It’s Friday desk clearing time for this blogger. “The world’s tallest residential building is giving out some sky-high discounts. A mystery buyer has plunked down $40.83 million for a five-bedroom, full-floor spread at Central Park Tower on 57th Street. That’s a steep 35% off the original $63 million asking price. The sale comes shortly after a 93rd-floor unit in the building sold for $28.58 million — more than a quarter off its initial ask of $38.75 million. Feeling FOMO? Don’t worry. To date, only 17% of the building — 30 out of 178 units — have sold.”
“Ada County realtors say an increase in houses available on the market may bring relief to would-be buyers. September marked the sixth consecutive month of inventory growth. There were 1,249 houses on the market at the end of September, an 11% jump from the previous month and a 165.7% increase from the year before. ‘Increased inventory and a slightly slower pace are good news for buyers, and may be two reasons that fewer homes sold over list price last month,’ said Boise Regional Realtors President Jeff Wills. ‘These shifts in the market should help buyers not feel quite as frantic as we saw during the spring and summer months.’”
“Home sellers got 98.5% of the initial asking price, on average, during September, showing that there may be a lid on the rising prices of homes. ‘We have been at or over 100% of the asking price through the summer, but last month we had the most negotiations over price since March,’ said Realtor Mark Hite. ‘As buyers became more focused on price and value, there was more negotiations than we have seen in six months.’ There are signs the market may be shifting more toward the favor of homebuyers, said Robert Backer, president of the Greater Chattanooga Realtors Association. New listings have continued to hit the market with a 12.1% increase in inventory to 1,295 homes last month. That bucked the usual seasonal trend in the fall.”
“For a fifth consecutive month, neighboring Rockingham County was the priciest of the 10 counties in the state for a single-family home. According to the NHAR data, the median price was $515,000, driven largely by the selling prices of homes in the Seacoast region. There the median price for a home was $662,500, second highest for the year, but well off July’s record $719,000.”
“What to make of the recent slight-but-still-noticeable swoon in the Portland real estate market? There are some signs that the city’s continuing malaise might be taking a toll that bears watching. Consider that the median sale price for a Portland home hit a high of $550,000 in March of 2021, but has since dropped to $525,000 for September, per Redfin’s data. The number of homes sold has also declined noticeably since June.”
“Sheala Hall’s family owns six rental properties in communities surrounding Rochester, and the aftermath of Minnesota’s eviction moratorium is taking a financial toll. Of the family’s combined 19 rental units, 10 occupants are behind on rent payments, with six making partial payments in an effort to maintain their housing. ‘Unfortunately, your mortgage payments, your insurance, your taxes don’t go away,’ she said. ‘It hinders being able to update the properties,’ Hall said, noting thousands of dollars in unpaid rental income are logged each week. The Hall family’s circumstances are not unique.”
“Edward O’Neil said responsible tenants save him hundreds of dollars every month. ‘We need people to come to Nevada.’ He said he lost thousands of dollars from another tenant who did not pay rent, and knows other landlords who lost more and eventually foreclosed.”
“‘So far the government and the mortgage industry have worked together to do an extraordinary job of preventing millions of unnecessary foreclosures using the foreclosure moratorium and mortgage forbearance program,’ said Rick Sharga, Executive Vice President at RealtyTrac. ‘But there are hundreds of thousands of borrowers scheduled to exit forbearance in the next two months.’”
“According to the report, the states with the greatest amount of foreclosure starts were California (3,434); Texas (2,827); Florida (2,546); New York (1,363); and Illinois (1,362). The metropolitan areas with the greatest number of foreclosure starts are New York, New York (1,456); Chicago, Illinois (1,122); Los Angeles, California (1,102); Miami, Florida (992); and Houston, Texas (866).”
“The number of Dallas-Fort Worth homes facing forced sale by lenders jumped 75% in the third quarter. Lenders flagged 638 D-FW homes for foreclosure in the just-completed quarter, compared with only 141 foreclosure filings in the second quarter, according to Attom Data Solutions. Houston ranked eighth nationally for the home loan defaults with 956 foreclosure filings.”
“Scott Hanton, broker with The Weir Team Brokerage Inc. in Toronto cautions that the market has been very halting recently. ‘The fall market really was slow for a lot of people,’ he says. ‘I’ve been warning all of my sellers that it’s so unpredictable.’ Mr. Hanton has seen a slew of deals recently where an appraiser determines that the sale price exceeds market value. In those cases, the lender typically requires a larger down payment to bridge the gap.”
“‘There’s no bank in the world that’s going to appraise this house.’ His clients have the flexibility to come up with more cash but many buyers don’t. ‘They can get in way over their heads.’ If sellers are holding out for $2-million and receive an offer for $1.8-million, for example, they believe they are giving up $200,000. That’s a misguided perspective, Mr. Hanton explains, because they’re not losing anything. ‘It’s hard to get them to overcome that – they never had $2-million on the table,’ he says.”
“Evergrande used to bid for land at prices significantly higher than market prices. Apparently, this is a common practice amongst Chinese companies. Evergrande excelled at that on its way up to becoming the property giant selling home-ownership dreams to the Chinese middle class. Earlier this overinflating price did not affect the property developers as the risks were finally transferred to the flat buyers and the banks that financed those purchases.”
“This model has worked fine for households, real estate developers, banks, and local governments up until now because housing prices were soaring up. Rising residential property prices took care of artificial overinflating of land prices. However, this was bound to affect affordability of home and household debt at some point. And it did this time.”
“Evergrande’s illiquid portfolio of property projects are financed by more than $300 billion of domestic and international liabilities, and 80% of these are short-term. The group has a huge liquidity mismatch. Apparently, the cash flow plays a vital part in the growth of these Chinese real estate companies that almost operate like a credit-driven Ponzi scheme.”
“China’s success seems to challenge two central premises of our market economics: you can’t have growth without risk, and growth is worth the risk. Economists consider these premises to be as true as the law of gravity. A market economy experiences recession when there’s a sudden shock, or people take on too much risk by lending or borrowing too much or making bad investments. Unemployment, wealth destruction, and then political accountability follow. But the risk of a recession is the cost of a growing and dynamic economy: no risk, no innovation and no sustainable wealth creation.”
“The Evergrande failure shows what happens when capital flows are directed by bureaucrats instead of markets and few pay the price of bad investment. Markets don’t always get it right, but when you take risk out of the equation, investors make even worse decisions. As investors assumed that China won’t let developers fail, highly leveraged capital continued to flow to the sector, including from foreign investors and Chinese households with lots of savings and not many places to invest it.”
“There will be more Evergrandes in China’s future, and the state won’t always be able to bail out its economy, because it can’t sustain this level of growth without meaningful risk. Throw in a shrinking population, and the CCP might not have the means to deal with the next Evergrande.”
“China may muddle through this time: it is still growing fast, so it still has some margin of error. But its population is shrinking and a distorted capital market is bound to cause more bubbles. This will end badly. It could be a crash that takes down the global economy. Or, if China is ‘lucky’, it could just be a lackluster economy that no longer enriches its citizens.”