officer of Royal LePage. ‘With that level of price increase during the pandemic, the decreases look outsized compared to the city where there wasn’t quite the same pressure on demand.’”
The Sydney Morning Herald in Australia. “A higher-than-expected inflation report has really set the cat among the financial market pigeons as 2023 kicks off, with markets now pricing another three interest rate hikes this year. To which I say: steady on, fellas. It’s a long story, but in late 2019, our prudential regulator relaxed the ‘serviceability test’ lenders must apply to new home loans. This enabled borrowers to load up with even more debt than before. Previously, lenders had to test your cash flow (income minus expenses) to make sure you could still keep up with your minimum mortgage repayments if interest rates surged to 7.25 per cent.”
“That ‘buffer,’ however, was relaxed to just 2.5 percentage points above the prevailing interest rate. As interest rates plunged during COVID, particularly on fixed rate loans, the hurdle for new borrowers to service a loan amount fell dramatically.These borrowers are already getting caught out – big time – as rates rise. Our official cash rate is already a full 3 percentage points above its all-time lows. Get it? Anyone who borrowed at the very bottom of the rates cycle and was stress-tested under the old 2.5 percentage point rule is already underwater.”
“Many of these borrowers must already be living in mortgage hell – a situation where they do not have enough income left, after expenses, to pay the mortgage. Many will find other ways to cope, such as increasing their income by taking on side hustles, second jobs, or switching to more highly paid jobs in a red-hot jobs market. Spending can also be cut. Although, it must be said, the assumptions lenders are required to make about borrower spending in the loan application process already assume a fairly humble lifestyle.’”
“For borrowers with no backup options, hardship arrangements can be entered into with lenders. Loans can be made ‘interest-only’ for a time. As any banker will tell you, it’s a fairly protracted process to ‘ actually repossess a home in Australia. And it may be in the interest of banks to help keep borrowers afloat, given that – particularly on recent purchases – money recovered through sales may not even cover the debt.”