A report from Richmond Biz in Virginia. “Joe Dunn, a veteran local mortgage executive, said as of last week around 135 of George Mason Mortgage’s more than 300 employees have since CMG Financial’s poaching began last month. Dunn said the downsizing brought on by CMG may prove timely for GMM. ‘I know this sounds crazy, but the good news is a lot of mortgage companies are laying off people, so we feel like we’re more right-sized now than we were before because there is a decrease in volume,’ he said.”
The Business Journal. “The same companies in the home financing business that in the past three years have done remarkably well financially, and expanded to hundreds of cities nationwide, are now in a bind. National companies such as Better.com and Movement Mortgage already have announced layoffs in the thousands, and chances are hundreds of smaller mortgage outfits across the country will either close shop or merge with another company to keep the lights on.”
“GoPrime Mortgage founder John Rodgers said in the past few days that every mortgage company needs to make some cuts because the margins in the business have nearly disappeared. ‘To survive, one needs to adjust and cut costs,’ says Rodgers, adding the overheated housing market’s ripple effect may become much wider if policymakers do not pay attention to the macro winds.”
The International Business Times. “Major banks last week reported mixed first-quarter results, with JPMorgan’s net earnings dropping by 42%, while Wells Fargo & Co. missing revenue estimates. ‘Megabanks reporting weak earnings were expected this quarter amid consumers’ rising concerns about inflation and the risk of recession,’ said Gabe Krajicek, CEO of Kasasa. ‘With as much as 60% of U.S. consumers living paycheck to paycheck, it’s not a surprise to see spending cutbacks.’”
Hawaiian Real Estate Dreams. “Kona pending sales for February 2022 are down 43% to 174 units when compared to 2021, houses, condos, and land. This is of note since these turn into sales and explain the low numbers we are seeing in closings each month so far this year. Overall sales are down 30% over 2021 at 93 this month. With the changes in lending, it will lead to more complexes having to use the higher down/higher interest rate loans and buyers won’t qualify for this type of loan and condos that historically have not had issues with lending will begin to stack up on the market. This may lead to complexes with small amounts of vacation rentals to change their rules to disallow them to avoid this issue that lowers their property values.”
“Lending has had a drastic shift that is just now beginning to be felt. Fannie Mae and Freddy Mac buy most of the residential loans in the US, including second homes in Hawaii. They have changed their rules to not allow condo complexes with vacation rentals to qualify. Wow, this is huge! If they google the complex and find any vacation rentals online, or check the association disclosure that they receive in the lending process and it says ‘yes’ to vacation rentals, the complex will be disallowed.”
“This makes it ‘non-warrantable’ and that leaves us with pretty much only First Hawaiian and Bank of Hawaii as the only two local lenders who will cover this type of loan product. A non-warrantable loan has a higher down payment and interest rate.”
The Oregonian. “County documents to be presented at next week’s meeting show that there are 186 licensed short-term rentals in unincorporated Clatsop County. If the county commission approves the new ordinance, just 77 of those permits could be renewed. Several homeowners, real estate agents and coastal visitors, however, wrote to the commission expressing concerns about the financial losses that might result from limiting vacation rentals. Bobak Baradar, who owns a rental property in Clatsop County, said he doesn’t buy the complaint that rental homes are eating into the housing supply for year-round residents.”
“‘For the housing market in the entire U.S., prices are going through the roof, and homes are selling above asking price,’ he said. ‘They’re trying to use vacation rentals as an excuse for that, but housing prices across the U.S. don’t make sense.’”
The Tennessean. “As the state legislature takes steps to prevent local communities from regulating short-term rentals, Tennessee residents are speaking up to ensure the voices of seniors are heard. While there’s nothing inherently wrong with homeowners listing their properties or an extra room for rental, there has been a boom in real estate investors, LLCs and commercial operators buying up houses for the sole purpose of operating them as vacation rentals.”
“As our seniors live out their twilight years, the negative impact of short-term rentals and the revolving door of neighbors is clear. Along with the safety impact, there is a financial reason for concern as well. The unregulated buildup of commercially operated short-term rentals is affecting the housing market. States like Arizona have passed similar bills to SB 0871 and HB 0645, and the impacts on cities like Sedona are immense.”
“The Arizona Republic detailed the housing shortage that has ensued since the preemption legislation took effect, noting, ‘Sedona had an estimated 200 to 300. vacation rentals before the new law took effect. Today, vacation rentals have grown to more than 1,000 homes, or 20% of Sedona’s total housing inventory. … The result? In one of Arizona’s most beautiful places, many can’t find a place to live.’”
From Bisnow. “As both retail and office suffered the worst of the pandemic, investors of all stripes flooded into multifamily. The resultant increase in competition has led to some buildings selling for prices that leave veterans of the sector scratching their heads. ‘We are in a bubble,’ said Stroock partner Lorie Soares Lazarus, a commercial real estate attorney based in Los Angeles. ‘The numbers we’re seeing in multifamily, it’s hard to see how those can be sustained.’”
“‘Some of the value-add buyers had money sitting on the sidelines, and now that needs to be placed, but I have been amazed and astonished at the prices some people are paying for these products,’ Integral Group President of Real Estate Vicki Lundy Wilbon said. ‘At those prices, I don’t think they can withstand a lot of downward pressure in the market.’”
“In many Florida markets, Colliers projects rent to grow by as much as 20% over the next 12 months, though its valuation team has been underwriting for 10%-12% growth in its most recent deals, Colliers Executive Managing Director Casey Babb told Bisnow. In some cases, apartment buildings with more vacancy are trading at a premium because current leases are well below market no matter how recently they were signed.”
“‘That’s something that is breaking the model, frankly, for a lot of people in the industry,’ Babb said. ‘But if you’re not underwriting that sort of rent growth into your model, you will not win deals.’ In the current environment, debt service payments could easily eat up a property’s income if rent growth falls short or interest rates rise beyond a loan’s underwriting projection, Babb said.”
“‘If they’re not making the right assumptions — if they underestimate the taxes, insurance goes up beyond what they thought, if the rent growth slows down in any meaningful way, if interest rates go up to the mid-fours or higher, you are gonna see some people in a need-to-sell situation,’” Babb said. ‘They’re way out ahead of their skis.’”
The Globe and Mail. “Nearly 30 per cent of outstanding mortgage credit has a variable rate, up from just 18 per cent before COVID-19. And for eight consecutive months, variable rate mortgages have accounted for more than half of new home loans, according to the latest Bank of Canada data. Now, the central bank is rapidly raising its benchmark interest rate to tame inflation. Most homeowners with a variable rate won’t notice an immediate impact: Their monthly payments are fixed. However, more of that cash will go toward interest and less to paying down principal. Others will see an immediate increase in mortgage costs.”
“The country’s embrace of variable rates – and broader yet, frothy conditions in the housing market – is leading to some gloomy predictions on Bay Street as lending rates climb.”
“‘Over all, we believe the growing reliance on variable rate mortgages could have a double whammy effect: First, the Bank of Canada rate hikes will be transmitted to Main Street much quicker than in past cycles, hitting disposable income,’ Jean-Michel Gauthier, a strategist at Bank of Nova Scotia, wrote to clients. ‘Second, the hit to the housing market, and thus the wealth effect, will also be much quicker. The path for a safe landing from overheated conditions and unmoored inflation is thus narrow.’”
From News Talk New Zealand. “There are fears thousands of first home buyers will be tipped into financial distress by rising mortgage rates, as the Reserve Bank tries to battle inflation. Many will be paying thousands extra each month to service their mortgages. One person about to battle higher mortgage rates is Liam, who bought his first home in Pakuranga heights last year. Liam said he was ‘a bit worried’ about borrowing costs increasing when his fixed term ends next year.”
“He estimates his annual borrowing costs could jump by an additional $25,000 once he comes off his fixed term. Liam has turned his garage into an extra room and living space, where he lives so he can rent out the house. He is worried that rising interest rates and an uncertain economy could make things difficult, and has been putting aside money to help deal with rising costs, but he’s unsure whether those savings will be enough. ‘If I save $100 a week for a year, that’s $5200 – so [$25,000] is a massive amount extra,’ Liam said.”
“A first home buyer in Auckland might have borrowed $750,000 last year at 2.6 per cent. If mortgage rates hit 6 per cent, that mortgage would cost in excess of $1500 more each month – about $4500 a month in total. Interest rates are already nudging 6 per cent at some banks. Mortgage broker Bruce Patten warned rates ‘could definitely’ hit 6 per cent. Patten said that wherever rates landed there would be pain. ‘There will be people who have to sell and sell down.’”