Category Archives: Housing Market

Manhattan Apartment Sales Plummet, Worst In Three Decades

The virus pandemic and social unrest have sparked an exodus of city dwellers to rural communities and towns. Remote access for work, and the recession, coupled with high unemployment, will extend this outbound emigration trend for the next several years as people seek cheaper living accommodations ex-metro areas. 

It appears the factors mentioned above have dealt a heavy blow to the Manhattan real estate market, which suggests a correction in apartment prices are ahead.

Manhattan apartment sales plunged 54% in 2Q20 compared with the same period last year, marking the most significant decline in 30-years, according to Miller Samuel and Douglas Elliman. The median sales price fell 18% to $1 million, the largest decline in a decade. According to real estate firm Compass, there were only 1,147 sales in the quarter, the lowest on record, due mostly because of coronavirus lock vdowns barred agents from showing apartments until June 22.

“Manhattan was effectively shut down throughout the second quarter until the final week,” the report said. 

“Agents are going nonstop right now,” said Bess Freedman, CEO of Brown Harris Stevens, told CNBC.

“Sellers can’t be married to pre-pandemic prices,” Freedman said. “Everyone needs to be reasonable and fair about the new environment.”

“There is going to be an incredible supply of rentals,” he said. “We are going to see a lot of negotiating and landlord incentives.”

The latest indicator that the Manhattan real estate market is turning could be the number of signed contracts in June, were down 76%, compared with the same time last year.

Further, an entire floor apartment at the “coveted” One57 building, one of the flagships of billionaire’s, aka bagholder’s row, just sold for $28 million about six years after it was initially purchased for $47.4 million. 

It marks a 41% discount for the luxury apartment in the span of about a half-decade. The plunge in prices would be the most significant discount to date at the building. 

If readers aren’t familiar with the current exodus trends ex-cities – here’s the latest:

Coast to coast, people are fleeing cities: 

Some have even fled to the Caribbean:

To sum up, if you haven’t considered leaving a major city because its unaffordable – now might be the time, due mostly because a correction in housing prices is likely underway. 

Source: ZeroHedge

Massive Shifts Underway In Residential Rental Real Estate Rates

Massive Shifts Underway, Rental Market Reacts in Near-Real Time: Rents Plunge in San Francisco & Oil Patch, Drop in Expensive Cities. But Long List of Double-Digit Gainers

There are now at least three factors that have plowed into the US housing market – and the rental market is reacting in near-real time to them: The unicorn-startup bust that began last year and built up into a crescendo this year; the Pandemic-inspired move to work-from-home; and the oil-and-gas bust that took on special vigor this spring when crude oil prices totally collapsed.

People are bailing out of some places and moving elsewhere. In the most expensive cities, rents are dropping, but in other cities – a lot of them – rents are skyrocketing by the double-digits.

Crazy-overpriced San Francisco rents.

Rents in San Francisco plunged more than in any other major market in June. This is still the most expensive city to rent in, though there are a few zip codes in Manhattan and in Los Angeles where rents are more expensive than in the most expensive zip code in San Francisco. But it got less expensive in June.

In June, the median asking rent for a one-bedroom apartment dropped 2.4% from May, to $3,280, down 11.8% from June last year, which made the city the fastest-dropping rental market in the US.

The median asking rent for two-bedroom apartments in June fell 1.8% from May to $4,340 and was down 9.6% year-over-year.

The still crazy-overpriced San Francisco market – it’s called the “Housing Crisis” locally – had hit a ceiling in October 2015, with the median asking rent for a 1-BR apartment at $3,670 and for a 2-BR at $5,000. Then rents declined by close to 10% into 2017 before picking up again. While 1-BR rents eked out a new record in June last year (by $50), 2-BR rents never got close to their October 2015 record and are now 13.2% below it.

These are median asking rents. “Median” means half the asking rents are higher, and half are lower. “Asking rent” is the advertised rent. This is a measure of the current market in near-real time, like the price tag in a store that can be changed from day to day to attract shoppers, depending on market conditions. Asking rent is not a measure of what tenants are currently paying on their existing leases or under rent-control programs.

A sea of red in the 17 most expensive rental markets.

The table below shows the 17 most expensive major rental markets by median asking rents. The shaded area shows their respective peaks and changes from those peaks. Almost all of them have declined from their peaks – with eight of them by the double digits, led by Chicago and Honolulu, where rents have gotten crushed since their respective peaks in 2015.

Seattle is now solidly on the list of double-digit decliners, booking the third largest decline-from-peak in 2-BR rents (-15.1%), behind Chicago and Honolulu, and the ninth largest in 1-BR rents (-9.5%).

Denver, not long ago one of the hottest rental markets in the US, has frozen over, with declines-from-peak in the -10% range.

The rents we’re discussing here are for apartments in apartment buildings, including new construction. Not included are rents for single-family houses, condos for rent, rooms, efficiency apartments, and apartments with three or more bedrooms. The data is collected by Zumper from over 1 million active listings, including Multiple Listings Service (MLS) in the 100 largest markets.

The Cities with the biggest %-declines in 1-BR rents.

The table below shows the 31 cities with the largest year-over-year rent declines in June for 1-BR apartments, with San Francisco at the top, followed by Syracuse, NY, a college town now under siege from the Pandemic. Denver, with a 10% year-over-year decline, rounds out the double-digit decliners.

Then there are a bunch of cities in the Texas-Oklahoma-Louisiana oil-patch on this list, including Tulsa and Houston in 5th and 6th place. There are eight cities in Texas on this list. Louisiana is represented by New Orleans (#18) and Baton Rouge (#31).

The oil patch is in serious trouble. The oil bust started in mid-2014, when the price of crude oil grade WTI began its long decline from $100-plus per barrel to a low of $26 a barrel in early 2016. Then the price began to recover but never made it back to levels where the shale oil industry can survive long-term.

In January this year, WTI started heading lower again, and this April hit a new low, when in some places the price at the wellhead dropped to zero and when WTI futures briefly collapsed below zero for the first time ever.

Hundreds of oil-and-gas drillers have filed for bankruptcy over the past three years, and the speed and magnitude of those bankruptcy filings is picking up, with one of the biggies, Chesapeake, which is based in Oklahoma City, filing for bankruptcy on Sunday.

Houston is the center of the US oil patch, and despite its vast and diversified economy, the city has gotten slammed by the oil-and-gas bust in various ways, including by the highest office vacancy rates in the US, now at a catastrophic 24.5%.

Also on this list are Silicon Valley (San Jose), Southern California (Los Angeles, Anaheim, Santa Ana), and three markets in Florida, among others.

Biggest Declines, in %
1 BR Rent Y/Y %
1 San Francisco, CA $3,280 -11.8%
2 Syracuse, NY $860 -11.3%
3 Denver, CO $1,440 -10.0%
4 Irving, TX $1,080 -9.2%
5 Tulsa, OK $590 -9.2%
6 Houston, TX $1,100 -9.1%
7 Madison, WI $1,080 -8.5%
8 Aurora, CO $1,090 -8.4%
9 San Jose, CA $2,300 -8.0%
10 Orlando, FL $1,220 -6.9%
11 Durham, NC $1,040 -6.3%
12 Laredo, TX $780 -6.0%
13 Anaheim, CA $1,600 -5.9%
14 Jacksonville, FL $900 -5.3%
15 Charlotte, NC $1,200 -4.8%
16 Fort Worth, TX $1,100 -4.3%
17 Los Angeles, CA $2,150 -3.6%
18 New Orleans, LA $1,380 -3.5%
19 Santa Ana, CA $1,720 -3.4%
20 Seattle, WA $1,800 -2.7%
21 Plano, TX $1,130 -2.6%
22 Tampa, FL $1,150 -2.5%
23 Corpus Christi, TX $830 -2.4%
24 Louisville, KY $860 -2.3%
25 San Antonio, TX $880 -2.2%
26 Salt Lake City, UT $1,050 -1.9%
27 Raleigh, NC $1,020 -1.9%
28 New York, NY $2,890 -1.7%
29 Boston, MA $2,410 -1.6%
30 Dallas, TX $1,230 -1.6%
31 Baton Rouge, LA $820 -1.2%

The Cities with biggest %-increases in 1-BR rents.

OK, get ready. Among the 100 largest rental markets are 9 cities where rents skyrocketed by over 15% year-over-year in June. And except for Philadelphia, all of them sport median asking rents for 1-BR apartments that are well below the national median ($1,229 according to Zumper). Meaning these cities with these huge rent increases are still deep in the lower half of the rental spectrum. In total, there are 20 cities with double-digit rent increases:

Biggest Increases, in % 1 BR Rent Y/Y %
1 Cleveland, OH $940 16.0%
2 Indianapolis, IN $870 16.0%
3 Columbus, OH $810 15.7%
4 Rochester, NY $970 15.5%
5 Chattanooga, TN $900 15.4%
6 Cincinnati, OH $900 15.4%
7 Philadelphia, PA $1,510 15.3%
8 St Louis, MO $910 15.2%
9 Norfolk, VA $920 15.0%
10 Lincoln, NE $770 14.9%
11 Newark, NJ $1,320 14.8%
12 Des Moines, IA $930 14.8%
13 Detroit, MI $700 14.8%
14 Wichita, KS $700 14.8%
15 Bakersfield, CA $840 13.5%
16 Reno, NV $1,030 13.2%
17 Baltimore, MD $1,320 11.9%
18 St Petersburg, FL $1,230 11.8%
19 Akron, OH $610 10.9%
20 Boise, ID $1,060 10.4%
21 Tucson, AZ $700 9.4%
22 Buffalo, NY $1,080 9.1%
23 Chesapeake, VA $1,080 9.1%
24 Fresno, CA $1,090 9.0%
25 Nashville, TN $1,340 8.9%
26 Memphis, TN $790 8.2%
27 Sacramento, CA $1,360 7.9%
28 Colorado Springs, CO $990 7.6%
29 Arlington, TX $880 7.3%
30 Albuquerque, NM $750 7.1%
31 Gilbert, AZ $1,280 6.7%

Among the top 100 cities, 59 cities experienced year-over-year increases in the median asking rent in June. In eight cities, there was no change in rents. And in 33 cities, asking rents declined, including in many of the largest cities in the US.

The top 100 rental markets, from most expensive to least expensive.

The list goes from San Francisco to Tulsa, with asking rents for 1-BR and 2-BR apartments, in order of 1-BR rents, from $3,280 in San Francisco (-11.8%) to $590 in Tulsa (-9.2%).

These rents that are dropping in some markets and surging in others show two things:

  • Rental markets are local, and the median national rent is irrelevant at the local level.
  • Big shifts are underway in housing, and the rental market is pointing out the weaknesses in demand where it exists in near-real time.

Markets where rents are increasing 10% or 15% a year are asking for trouble unless they have a booming job market with surging wages – this was the case in San Francisco, Seattle, and other hot markets. But if they don’t have surging wages, many renters, who are already tapped out, will run out of money. And it’s renters that keep the show going.

You can search the list list via the search box in your browser. If your smartphone clips this 6-column table on the right, hold your device in landscape position:

1-BR rent Y/Y % 2-BR rent Y/Y %
1 San Francisco, CA $3,280 -11.8% $4,340 -9.6%
2 New York, NY $2,890 -1.7% $3,210 -5.0%
3 Boston, MA $2,410 -1.6% $2,900 2.1%
4 Oakland, CA $2,300 4.5% $2,850 4.8%
4 San Jose, CA $2,300 -8.0% $2,860 -4.7%
6 Washington, DC $2,270 1.3% $2,920 2.5%
7 Los Angeles, CA $2,150 -3.6% $2,960 -5.1%
8 Miami, FL $1,800 0.6% $2,310 0.4%
8 Seattle, WA $1,800 -2.7% $2,250 -6.3%
10 San Diego, CA $1,750 -0.6% $2,300 -4.2%
11 Santa Ana, CA $1,720 -3.4% $2,310 6.0%
12 Honolulu, HI $1,670 0.0% $2,100 -8.7%
13 Fort Lauderdale, FL $1,650 3.1% $2,200 4.8%
14 Anaheim, CA $1,600 -5.9% $1,960 -7.5%
14 Long Beach, CA $1,600 3.2% $2,010 0.5%
16 Chicago, IL $1,510 1.3% $1,800 0.0%
16 Philadelphia, PA $1,510 15.3% $1,750 2.9%
18 Providence, RI $1,470 2.8% $1,650 4.4%
19 Atlanta, GA $1,440 5.1% $1,840 5.7%
19 Denver, CO $1,440 -10.0% $1,880 -5.1%
21 Portland, OR $1,420 4.4% $1,750 1.2%
22 Minneapolis, MN $1,400 0.0% $1,900 3.8%
22 Scottsdale, AZ $1,400 1.4% $1,870 -2.1%
24 New Orleans, LA $1,380 -3.5% $1,610 5.2%
25 Sacramento, CA $1,360 7.9% $1,600 8.8%
26 Nashville, TN $1,340 8.9% $1,450 7.4%
27 Baltimore, MD $1,320 11.9% $1,540 10.8%
27 Newark, NJ $1,320 14.8% $1,680 14.3%
29 Gilbert, AZ $1,280 6.7% $1,490 4.2%
30 Austin, TX $1,250 5.0% $1,520 0.7%
30 Chandler, AZ $1,250 3.3% $1,440 -0.7%
32 Dallas, TX $1,230 -1.6% $1,680 -1.8%
32 St Petersburg, FL $1,230 11.8% $1,600 3.9%
34 Orlando, FL $1,220 -6.9% $1,400 -6.7%
35 Charlotte, NC $1,200 -4.8% $1,370 0.0%
36 Tampa, FL $1,150 -2.5% $1,390 4.5%
37 Plano, TX $1,130 -2.6% $1,540 -0.6%
38 Henderson, NV $1,120 -0.9% $1,350 0.0%
39 Richmond, VA $1,110 2.8% $1,370 11.4%
40 Fort Worth, TX $1,100 -4.3% $1,360 1.5%
40 Houston, TX $1,100 -9.1% $1,310 -6.4%
42 Aurora, CO $1,090 -8.4% $1,350 -9.4%
42 Fresno, CA $1,090 9.0% $1,240 8.8%
44 Buffalo, NY $1,080 9.1% $1,350 14.4%
44 Chesapeake, VA $1,080 9.1% $1,250 4.2%
44 Irving, TX $1,080 -9.2% $1,390 -10.3%
44 Madison, WI $1,080 -8.5% $1,310 -5.1%
44 Pittsburgh, PA $1,080 1.9% $1,350 3.8%
49 Boise, ID $1,060 10.4% $1,120 1.8%
50 Salt Lake City, UT $1,050 -1.9% $1,300 -5.1%
50 Virginia Beach, VA $1,050 0.0% $1,250 1.6%
52 Durham, NC $1,040 -6.3% $1,230 -3.1%
53 Reno, NV $1,030 13.2% $1,350 3.1%
54 Raleigh, NC $1,020 -1.9% $1,200 0.0%
55 Phoenix, AZ $1,010 1.0% $1,280 2.4%
56 Las Vegas, NV $1,000 1.0% $1,200 4.3%
56 Milwaukee, WI $1,000 3.1% $1,170 14.7%
58 Colorado Springs, CO $990 7.6% $1,250 7.8%
59 Rochester, NY $970 15.5% $1,130 15.3%
60 Anchorage, AK $960 5.5% $1,180 2.6%
60 Kansas City, MO $960 0.0% $1,120 0.9%
60 Mesa, AZ $960 4.3% $1,190 3.5%
63 Cleveland, OH $940 16.0% $1,000 14.9%
64 Des Moines, IA $930 14.8% $990 15.1%
65 Norfolk, VA $920 15.0% $1,070 1.9%
66 St Louis, MO $910 15.2% $1,290 12.2%
67 Chattanooga, TN $900 15.4% $1,020 14.6%
67 Cincinnati, OH $900 15.4% $1,200 7.1%
67 Jacksonville, FL $900 -5.3% $1,100 1.9%
70 Arlington, TX $880 7.3% $1,150 5.5%
70 San Antonio, TX $880 -2.2% $1,100 -1.8%
72 Glendale, AZ $870 3.6% $1,100 2.8%
72 Indianapolis, IN $870 16.0% $940 16.0%
74 Louisville, KY $860 -2.3% $940 -1.1%
74 Syracuse, NY $860 -11.3% $1,060 1.0%
76 Omaha, NE $850 1.2% $1,020 -2.9%
77 Bakersfield, CA $840 13.5% $1,070 15.1%
78 Corpus Christi, TX $830 -2.4% $1,050 -0.9%
79 Baton Rouge, LA $820 -1.2% $940 1.1%
80 Columbus, OH $810 15.7% $1,050 -1.9%
80 Knoxville, TN $810 1.3% $950 5.6%
80 Spokane, WA $810 0.0% $1,070 7.0%
83 Winston Salem, NC $800 3.9% $880 6.0%
84 Augusta, GA $790 5.3% $880 8.6%
84 Memphis, TN $790 8.2% $840 9.1%
86 Laredo, TX $780 -6.0% $890 0.0%
87 Lincoln, NE $770 14.9% $920 3.4%
88 Tallahassee, FL $760 0.0% $900 2.3%
89 Albuquerque, NM $750 7.1% $900 7.1%
89 Lexington, KY $750 0.0% $950 -3.1%
89 Oklahoma City, OK $750 4.2% $880 0.0%
92 Greensboro, NC $720 1.4% $840 1.2%
93 Detroit, MI $700 14.8% $800 15.9%
93 Tucson, AZ $700 9.4% $930 5.7%
93 Wichita, KS $700 14.8% $750 0.0%
96 El Paso, TX $680 4.6% $800 0.0%
97 Lubbock, TX $650 3.2% $840 7.7%
97 Shreveport, LA $650 0.0% $800 14.3%
99 Akron, OH $610 10.9% $730 0.0%
100 Tulsa, OK $590 -9.2% $810 1.3%

Source: by Wolf Richter | Wolf Street Report

San Francisco Rents Drop Most On Record As People Flee Medical Martial Laws For Suburbs

Source: RentSFNow

Readers may recall, as early as March, city dwellers in California fled to suburbs and remote areas to isolate from the virus pandemic. The proliferation of remote work arrangements has led this shift to become more permanent. 

At first, the exodus out of the city was due to virus-related lock downs, then social unrest, and now it appears a steady flow of folks are leaving the San Francisco Bay Area for rural communities as their flexible work environment (i.e., remote access) allows them to work from anywhere, more specifically, outside city centers where the cost of living is a whole lot cheaper.  

Bloomberg notes, citing a new report from rental website Zumper, the latest emigration trend out of the Bay Area has resulted in rents for a San Francisco one-bedroom apartment to plunge 12% in June compared with last year, which is one of the most significant monthly declines on record.

“Zumper has been tracking rent prices across the country for over five years but we have never seen the market fluctuate quite like this,” Zumper co-founder and CEO Anthemos Georgiades said. “For example, rent prices in San Francisco have historically only gone up and typically only incrementally, yet now we are seeing double-digit percent rent reductions. This is unprecedented for this generation of renters.”

Georgiades said the ability to work remotely led to the exodus of city dwellers: 

“The very real move of many mainly technology employers to a future of remote work, meaning millions of employees now looking outside of dense metropolitan areas for their next home now that their commute time is no longer a factor,” Georgiades said.

“Silicon Valley hubs such as Mountain View and Palo Alto also saw rents plunge — a sign residents of the tech-heavy region are taking advantage of remote work arrangements to flee to cheaper areas,” Bloomberg said.

“This is the strangest downturn I’ve ever seen,” J.J. Panzer with the Real Management Company told San Francisco KPIX 5.

Rental inventory in the Bay Area has increased since the pandemic began – allowing renters to renegotiate leases and ask for a 10-15% reduction in rents. 

Other factors for the steep drop in rents is mainly because of the recession and high unemployment. People can no longer afford pricey rentals in San Francisco – must leave city centers for suburbs where rents are significantly less.

“As the pandemic persists on, the demand for rentals has continued to shift away from these pricey areas, and a significant amount of that demand seems to be moving toward neighboring, less expensive areas,” Zumper said on its blog.

“Your landlord, given the widespread nature of the job loss, actually does have an incentive to negotiate a lower rent with you,” said senior Zillow economist Skyler Olsen.

“Vacant units have no value coming upstream to pay their property taxes and their mortgage and that value as part of the system,” said Olsen. 

Financial blog Market Crumbs notes, “with the rise of remote work seemingly inevitable at this point, this trend should continue in San Francisco as well as other major cities in the years to come.”

Source: ZeroHedge

Pending Home Sales Plummet 35% YoY – Biggest Drop Ever As Buyers Forfeit Deposits

Existing home sales collapsed but new home sales rebounded in April, which leaves pending home sales to break the tie and analysts expected a 17.3% MoM drop. However, pending home sales disappointed notably with a 21.8% MoM collapse, sending YoY sales crashing 34.6% – the most ever…

“The housing market is temporarily grappling with the coronavirus-induced shutdown,” which reduced listings and purchases, Lawrence Yun, NAR’s chief economist, said in a statement.

So while all sorts of narratives about lower rates were puked out to defend new home sales outlier data, it seems pending home sales did not get the message…

Every region crashed…

  • Northeast fell 14.5%; Feb. rose 2.8%
  • Midwest fell 22%; Feb. rose 4.2%
  • South fell 19.5%; Feb. fell 0.2%
  • West fell 26.8%; Feb. rose 5.1%

That is the lowest level of pending home sales since records began in 2001…

Source: ZeroHedge

Consumer Confidence In Housing Falls To Lowest Level Since Subprime Crash

The economic free fall from Covid-19 is taking its toll on what had been very strong housing demand and sentiment just a few months ago.

After falling sharply in March, housing confidence among consumers took an even deeper dive in April, according to the Fannie Mae Home Purchase Sentiment Index. It was the lowest level since November 2011. Back then, the market was reeling from the subprime mortgage crisis, with home prices cratering and foreclosures rampant.

Consumers suddenly have a much more pessimistic view of buying and selling conditions. In addition, more consumers said their household income is now significantly lower than it was a year ago.

“Individuals’ heightened uncertainty about job security, as registered in the survey over the last two months, is likely weighing on prospective home buyers, who may be more wary of the substantial, long-term financial commitment of a mortgage,” said Doug Duncan, chief economist at Fannie Mae.

This comes even as interest rates are hovering near record lows. And that is helping to keep buyer sentiment slightly ahead of seller sentiment: 46% of those surveyed said it was a bad time to buy a home, while 65% said it’s a bad time to sell a home.

“We expect that the much steeper decline in selling sentiment relative to buying sentiment will soften downward pressure on home prices,” added Duncan.

On average, consumers said they expect home prices to fall 2% over the next 12 months, the lowest expected growth rate in the survey’s history, which dates to 2010.

Home sales have already fallen sharply, and active listings were down 15% annually in April, according to realtor.com. Sellers also pulled their homes from the market, as social distancing measures went into place.

Signs of a rebound?

The numbers are expected to get worse in May, but there is still some demand in the market. Agents in states that are starting to reopen are hosting open houses again, and online searches are rising.

Three in 4 potential sellers said they are preparing to sell their homes following the end of stay-at-home orders, according to a new survey from the National Association of Realtors.  

“After a pause, home sellers are gearing up to list their properties with the reopening of the economy,” said Lawrence Yun, NAR’s chief economist. “Plenty of buyers also appear ready to take advantage of record-low mortgage rates and the stability that comes with these locked-in monthly payments into future years.”

Home buying and selling will likely vary dramatically by location, as some harder-hit areas stay closed while others reopen. Sales will still be limited by the tight supply of homes for sale. Even before the pandemic struck, the market was incredibly lean.

Source: by Diana Olick | CNBC

U.S. New Home Sales Have Never Dropped This Much In March… Ever

After the plunge in home builder sentiment as they are forced to face reality and the big drop in existing home sales, new home sales were expected to tumble in March (after already dropping in February – bucking the uptrend in existing- and pending-sales).

New Home Sales crashed by 15.4% MoM – the biggest drop since July 2013 – smashing the year-over-year comparison down 9.5%…

This is the biggest decline for March… ever…

From the best levels in 13 years, sales are crashing fast (and the last two months were also revised downward)…

The median sales price rose from the prior year to $321,400.

As Bloomberg notes, March was the first month when U.S. state closures of restaurants, retailers and other non-essential business became more widespread. The data underscore how the pandemic and broader uncertainty about the economy is thwarting potential home buyers.

Source: ZeroHedge

March Home Sales Drop 13.6% MoM In The West – Sellers Take Properties off Market – Coming Months Look Worse

Sales of existing homes fell a wider-than-expected 8.5% in March compared with February to an annualized pace of 5.27 million units, according to the National Association of Realtors’ seasonally adjusted index.

Sales were just 0.8% higher than in March 2019. 

These sales figures are based on closings that represent contracts signed mostly in late January and February, before the coronavirus shut down so much of the economy.

“We saw the stock market correction in late February,” said Lawrence Yun, chief economist at the NAR. “The first half of March held on reasonably well, but it was the second half of March where we saw a measurable decline in sales activity.” 

Yun indicated sales could fall as much as 30% to 40% in the coming months. 

Regionally, sales dropped across the nation but hardest in the West, down 13.6% month to month. Sales fell 9.1% in the South, 7.1% in the Northeast and 3.1% in the Midwest. 

The supply of homes for sale fell a sharp 10.2% annually. Toward the end of the month, some sellers de-listed their properties, not wanting potential buyers touring their homes in person. Other measures showed a sharp drop in the number of new listings in March, reflecting fear in the market among both buyers and sellers.

“Homes are still selling fast, we just don’t have enough inventory,” added Yun, saying that real estate agents do report some interest and have ramped up virtual tours as well as live virtual showings.

Price growth was still strong in March, with the median existing home price hitting $280,600, an 8% annual increase. 

“Going forward, we’ve seen both home buyers and sellers report feeling less confident and many are making adjustments to the process,” said Danielle Hale, chief economist at realtor.com. “Already, sellers are getting less aggressive with asking price growth, and we’re seeing roughly half as many new listings come up for sale this year versus last year.”

Fewer home sales over the coming months will likely mean slower price growth, and in some of the harder-hit markets, where hospitality and leisure drive the local economies, prices could fall. 

Source: by Diana Olick | CNBC

Getting Out Of Dodge: After Exiting Loans And Hiking Mortgage Standards, JPMorgan Stops Accepting HELOCs


The largest US bank is quietly shutting down ahead of a historic default shit storm that is about to hit the U.S.

 

Earlier this week, JPMorgan reported that its loan loss provision surged five fold to over $8.2 billion for the first quarter, the biggest quarterly increase since the financial crisis (even if its total reserve for losses is still a fraction of what it was during the 2008-2009 crash).

And while Jamie Dimon was mum on how much more losses the bank may be forced to take in coming quarters to offset the coming default surge (something we discussed in Houston: The Banks Have A Huge Problem), it hinted that things are about to get much worse when it first halted all non-Paycheck Protection Program based loan issuance for the foreseeable future (i.e., all non-government guaranteed loans) because as we said “the only reason why JPMorgan would “temporarily suspend” all non-government backstopped loans such as PPP, is if the bank expects a default tsunami to hit coupled with a full-blown depression that wipes out the value of any and all assets pledged to collateralize the loans.”

Then, just a few days later, the bank also said it would raise its mortgage standards, stating that customers applying for a new mortgage will need a credit score of at least 700, and will be required to make a down payment equal to 20% of the home’s value, a dramatic tightening since the typical minimum requirement for a conventional mortgage is a 620 FICO score and as little as 5% down. Reuters echoed our gloomy take, stating that “the change highlights how banks are quickly shifting gears to respond to the darkening U.S. economic outlook and stress in the housing market, after measures to contain the virus put 16 million people out of work and plunged the country into recession.”

In short, JPM appears to be quietly exiting the origination of all interest income generating revenue streams over fears of the coming recession, which prompted us to ask“just how bad will the US depression get over the next few months if JPMorgan has just put up a “closed indefinitely” sign on its window.”

That question was especially apt today, when JPM exited yet another loan product, when it announced that it has stopped accepting new home equity line of credit, or HELOC, applications. The bank confirmed that this change was made due to the uncertainty in the economy, and didn’t give an end date to the pause according to the Motley Fool.

Like in the other previous exits, the move doesn’t affect customers who already have HELOCs with the bank. They’ll still be able to withdraw funds on their existing HELOCs as they wish.

With HELOCs generally seen as riskier for banks than purchase or refinance mortgages as they represent a second lien on the home, it was only a matter of time before the bank – which had already exited new first-lien loan issuance would but up a “closed” sign on this particular product.

In short, JPMorgan wants no part of the shit storm that is about to be unleashed on middle America, and especially the housing sector which is about to be hammered like never before.

While the U.S. housing market was on a steady footing earlier this year, all hell broke loose as a result of the economic paralysis and deepening depression resulting from the Coronavirus pandemic. And with would-be home buyers unable to view properties or close purchases due to social distancing measures, the health crisis now threatens to derail the sector, especially as banks are going to make it next to impossible to get a new mortgage.

To be sure, as we reported last week the residential mortgage market is already free falling after borrower requests to delay mortgage payments exploded by 1,896% in the second half of March. And unfortunately, this is just the beginning: last week, Moody’s Analytics predicted that as much as 30% of homeowners – about 15 million households – could stop paying their mortgages if the U.S. economy remains closed through the summer or beyond. Bloomberg called this the “biggest wave of delinquencies in history.”

This would result in a housing market depression and would lead to tens of billions in losses for mortgage servicers and originators such as JPMorgan.

Source: ZeroHedge

Housing Starts Collapse By Most In 36 Years

Carnage in home builder sentiment following a record collapse in home buyer sentiment means it really should not be a total surprise to see Housing Starts crashed 22.3% MoM (the biggest drop since 1984). Building Permits also plunged, but by a lower amount, down 6.8% MoM.

Under the hood, Single-family starts fell to 856k from 1,037K SAAR, a 17.5 drop, while multifamily starts crashed 32.1% to just 347K, the lowest since July, from 511K in February.

Permits were ugly too, although here multi-family units actually rose 5.2% to 423K, while it was single family that tumbled to 884K from 1,005K, a 12% drop.

And this is all before most of the national Chinese Flu lock downs came into effect!

Source: ZeroHedge

$14 Billion Commodity Broker Facing Crushing Margin Calls After Mortgage Hedges Go Wrong


(ZeroHedge) We warned last week that, despite The Fed’s unlimited largesse, there is trouble brewing in the mortgage markets that has an ugly similarity to what sparked the last crisis in 2007. For a sense of the decoupling, here is the spread between Agency MBS (FNMA) and 10Y TSY yields…

At that time, WSJ’s Greg Zuckerman reported that the AG Mortgage Investment Trust, a real-estate investment trust operated by New York hedge fund Angelo, Gordon & Co., is among those feeling pressure, the company said, and, in the latest sign of turmoil in crucial areas of the credit markets, is examining a possible asset sale.

“In recent weeks, due to the turmoil in the financial markets resulting from the global pandemic of the Covid-19 virus, the company and its subsidiaries have received an unusually high number of margin calls from financing counterparties,” AG Mortgage said Monday morning.

Well, they are not alone.

As Bloomberg reports, the $16 trillion U.S. mortgage market – epicenter of the last global financial crisis – is suddenly experiencing its worst turmoil in more than a decade, setting off alarms across the financial industry and prompting the Fed to intervene. But, as we previously noted, it is too late and too limited (the central bank is focusing on securities consisting of so-called agency home loans and commercial mortgages that were created with help from the federal government).

And the aftershocks of a chaotic rush to offload mortgage bonds are spilling over to regional broker-dealers facing mounting margin calls.

Flagstar Bancorp, one of the nation’s biggest lenders to mortgage providers, said Friday it stopped funding most new home loans without government backing. Other so-called warehouse lenders are tightening terms of financing to mortgage providers, either raising costs or refusing to support certain types of home loans.

One prominent mortgage funder, Angel Oak Mortgage Solutions, said Monday it’s even pausing all loan activity for two weeks. It blamed an “inability to appropriately evaluate credit risk.”

Things escalated over the weekend, according to Bloomberg,  when some firms rushed to raise cash by requesting offers for their bonds backed by home loans.

“I ran dealer desks for over 20 years,” said Eric Rosen, who oversaw credit trading at JPMorgan Chase & Co., ticking off the collapse of Long-Term Capital Management, the bursting of the dot-com bubble some 20 years ago, and the 2008 global financial crisis. “And I never recall a BWIC on a weekend.”

And now, commodity-broker ED&F Man Capital Markets has been hit with growing demands to post more capital to cover souring hedges in its mortgage division, according to people with knowledge of the matter.

The requests are coming from central clearinghouses and exchanges, forcing the firm to put up almost $100 million on Friday alone, the people said, asking not to be identified because the information isn’t public.

ED&F, whose hedges exceed $5 billion in net notional value, has been in discussions with the clearinghouses and has met all the margin calls, one of the people said.

As a reminder, ED&F Man Capital is the financial-services division of ED&F Man Group, the 240-year-old agricultural commodities-trading house.

It has about $14 billion in assets and more than $940 million in shareholder equity, according to the firm’s website.

Concern about losses in mortgage bonds could feed turmoil in the overall mortgage market that ultimately drives up borrowing costs for consumers looking to buy homes and refinance. Mortgage rates have risen in recent weeks, despite a fall in benchmark rates.

“The Fed is going to do whatever it takes to restore normal functioning in the market,” said Karen Dynan, a Harvard University economics professor who formerly worked as a Fed economist and senior official at the Treasury Department.

“But we need to remember that the root of the problem is that financial institutions and investors are desperately seeking cash, so in that sense the Fed’s announcement is not everything that needs to be done.”

All of which sounds ominously similar to July 2007, when two Bear Stearns hedge funds (Bear Stearns High-Grade Structured Credit Fund and the Bear Stearns High-Grade Structured Credit Enhanced Leveraged Fund) – exposed to mortgage-backed securities and various other leveraged derivatives on same – crashed and burned and started the dominoes falling…

Source: ZeroHedge

Recession 2020: 5 Reasons It Will Be Worse Than 2009

In this recession 2020 video YOU are going to discover 5 reasons (NO ONE IS TALKING ABOUT) the next recession will be far worse than the 2008/2009 recession. The Fed has created so much mal investment, by keeping interest rates artificially low, we now have the EVERYTHING BUBBLE. Stocks are in a bubble, bonds are in a bubble, housing is in a bubble and the 2020 recession (which the data suggests is highly probable) will be the pin that pricks them all.

We’ve had recessions in the US every 6-8 years throughout our history, and we’re currently 10 years into an expansion which makes the US due for a recession in 2020. While not all recessions are devastating, because the debt bubbles are so much bigger now than in 2009, the next recession has the potential to be the worst by far.

Core Mortgage Repayment Risk Factors Exceed Former Financial Crisis Highs

The GSEs (Government Sponsored Enterprises) of Fannie Mae and Freddie Mac have seeming forgotten the financial crisis.

Fannie Mae, for example, now has the highest average combined loan-to-value (CLTV) ratio in history. Even higher than during the financial crisis.

How about borrower debt-to-income (DTI) ratios? Fannie Mae’s average DTI is the highest its been since Q4 2008.

At least the average FICO scores remains above kickoff of the last financial crisis.

David Lereah, Chief Economist, National Association of Realtors (2006)

Source: Confounded Interest

US Home Prices Accelerate At Fastest Pace In 9 Months

Case-Shiller home price gains have re-accelerated over the last 3 months and analysts expected another acceleration in November (the latest data set) and were right as the 20-City Composite surge 2.55% YoY (better than the +2.40% YoY expectation).

This is the biggest YoY rise since Feb 2019…

Source: Bloomberg

Home prices climbed 0.5% from the previous month – also topping forecasts – matching the October increase for the best back-to-back gains since early 2018.

All 20 cities in the index showed year-over-year home-price gains, led by Phoenix; Charlotte, North Carolina; and Tampa, Florida.

After dropping YoY in September and October, the mecca of all things socially just and tech-savvy – San Francisco – saw prices adjust higher and back into the green YoY…

Source: Bloomberg

Finally, a broader national index of home prices was up 3.5% from a year earlier, the most since April.

Source: ZeroHedge

Why Manhattan’s Skyscrapers Are Empty

Approximately half of the luxury-condo units that have come onto the market in the past five years remain unsold.

In Manhattan, the homeless shelters are full, and the luxury skyscrapers are vacant.

Such is the tale of two cities within America’s largest metro. Even as 80,000 people sleep in New York City’s shelters or on its streets, Manhattan residents have watched skinny condominium skyscrapers rise across the island. These colossal stalagmites initially transformed not only the city’s skyline but also the real-estate market for new homes. From 2011 to 2019, the average price of a newly listed condo in New York soared from $1.15 million to $3.77 million.

But the bust is upon us. Today, nearly half of the Manhattan luxury-condo units that have come onto the market in the past five years are still unsold, according to The New York Times.

What happened? While real estate might seem like the world’s most local industry, these luxury condos weren’t exclusively built for locals. They were also made for foreigners with tens of millions of dollars to spare. Developers bet huge on foreign plutocrats—Russian oligarchs, Chinese moguls, Saudi royalty—looking to buy second (or seventh) homes.

But the Chinese economy slowed, while declining oil prices dampened the demand for pieds-à-terre among Russian and Middle Eastern zillionaires. It didn’t help that the Treasury Department cracked down on attempts to launder money through fancy real estate. Despite pressure from nervous lenders, developers have been reluctant to slash prices too suddenly or dramatically, lest the market suddenly clear and they leave millions on the table.

The confluence of cosmopolitan capital and terrible timing has done the impossible: It’s created a vacancy problem in a city where thousands of people are desperate to find places to live.

From any rational perspective, what New York needs isn’t glistening three-bedroom units, but more simple one- and two-bedroom apartments for New York’s many singlesroommates, and small families. Mayor Bill De Blasio made affordable housing a centerpiece of his administration. But progress here has been stalled by onerous zoning regulations, limited federal subsidies, construction delays, and blocked pro-tenant bills.

In the past decade, New York City real-estate prices have gone from merely obscene to downright macabre. From 2010 to 2019, the average sale price of homes doubled in many Brooklyn neighborhoods, including Prospect Heights and Williamsburg, according to the Times. Buyers there could consider themselves lucky: In Cobble Hill, the typical sales price tripled to $2.5 million in nine years.

This is not normal. And for middle-class families, particularly for the immigrants who give New York City so much of its dynamism, it has made living in Manhattan or gentrified Brooklyn practically impossible. No wonder, then, that the New York City area is losing about 300 residents every day. It adds up to what Michael Greenberg, writing for The New York Review of Books, called a new shameful form of housing discrimination—“bluelining.”

We speak nowadays with contrition of redlining, the mid-twentieth-century practice by banks of starving black neighborhoods of mortgages, home improvement loans, and investment of almost any sort. We may soon look with equal shame on what might come to be known as bluelining: the transfiguration of those same neighborhoods with a deluge of investment aimed at a wealthier class.

New York’s example is extreme—the squeezed middle class, shrink-wrapped into tiny bedrooms, beneath a canopy of empty sky palaces. But Manhattan reflects America’s national housing market, in at least three ways.

First, the typical new American single-family home has become surprisingly luxurious, if not quite so swank as Manhattan’s glassy spires. Newly built houses in the U.S. are among the largest in the world, and their size-per-resident has nearly doubled in the past 50 years. And the bathrooms have multiplied. In the early ’70s, 40 percent of new single-family houses had 1.5 bathrooms or fewer; today, just 4 percent do. The mansions of the ’70s would be the typical new homes of the 2020s.

Second, as the new houses have become more luxurious, homeownership itself has become a luxury. Young adults today are one-third less likely to own a home at this point in their lives than previous generations. Among young black Americans, homeownership has fallen to its lowest rate in more than 60 years.

Third, and most important, the most expensive housing markets, such as San Francisco and Los Angeles, haven’t built nearly enough homes for the middle class. As urban living has become too expensive for workers, many of them have either stayed away from the richest, densest cities or moved to the south and west, where land is cheaper. This is a huge loss, not only for individual workers, but also for these metros, because denser cities offer better matches between companies and workers, and thus are richer and more productive overall. Instead of growing as they grow richer, New York City, Los Angeles, and the Bay Area are all shrinking.

Across the country, the supply of housing hasn’t kept up with population growth. Single-family-home sales are stuck at 1996 levels, even though the United States has added 60 million people—or two Texases—since the mid-’90s. The undersupply of housing has become one of the most important stories in economics in the past decade. It explains why Americans are less likely to movewhy social mobility has declinedwhy regional inequality has increasedwhy entrepreneurship continues to fallwhy wealth inequality has skyrocketed, and why certain neighborhoods have higher poverty and worse health.

In 2010, one might have thought that the defining housing story of the century would be the real-estate bubble that plunged the U.S. economy into a recession. But the past decade has been defined by the juxtaposition of rampant luxury-home building with the cratering of middle-class-home construction. The future might restore a measure of sanity, both to New York’s housing crisis and America’s. But for now, the nation is bluelining itself to death.

Source: by Derek Thompson | The Atlantic

Zombie NYC Developers Resort To Inventory Loans To Stay Afloat During Housing Slump

New York City’s housing market has been swamped with a historic mismatch involving a flood of luxury inventory and a shortage of buyers. 

Manhattan is facing one of the worst slumps since 2011, forcing developers to take out low-interest inventory loans, collateralized by unsold condos to stay afloat. 

These loans are lifelines for struggling developers and a boom for companies such as Silverstein Properties Inc., who is expected to double its inventory loan book to more than $1 billion in 2020, reported Bloomberg.

Silverstein’s inventory loan book is growing at an exponential rate as a housing bust across Manhattan gains momentum. 

Michael May, CEO of Silverstein, said inventory loan growth among developers is the fastest in Gramercy, Tribeca, and Midtown East. These areas have also been hit hard in the housing slump. 

“You’re seeing some projects that are completed that have just had very, very slow sales,” May said. “Given the amount of condo developers seeking debt, if we open the floodgates, we could probably load $1 billion of that product on within the next 60 days.”

Developers have been pulling inventory loans to avoid slashing listing prices that would spark a firesale and lead to further downside in the housing market.

“Our goal is not to lend to projects that fail: We’re in a position where if a project has a problem, we believe that we could execute the business plan, and we could finish the construction,” May said. “We think that there’s still demand for units that are priced well, but in many cases, the owners of these projects have not adjusted their expectations to where the price would sell in the market yet.”

Silverstein has completed $500 million in financing year-to-date. Inventory loans are expected to be a large portion of the firm’s book in 2020, as there’s no sign the Manhattan real estate market will see an upswing then, and developers will need cheap financing to weather the storm.

As a result, the rise of zombie developers across Manhattan is inevitable. Thank You Federal Reserve! 

Source: ZeroHedge

CAR on California October Housing: Sales Up 1.9% YoY, Inventory Down 18%

The CAR reported: California housing market holds steady in October, C.A.R. reports

(Bill McBride) Shrinking inventory subdued California home sales and held home sales and prices steady in October, the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) said today. 

Closed escrow sales of existing, single-family detached homes in California totaled a seasonally adjusted annualized rate of 404,240 units in October, according to information collected by C.A.R. from more than 90 local REALTOR® associations and MLSs statewide. The statewide annualized sales figure represents what would be the total number of homes sold during 2019 if sales maintained the October pace throughout the year. It is adjusted to account for seasonal factors that typically influence home sales.

October’s sales figure was up 0.1 percent from the 404,030 level in September and up 1.9 percent from home sales in October 2018 of a revised 396,720. 

“The California housing market continued to see gradual improvement in recent months as the current mortgage environment remains favorable to those who want to buy a home. With interest rates remaining historically low for the foreseeable future, motivated buyers finding that homes are slightly more affordable may seize the opportunity and resume their home search,” said 2020 C.A.R. President Jeanne Radsick, a second-generation REALTOR® from Bakersfield, Calif. “Additionally, the condominium loan policies that went into effect mid-October could help buyers for whom single-family homes are out of reach.” 

After 15 straight months of year-over-year increases, active listings fell for the fourth straight month, dropping 18.0 percent from year ago. The decline was the largest since May 2013.

The Unsold Inventory Index (UII), which is a ratio of inventory over sales, was 3.0 months in October, down from 3.6 in both September 2019 and October 2018. It was the lowest level since June 2018. The index measures the number of months it would take to sell the supply of homes on the market at the current sales rate.

Source: by Bill McBride | Calculated Risk

San Francisco Bay Area Home Prices Continue Slide, Peak Is likely In

Mainstream financial media drummed up a narrative in 1H19 about how this summer’s tech IPOs would lead to overnight millionaires across the Bay Area, and in return, would produce the next leg up in the region’s real estate market.

The economic narrative never gained traction, partly because of the IPO market imploded. New issues like Lyft and Uber have seen shares nearly halved in the last six months, leaving many investors underwater.

As for the IPO market pumping out overnight millionaires, well, that remains to be seen as the Bay Area real estate market continues to deteriorate, with expectations of a further plunge in 1H20.

The Bay Area median sales price in September for an existing home, across nine-counties including Alameda, Contra Costa, Marin, Napa, San Francisco, San Mateo, Santa Clara, Solano, and Sonoma, plunged 4.7% YoY to $810,000, according to real estate data firm CoreLogic.

Bay Area home prices are some of the most expensive in the country and might have put in a cyclical peak in 2019.

“I think the immediate trigger a year ago was the run-up in mortgage rates,” said Dr. Frank Nothaft, a chief economist at CoreLogic.

“Mortgage rates got posted about 5% a year ago, and that put up a chill on all potential buyers in the market place. When mortgage rates go up, that means the monthly mortgage payment is just taking that much bigger of a bite from family income.”

San Jose-based realtor Holly Barr told NBC Bay Area that prices have been slipping for more than a year. Barr noted that price growth has stalled in the last several years, likely marking the top of the market.

“If you look at the trend over the last two years, it’s definitely come down,” she said.

The region has seen YoY sale price declines in the last several months as the slowdown continues to worsen. This recent period of waning demand comes after seven years of rapid price growth.

Agents overwhelmingly said buyers have been on the sidelines waiting for the right deal. Many wanted to avoid a bidding war and needed prices to correct further before they entered offers.

Some buyers were concerned about a late 2020 recession, trade war uncertainties, and the threat of a corporate debt bubble implosion.

The S&P CoreLogic Case-Shiller San Francisco Home Price Index has likely peaked in a double top fashion.

The Federal Reserve usually embarks on an interest rate cut cycle in preparation for macroeconomic headwinds developing in the economy that eventually damages the housing market.

As shown below, the Case-Shiller San Francisco Home Price Index tends to fall in a cut cycle.

Bay Area home prices will continue to weaken through 1H20. At what point do millennial homeowners, most of whom bought the top of the market, panic sell into a down market? 

Source: ZeroHedge

Young First-Time Buyers Are Vanishing From US Housing Market

Seeing as most young Americans are saddled with student-loan debt, underemployment and other economic blights, few have any money left for important large purchases like a home. At this point, it’s beginning to look like millennials will be remembered as the first rentier generation in the country’s history.

To wit, according to data from the National Association of Realtors, the median age of first-time home buyers has increased to 33 in 2019, the highest median age since they started collecting the data back in 1981. Meanwhile, the median age for all buyers hit a fresh record high of 47, climbing for the third straight year, and well above the median age of 31 in 1981.

Though the median age for first timers only increased by one year, BBG reports that it reflects a variety of factors impacting those who are searching for a home.

For one, since the housing-market collapse ten years ago, construction of affordable housing has never recovered. Low housing stock, coupled with low interest rates, has stoked higher prices, especially in more affordable markets from the coasts to the middle of the country. This made circumstances ideal for older Americans with more assets to borrow against and cash on hand. But younger Americans who don’t have enough saved for a down payment lost out.

“Housing affordability is so difficult today, especially when coupled with rising rents and student loan debt, that they’re finding different ways to enter home ownership,” said Jessica Lautz, vice president of demographics and behavioral insights at the Realtors group in Washington.

That’s not all: the percentage of first-time buyers who are married has declined as more single people buy homes to share with girlfriends, boyfriends or roommates. As the average ages of home buyers increases, average incomes have also risen. The median income of purchasers rose to $93,200 in 2018 as the disappearance of affordable housing pushes low-income buyers out of the market.

Factoring in the expansion of economic inequality, young buyers who do manage to buy their own homes typically receive a small gift from their relatives to help cover the down payment first.

Source: ZeroHedge

U.S. Pending Home Sales Surprise, Biggest Annual Gain Since 2015

Despite disappointing slowdowns in sales of new- and existing-homes, pending home sales were expected to show a small positive gain in September but surprised with a 1.5% MoM pop (0.9% exp).

This is the strongest pending home sales index since Dec 2017…

The National Association of Realtors’ Index of pending home sales increased 6.3% in September from a year earlier on an unadjusted basis, the biggest gain since August 2015

“Even though home prices are rising faster than income, national buying power has increased” with lower interest rates, Lawrence Yun, NAR’s chief economist, said in a statement.

“But home prices are rising too fast because of insufficient inventory.”

The monthly gains in contracts were concentrated in the Midwest and South, while the West and Northeast recorded declines.

Source: ZeroHedge

Halt All New Home Construction In Dubai Or Face Economic Disaster, Builder Warns

Damac Properties, one of the largest property developers in Dubai, warned over the weekend about an imminent economic crisis, festering in Dubai’s real estate market. 

Damac Chairman Hussain Sajwani told Bloomberg that a collapse in the housing market is nearing unless new home construction is halted for several years. “Either we fix this problem, and we can grow from here, or we are going to see a disaster,” Sajwani said. 

Sajwani is the latest real estate executive to voice his concern that Dubai’s housing market is on the brink of disaster. 

The slump in the city’s housing market has been underway for the last five years. Prices have tumbled by more than 30% in the same timeframe.

Despite the requests to halt all new home sales, Sajwani said Damac would complete 4,000 homes in 2019 and another 6,000 in 2020. The developer is expected to reduce new builds and concentrate on selling inventory next year. 

“All we need is just to freeze the supply,” Sajwani said. “Reduce it for a year, maybe 18 months, maybe two years,” he said.

Sajwani predicted oversupplied markets would crash home prices.

He said if prices drop further, then it would trigger a tsunami in non-performing loans that would cause contagion in the banking industry. 

“The domino effect is ridiculous because Dubai’s economy relies on property heavily,” he said.

Standard and Poor’s warned last month that economic growth in Dubai will trend lower through 2022 due to depressed oil prices, a global synchronized slowdown, turmoil from the US and China trade war, and geopolitical uncertainties in the Middle East.

The international rating agency said deterioration in real estate and tourism sectors had weighed heavily on the domestic economy.

Housing data from Cavendish Maxwell’s Dubai House Price Index via Property Monitor showed home prices plunged to their lowest levels in June, not seen since the 2008 financial meltdown.

Damac’s shares have crashed more than 77% in the last 26 months, mirroring the downturn in the overall housing market. 

If oversupplied conditions aren’t corrected in the coming quarters, Sajwani’s prediction of a market crash could unfold in Dubai in 2H20.

Source: ZeroHedge

Existing Home Sales Tumble In September, Despite Low Mortgage Rates All Summer

After August’s rebound across the housing market – as mortgage rates tumbled – September was expected to see some slowdown but existing home sales fell significantly (dropping 2.2% MoM against expectations of a 0.7% drop).

Existing Home Sales SAAR fell from 5.50mm to 5.38mm in September…


Source: Bloomberg

Lawrence Yun, NAR’s chief economist, said that despite historically low mortgage rates, sales have not commensurately increased, in part due to a low level of new housing options.

“We must continue to beat the drum for more inventory,” said Yun, who has called for additional home construction for over a year.

Home prices are rising too rapidly because of the housing shortage, and this lack of inventory is preventing home sales growth potential.”

Regional breakdown:

  • September existing-home sales in the Northeast fell 2.8% to an annual rate of 690,000, a 1.5% rise from a year ago. The median price in the Northeast was $301,100, up 5.2% from September 2018.
  • In the Midwest, existing-home sales dropped 3.1% to an annual rate of 1.27 million, which is nearly equal to August 2018. The median price in the Midwest was $213,500, a 7.2% jump from a year ago.
  • Existing-home sales in the South decreased 2.1% to an annual rate of 2.28 million in September, up 6.0% from a year ago. The median price in the South was $237,300, up 6.3% from one year ago.
  • Existing-home sales in the West declined 0.9% to an annual rate of 1.14 million in September, 5.6% above a year ago. The median price in the West was $403,600, up 4.5% from September 2018.

 Source: Bloomberg

As price once again becomes an issue.

The median existing-home price for all housing types in September was $272,100, up 5.9% from September 2018 ($256,900), as prices rose in all regions. September’s price increase marks 91 straight months of year-over-year gains.

Total housing inventory at the end of September sat at 1.83 million, approximately equal to the amount of existing-homes available for sale in August, but a 2.7% decrease from 1.88 million one year ago. Unsold inventory is at a 4.1-month supply at the current sales pace, up from 4.0 months in August and down from the 4.4-month figure recorded in September 2018.

Source: ZeroHedge

National Average Rent Drops For First Time In 2 Years As US Property Market Sags

Here’s the latest sign that the US housing market is in the early phases of a nation-wide retreat: For the first time in two years, average national monthly rents declined on a QoQ basis – even as the national average rent continued to climb (up 3.2%) on a YoY basis.

Corresponding with the summer slowdown (a period when the rental market is at its slowest), the national average rent decreased for the first time since February 2017, declining by 0.1% – or $1 – from last month to $1,471, according to Rent Cafe’s quarterly report on the American market for rental housing.

The decrease might seem insignificant, but combined with the slowest year-over-year hike in the past 13 months – 3.2% ($45) – it suggests a slight wind-down in rent prices against the backdrop of a more volatile financial climate, according to Yardi Matrix.

Apartment rents have seen minor declines since last month in more than half of the cities analyzed by RentCafe, with small and large cities leading the trend (prices dropped 59% in small cities, and 56% in large cities), while 42% of mid-sized cities saw rental rates decline in September.

These cities recorded the biggest declines:

  • Provo (-2.2%)
  • North Charleston(-1.5%)
  • Santa Clara (-1.3%)
  • Portland (-1.2%)
  • Midland (-1.5%)

These cities saw the biggest upticks:

  • Syracuse (2.2%)
  • Moreno Valley (2.1%)
  • Manhattan (1.5%)
  • Torrance (1.4%)
  • Los Angeles (1.2%)

Interestingly enough, changing the time frame slightly presents an entirely different picture. Rents for apartments in more than half of the largest rental hubs in the country have declined between August and September. This includes 65% of the country’s mega hubs (like Manhattan).

Meanwhile, rents decreased in three of the five most expensive large cities in the country since August, during which time only NY hubs recorded an increase. Rents in the Bay Area retreated by -0.1% in San Francisco ($3,703) and -1.1% in San Jose ($2,762) while average rent in Manhattan and Brooklyn ($2,956 for both now) increased by 1.5% and 0.5% on an MoM basis, respectively.

Across the ‘small cities’ category, cities and areas that were already among the cheapest to live in saw their average rents decline, as did the most expensive small cities, like San Mateo, Calif. which saw its average rent decline slightly by 0.5% between August and September. Cambridge, Mass., another one of the most expensive small cities, also saw its average rent decline by 0.6% during the same period..

Meanwhile, after a 0.8% drop, the average rental price in Brownsville, TX, known to Rent Cafe as the cheapest town to rent in, reached $721.

On another tip, Rent Cafe’s data revealed that two-bedroom apartments are the most popular among renters.

As for the survey’s methodology, the company’s researchers analyze data collected across 260 of the largest cities and greater metropolitan areas in the US, while the data on average rents comes directly from competitively-rented (market-rate) large-scale multifamily properties (mostly apartment buildings with at least 50 units). Though it’s different from federal data on the housing market, the study offers some insight into the behavior of people who rent apartments, who are typically younger and without families. All of these data are collected, compiled and analyzed via the Yardi Matrix, a data analysis tool.

Source: ZeroHedge

Pending Home Sales Confirm Housing Market Rebound

After new- and existing-home-sales rebounded notably in August, expectations were that pending sales would complete the trifecta and sure enough it did (rising 1.3% MoM, better than the 1.0% expected jump)

Source: Bloomberg

Pending home sales rose 2.48% YoY – the biggest annual jump since April 2016…

Source: Bloomberg

All regions saw an increase in sales in August:

  • Northeast up 1.4%; July fell 1.6%
  • Midwest up 0.6%; July fell 2.4%
  • South up 1.4%; July fell 2.4%
  • West up 3.1%; July fell 3.4%

But we note that The Northeast (-1.1%) and Midwest (-1.6%) both fell year-over-year.

The question is – what happens next? As mortgage rates have rebounded higher and mortgage applications have already tumbled since this sales data…

Source: Bloomberg

Source: ZeroHedge

Bidding Wars For US Homes Collapse To Eight-Year Low

Bidding wars for homes in Seattle, San Jose, and San Francisco have crashed in the past year, reflecting an alarming national trend, according to a new report from Redfin.

The report found that the national bidding-war rate in August was 10.4%, down from 42% a year earlier. The rate printed at the lowest level since 2011.

At the start of 2018, the national bidding-war rate was 59%, then plunged as home buyers became uncomfortable with sky-high housing prices, increasing mortgage rates, and economic uncertainty surrounding the trade war. The housing market started to cool in late 2018, as the competition among home buyers collapsed by 4Q18, this is an ominous sign for the national housing market that could soon face a steep correction in price.

Even with eight months of declining mortgage rates in 2019, bidding-wars among home buyers continue to drop. This is somewhat troubling because the government’s narrative has been declining rates will boom housing, but as of Wednesday, mortgage applications continue to fall. Home buyers aren’t coming off the sidelines, and there’s too much uncertainty surrounding the economy with recession risks at the highest levels in more than a decade.

“Despite remaining near three-year lows, mortgage rates have failed to bring enough buyers to the market to rev up competition for homes this summer,” said Redfin chief economist Daryl Fairweather. Recession fears have been enough to spook some would-be buyers from making the big financial commitment of a home purchase. But assuming a recession doesn’t arrive this fall or winter, consumers will likely adjust to the new ‘normal’ of continued volatility in the stock and global markets, and the people who need and want to make a move will take advantage of low mortgage rates.”

As for one of the hottest real estate markets in the country, that being San Francisco, the bidding-war rate was 31% in August, down from 73.5% a year earlier. The lack of demand has certainly cooled housing prices, now expected to fall 1% YoY.

The rate in San Jose was 10.3% in August, down from 77% a year earlier, and in Seattle, another hot city for real estate, it saw its rate at 9.4%, down from 37.8% last August.

“Competition in the Seattle area has certainly slowed down since the second half of 2018. Last year, five out of five offers I submitted faced competition; now, it’s one in five,” said local Redfin agent Michelle Santos.

“Now, for desirable homes, competition is still fierce, and the winning offer is one that’s above the list price and waives contingencies. At the same time, average homes sit on the market for quite some time before they get any offers.”

With the rapid decline of competition among home buyers and a flood of inventory entering the market, real home prices are starting to correct in major cities. Real price change over the last 12 months is falling in Seattle, San Francisco, and New York, according to new CoreLogic Case-Shiller Home Price Index data.

With competition among home buyers evaporating in a very short period of time, this could mean a downturn in the real estate market is imminent.

Source: ZeroHedge

The Global Mansion Bust Has Begun

Global real estate consultancy firm Knight Frank LLP has warned that the global synchronized decline in growth coupled with an escalating trade war has heavily weighed on luxury home prices in London, New York, and Hong Kong.

According to Knight Frank’s quarterly index of luxury homes across 46 major cities, prices expanded at an anemic 1.4% in 2Q19 YoY, could see further stagnation through 2H19.

Wealthy buyers pulled back on home buying in the quarter thanks to a global slowdown, trade war anxieties, higher taxes by governments, and restrictions on foreign purchases.

Mansion Global said Vancouver was the hottest real estate market on Knight Frank’s list when luxury home prices surged 30% in 2016, has since crashed to the bottom of the list amid increased taxes on foreign buyers. Vancouver luxury home prices plunged 13.6% in 2Q19 YoY.

Financial hubs like Manhattan and London fell last quarter to the bottom of the list as luxury home prices slid 3.7% and 4.9%, respectively.

Hong Kong recorded zero growth in the quarter thanks to a manufacturing slowdown in China, an escalating trade war, and protests across the city since late March.

However, European cities bucked the trend, recorded solid price growth in 2Q19 YoY, though the growth was muted when compared to 2017-18.

Berlin and Frankfurt were the only two cities out of the 46 to record double-digit price growth for luxury homes. Both cities benefited from a so-called catch-up trade because prices are lower compared to other European cities. Moscow is No. 3 on the list, saw luxury home prices jump 9.5% in 2Q19 YoY.

The downturn in luxury real estate worldwide comes as central banks are frantically dropping interest rates. The Federal Reserve cut rates 25bps for the first time since 2008 last month, along with Central banks in New Zealand, India and Thailand have all recently reduced rates.

The main takeaway from central banks easing points to a global downturn in growth, and resorting to sharp monetary policy action is the attempt to thwart a global recession that would ultimately correct luxury home prices.

“Sluggish economic growth explains the wave of interest rate cuts evident in the last three months as policymakers try to stimulate growth,” wrote Knight Frank in the report.

* * *

As for a composite of all global house prices, Refinitiv Datastream shows price trends started to weaken in 2018, and in some cases, completely reversed like in Australia.

House price growth for OECD countries shows the slowdown started in 2016, a similar move to the 2005 decline.

If it’s luxury real estate or less expensive homes, the trend in price has peaked and could reverse hard into the early 2020s.

Central banks are desperately lowering interest rates as the global economy turns down. Likely, the top is in, prepare for a bust cycle.

Source: ZeroHedge

Mortgage Refinance Soar 37% To Highest Level Since Mid-2016 As Mortgage Rates Plunge: Purchase Applications Rise Only 1.9%

Ah, to be a mortgage banker doing refinancings as the global economy grinds to a halt.

According to the Mortgage Bankers Association, refinancing applications rose 37% week-over-week (WoW).

Refi applications have soared to their highest level since mid-2016 as mortgage rates plunge.

Mortgage purchase applications have not been the same since lenders tightened their lending standards and banks increased capital ratios. Not to mention the creation of the Consumer Financial Protection Bureau.

As the NY Fed. pointed out, housing debt is almost back to its prior housing bubble peak of $10 trillion.

Phoenix AZ leads the nation in QoQ mortgage debt growth. Why? A rebound effect in the lower tier of Phoenix home prices.

Source: Confounded Interest

New Home Sales Miss As Mortgage Rate Collapse Fails To Bring Buyers Back

Despite yesterday’s disappointing existing home sales print, new home sales were expected to spike (after dropping for two straight months), and did – thanks to a large downward revision in May.

New Home Sales were 646k SAAR in June – missing expectations of 658k. However this 7.0% MoM jump was bigger than expected thanks to the 8.2% revised plunge in May.

May new-home sales were revised down to 604,000 from 626,000; March and April purchases were also revised lower.

Year-over-year, new home sales rebounded…

Purchases of new homes jumped in the West by the most since August 2010, while sales also rose in the South. Sales in the Midwest slumped to 56,000 last month, the slowest pace since September 2015.

The supply of homes at the current sales rate declined to 6.3 months from 6.7 months in May.

The median sales price was little changed from a year earlier at $310,400.

Despite a collapse in mortgage rates, new home sales refuse to accelerate…

Time for a Fed rate-cut then… because that has helped housing, right? Oh wait…

Source: ZeroHedge

Amazon Plows Into Real Estate Market With Realogy Pact To Transform Homebuying Process

Unhappy with its market share in the US real estate market, the largest online retailer in the world and global commercial monopolist, Amazon, announced a deal on Tuesday morning with the largest US residential real estate brokerage company, Realogy, in a strategy designed to boost sales for both.

As CNBC reports, Realogy – whose stock soared 25% on the news – and Amazon will now offer TurnKey, a horizontally and vertically integrated program meant to streamline and optimize the home- and furniture-buying process, by taking potential homebuyers through the Amazon portal and connects them to a Realogy agent. Once they purchase a home, they then get complimentary Amazon Home Services and products worth up to $5,000.

Realogy, which is the largest real estate broker in the US and which owns such brands as Coldwell Banker, Century 21, Sotheby’s International Realty, Corcoran, ERA and Better Homes and Gardens Real Estate, has been facing stiff online competition from newcomers like Compass and Redfin, which rely heavily on high-tech, online platforms. As CNBC’s Diana Olick writes, “partnering with Amazon gives Realogy a platform unlike any other, not to mention access to more buyer data.”

“We’re the market leaders in this industry and we like that position, but you always have to be innovating to stay ahead, you’ve got to be willing to cannibalize yourself, you’ve got to do all the things that a big successful company needs to do to stay on the forefront,” said Realogy CEO Ryan Schneider.

“In a world that is awash with low quality lead generation out there, where you can get real estate leads from millions of online websites, giving an agent and franchisees high-quality leads from a source like Amazon and Realogy together is a real differentiator that’s going to be very powerful for the group.”

The group’s simple strategy for success: Always Be Closing... and then get the buyer to purchase a whole lot of additional stuff as well.

Here’s how it will work: a potential buyer will go to the TurnKey portal on Amazon and put in information on the type of home they’d like to purchase, the location and price. Amazon then matches them with a Realogy agent. Once the buyer closes on the home, Amazon connects them with services and experts in the area. The buyer not only gets a selection of Amazon Home Services, like painting or hanging a large TV, but they also gain access to smart home products, like a Ring doorbell, to be installed by Amazon professionals. The value of the free products and services can range from $1,000 to $5,000 depending on the purchase price of the home.

“Customers can be overwhelmed when moving, and we’re excited to be working with Realogy to offer homebuyers a simplified way to settle into a new home,” said Pat Bigatel, director of Amazon Home Services. “The Amazon Move-In Benefit will enable homebuyers to adapt the offering to their needs — from help assembling furniture, to assisting with smart home device set up, to a deep clean, and more.”

As CNBC notes, one of the nation’s largest homebuilders, Lennar, previously partnered with Amazon in 2018, introducing smart-home “experience showrooms.” Amazon outfitted Lennar model homes with smart-home technology available for purchase on its site. In something of a show-and-sell strategy, Lennar then offered 90 days of free Amazon home services with the purchase of a home.

Amazon, Google, Apple, most of the technology-centric companies are starting to think about the home as a centerpiece for the way they think about the future of how their products work and how they interact with them, ” said Stuart Miller, executive chairman of Lennar, in an interview in May 2018. “Home automation is a point of attraction. It’s a proxy for a lot of other things.”

The new TurnKey service will first launch in 15 major metropolitan housing markets, including Seattle, San Francisco, Los Angeles, Atlanta, Dallas, Chicago and Washington, D.C., and will then expand into more markets. However Realogy CEO Ryan Schneider did not suggest that this is a stepping stone to putting Realogy brokerages’ listings on Amazon.

“We’ve never had that conversation with Amazon,” he said.

Of course, when Amazon decides to simply eliminate the middleman, it will do so without holding such a conversation in advance. For now, however, Realogy shares are enjoying the added exposure and the stock has soared over 25% this morning on the Amazon news.

Source: ZeroHedge

Existing Home Sales Tumble YoY For 15th Month

After April’s disappointing drop in all segments of the home-sales data, existing home sales were expected to rebound (again) in May and surprised modestly to the upside.

Existing home sales rose 2.5% MoM to 5.34mm in May (and saw a modest upward revision in April)

https://www.zerohedge.com/s3/files/inline-images/bfmC6D2.jpg?itok=49wrqprZ

However, existing home sales have declined on a YoY basis for 15 straight months…

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Home purchases advanced across all four regions, led by a 4.7% rise in the Northeast.

First time buyers accounted for 32% of sales nationally, unchanged from the prior month.

Finally, we note that the recent drop in existing home sales suggests a lagged response in mortgage purchase applications… even with rates collapsing…

https://www.zerohedge.com/s3/files/inline-images/bfmC79B.jpg?itok=uXDYJc0y

As lower rates have apparently sparked a surge in prices as median home prices to a new record $277,700 – with a 4.8% YoY surge – the biggest spike since Aug 2018.

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“The purchasing power to buy a home has been bolstered by falling mortgage rates, and buyers are responding,” NAR Chief Economist Lawrence Yun said in a statement.

As Bloomberg notes, recent housing data have offered a mixed picture on the market, with housing starts falling from an April reading that was stronger than initially reported. Homebuilder sentiment deteriorated in June for the first time this year while permits gained, signaling a more robust pipeline of properties.

Source: ZeroHedge

House-Flipping Trend Stalls As Hard Money Lenders Jump 40%

The American Association of Private Lenders says the number of hard money lenders is approximately 8,300, up 40% since 2016, reported Bloomberg.

A hard money loan is an asset-based loan financing through which a borrower receives capital secured by the property. The volume of these loans to house flippers last year rose to $20 billion. That’s up 37% from 2016 and about double the figure from 2014. ATTOM Data Solutions believes hard money is a significant source of lending for house flippers.

https://www.zerohedge.com/s3/files/inline-images/hard%20money%20lender.png?itok=uZ_5scig

“There’s a lot of activity. Every time I turn around there’s new entrants,” said Glen Weinberg of Fairview Commercial Lending in Evergreen, Colorado.

While Weinberg usually loans up to 60% of a property’s value, some newer lenders will go up to 90%, he said.

Blackstone Group LP and Goldman Sachs Group Inc. recently dove into the hard money lending space, drawn by interest rates of 8% to 12%.

About ten years from the real estate trough in 2009, the outlook is starting to seem worrisome for flippers and their hard money financiers.

ATTOM Data Solutions published a new report earlier this month called Q1 2019 US Home Flipping Report, which shows house-flipping volume rebounded across the country earlier this year as gross profits and return on investment fell.

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In Atlanta, house flippers want to put up smaller down payments than ever before, said Michael Braswell, a broker who works with hard money lenders.

“I would say, probably more than half the deals that come across my desk are not viable deals,” Braswell said.

Nationwide, 49,000 homes flipped in 1Q19, represented 7.2% of all home sales last quarter, up from 5.9% MoM and up 6.7% YoY, the highest home flipping rate since 1Q10. While this could be interpreted as a sign of continued progress, it also may suggest that investors are unloading their homes while they still can, Attom’s Todd Teta told Bloomberg this month.

The West Coast has seen some of the most significant house flipping declines in the country.

Bloomberg said hard money lenders aren’t forecasting a downturn in the real estate market just yet, but as we have mentioned before, many have overlooked the economy cycling down into 2H19.

As Zerohedge readers would know, any disruption in hard money lending and or a downturn in the house flipping market would be a ‘canary in the coal mine’ that could suggest the overall housing market will continue to deteriorate into 2020.

Source: ZeroHedge

US Housing Starts (1-unit) Fall 6.4% In May Despite Plunging Mortgage Rates

Despite the hype of soaring mortgage applications (refis, not purchases) and homebuilder stocks, housing starts tumbled 0.9% MoM in May (drastically missing expectations for a 0.3% rise), and while permits rose a better than expected 0.3% MoM, it remains very flat for the last six months.

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Multi-family permits fell in May (to 820k) as single-family rose modestly (to 449k)…

https://www.zerohedge.com/s3/files/inline-images/2019-06-18%20%282%29.png?itok=c4P_ZwU9

The better than expected print for overall starts (at 1.294mm), was thanks to a massive spike in rental units…

https://www.zerohedge.com/s3/files/inline-images/2019-06-18_0.png?itok=efCiunLH

Breakdown

  • Housing Starts 1-Unit: -6.4%, from 876K, to 820K
  • Housing Starts Multi Unit: +13.8%, from 383K to 436K 

Not exactly a picture of health for the future of millennial homeownership as rental nation remains front and center, despite plunging mortgage rates.

https://www.zerohedge.com/s3/files/inline-images/bfmD66B.jpg?itok=9EFzUBMM

At least 1-unit starts got one surge from declining mortgage rates in January 2019.

Will The Fed’s Jay Powell come to the rescue? 

Go Jay Powell! Go Jay Powell!

https://confoundedinterestnet.files.wordpress.com/2019/06/jerome-powell-presser-1219-super-tease.jpg

Source: ZeroHedge & Confounded Interest

Desperate Vancouver Developers Woo Millennials With Avocado Toast And Wine

In yet another sign that Vancouver’s housing market has gone soft, desperate developers are resorting to all sorts of gimmicks to encourage young buyers to spring for a new place – such as a year’s supply of avocado toast, or a free glass of wine every day for a year.

https://www.zerohedge.com/s3/files/inline-images/millennial%20toast.jpg?itok=x3wvP1NF

It’s a slower, more competitive market,” according to Vancounver-based Wesgroup Properties VP Brad Jones, adding “The onus is on us to show we have the most attractive offering.” 

As we noted in April, the decline of Vancouver’s housing market has become worldwide news – with sales plummeting 46% over the past year to levels not seen since 1986

https://www.zerohedge.com/s3/files/inline-images/vancouver%20trends.png?itok=3SGsJGpU

Buyers continue to have the strong upper hand after years of manipulated price appreciation due to Chinese tycoon “hot money” flooding the market. That panic buying is now quickly turning to panic selling.

Prior to the August 2016 implementation of the foreign buyers’ tax in Vancouver, condominiums in Metro Vancouver were firmly in seller’s market territory, defined by a sales-to-active-listings ratio of more than 20 per cent for several months in a row, according to data from the Real Estate Board of Greater Vancouver.

But even condos proved unable to remain impervious to multiple government intervention measures. The ratio dropped from peaks of over 80 per cent to below 22 per cent in September 2018, where it’s stayed since. If it dips below 12 per cent for several months, it becomes a buyer’s market and prices tend to come down. –The Globe and Mail

And as condos sat on the market longer and longer – some hitting 40 days or more on average between December 2018 and February 2019 – developers have had to get creative. 

https://www.zerohedge.com/s3/files/inline-images/vancouver%20long%20term.png?itok=eDUrTZL9

Condos at one Wesgroup’s newest developments, Mode in Vancouver’s southern Killarney neighbourhood, come with a promise of a free glass of wine a day for a year. That incentive comes as a $1,500 gift card to a neighbourhood wine and alcohol store, which equates to about $29 a week to spend on a bottle of wine. –The Globe and Mail

“Now is the time to be creative,” said Jones, who noted that the wine incentive generated a “massive amount of interest.” 

The wine promotion was launched after Woodbridge Homes Ltc. announced that anyone who bought one of their Kira condos in the West Coquitlam development would receive a year’s supply of avocado toast – in the form of a $500 gift card to a local eatery. 

After the announcement viral, the developer sold 60% of their initial offering according to MLA Canada president Ryan Lalonde. MLA provides real estate sales and project marketing services to developers, including Woodbridge. 

In the first three weeks of sales, Lalonde said nearly 85 per cent of purchasers referenced the sandwich campaign and four buyers became aware of the building solely because of the media coverage of the toast offering.

“We wanted to find a way to cut through that noise (in the marketplace),,” said Lalonde, who added that the flood of media attention they received was unexpected. 

What will they think of next? Lowering prices?

Source: ZeroHedge

Profits Plunge As Home-Flipping Hits 9-Year-High

Luxury homes aren’t the only section of the American housing market that’s showing troubling signs of weakness. Increasingly, entrepreneurs who once saw the opportunity to make quick gains by investing in gentrifying markets before offloading their homes at a premium – a practice called ‘home flipping’ – are also heading for the exits.

Homes that were resold within 12 months after being purchased made up 7.2% of all transactions in the first quarter, the biggest share since the start of 2010.

https://www.zerohedge.com/s3/files/inline-images/Screen%20Shot%202019-06-06%20at%204.26.09%20PM.png?itok=XDOc8fnw

But while activity surged to new cycle highs, the average return on investment, not including renovations and other expenses, dropped to 39%, an almost eight-year low.

All told, profits slumped to their lowest level in eight years.

https://www.zerohedge.com/s3/files/inline-images/Screen%20Shot%202019-06-06%20at%204.31.33%20PM.png?itok=OoBRZ8cb

Anybody who remembers the heady years ahead of the housing market crash will recall the role that unchecked speculation allowed unqualified investors, hairdressers, strippers and others, to secure adjustable rate ‘liar loans’ that helped them enter the speculation frenzy.

Speculators are on the housing market’s front lines, where softening price growth, waning demand and longer times to sell can turn quickly into shrinking profits, or even losses. Purchases of previously owned homes fell 4.4% in April, the 14th straight year-over-year decline, according to the National Association of Realtors.

“Investors may be getting out while the getting is good,” Todd Teta, chief product officer at Attom Data Solutions, said in the report. “If investors are seeing profit margins drop, they may be acting now and selling before price increases drop even more.”

The average gross flipping profit of $60,000 in Q1 2019 translated into an average 38.7% return on investment compared to the original acquisition price, down from a 42.5% average gross flipping ROI in Q4 2018 and down from an average gross flipping ROI of 48.6% in Q1 2018 to the lowest level since Q3 2011, a nearly eight-year low.

Source: ZeroHedge

Orange County California Q1 Home Sales Off To Coldest Start Since Great Recession

Welcome to the Land of… Jumbo mortgages and All-cash! Aka, Orange County, home of surfing legend (and Realtor) Bob “The Greek” Bolen.

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But Orange County has just experienced their slowest start to a year in terms of home sales since The Great Recession.

https://confoundedinterestnet.files.wordpress.com/2019/06/orange-county-1st-quarter-home-sales-1.png

And home prices in Orange County are falling despite mortgage rate declines.

https://confoundedinterestnet.files.wordpress.com/2019/06/santaane.png

Now Ain’t that a kick in the head! 

https://confoundedinterestnet.files.wordpress.com/2019/06/cropped-the-greek-surfboard-orange-pintail.png

Source: Confounded Interest

Chicago’s Pension Nightmare Is Wreaking Havoc On The City’s Housing Market

As a result of high taxes and government debt, combined with a nightmarish looming pension liability, Chicago’s housing market continues to collapse, according to a new write-up in the City Journal.

Average home prices in Chicago have still not recovered from the downturn that started in 2009, despite the fact that property taxes continue to climb. This is part of the reason Illinois ranks highest among states losing people to other areas of the country. Chicago homeowners are also taking big losses when they sell their homes. 

Ball State economist Michael Hicks said last month: 

“Taxes are high, the services [that taxes] pay for are terrible, and the debt load is so high, so palpably unsustainable that people have no belief that the resources can be found to turn it all around.”

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“You won’t recruit a business, you won’t recruit a family to live here,” Chicago mayor Rahm Emanuel said in 2012, warning about the city’s pension problems. And that looks to be the case: Realtor.com predicted that Chicago would have the weakest housing activity this year among the nation’s top 100 markets.

But unions in Chicago continue to push for higher pension contributions, even while efforts to curb the problem have failed. This has resulted on the money having to come from somewhere – and that somewhere is taxes. According to the report, Chicago’s annual pension payments have doubled over the last few years, to nearly $1.2 billion, and are set to rise to $2 billion in 3 years.

In 2015, the city approved $543 million in property tax increases as a result. Chicago schools also raised local homeowner taxes by $224 million in 2017. “Every penny” of these taxes goes into the pension system and Chicago now bears the title of “highest residential property-tax rates of any American city.”

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And not surprisingly, residents are leaving Illinois and Chicago as a result. From 2011 to 2017, the state ranked second among states in outmigration, losing 640,000 more residents than it gained:

A recent Bloomberg study of metropolitan-area migration data found that the city had a net migration loss of 105,000 in 2014; it got worse in 2017, with the net loss totaling 155,000.

And while some governors, like New York’s Andrew Cuomo, acknowledge that taxes are driving people out, Illinois’ new governor Jay Pritzker has instead introduced legislation for more taxes on the wealthy, offering them a great excuse to leave Chicago, and the state. The city is losing its luster with millennials, too. Chicago now ranks as third-least attractive among the 53 largest metro areas in the U.S., losing an average of 19,000 young adults per year. Illinois ranks behind all but two states in trying to attract young adults. 

The city’s economy is also sputtering, averaging less than 1% growth in private sector jobs in each of the last 2 years. 

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And when residents flee the city, they put a home up for sale in the market without buying one in the same market. This has caused the price of housing to plunge – according to the report, the “average price of a single-family home in Chicago is lower than it was before prices began plunging back in 2009.”

The national average is a rise of 30% in home prices since the crash. Housing speculators in the city have been decimated:

Crain’s Chicago Business told the story of a Chicago-area executive who lost more than half a million on the sale of his home when he retired to move elsewhere. If he had invested the money in the stock market instead, he said, “I’d probably have $6 million now.”

This has led to a slew of underwater mortgages – the most in any major US market. It’s estimated that 135,000 mortgages may risk default during the next economic downturn.

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In early April, we noted that Chicago pension funds looked like a “collapsing ponzi scheme”. Back in December 2018, we noted that each Chicagoan owed $140,000 to bail out the city’s pensions. 

And we’d love to say, “Let this be a lesson to the rest of the nation” who believes that government financial problems and pension liabilities are simply “no big deal”, but we’re certain they’re not listening anyway.

Source: ZeroHedge

 

Young Real Estate Flippers Get Their First Taste of Losing

After piling in when the market was hot, investors are facing losses from homes that take too long to sell.

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(Bloomberg / Businessweek) Sean Pan wanted to be rich, and his day job as an aeronautical engineer wasn’t cutting it. So at 27 he started a side gig flipping houses in the booming San Francisco Bay Area. He was hooked after making $300,000 on his first deal. That was two years ago. Now home sales are plunging. One property in Sunnyvale, near Apple Inc.s headquarters, left Pan and his partners with a $400,000 loss. “I ate it so hard,” he says.

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US Home Price Gains Slump For 12th Straight Month, Weakest In 7 Years

Case-Shiller’s March home price index showed yet another deceleration in growth – the 12 months in a row of slowing equals the 2014 growth scare’s length but is the weakest growth since July 2012.

After February’s 20-City Composite 3.00% YoY print, expectations were for 2.55% growth in March and it surprised very modestly with a 2.68% YoY print (still the lowest in 7 years)…

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Nationally, home-price gains slowed to a 3.7% pace.

“Given the broader economic picture, housing should be doing better,” David Blitzer, chairman of the S&P index committee, said in a statement.

“Measures of household debt service do not reveal any problems and consumer sentiment surveys are upbeat. The difficulty facing housing may be too-high price increases,” which continue to outpace inflation, he said.

While all 20 cities in the index showed year-over-year gains, five were below 2%: Chicago, Los Angeles, San Diego, San Francisco and Seattle, which a year ago posted a 13% increase. Las Vegas led the nation in March with an 8.2% gain, followed by Phoenix.

Source: ZeroHedge

US Rents Climb To Fresh Record Highs Despite Slowest Price Increase In 11 Months

US existing home sales slumped for the 13th straight month in March, but the pressures on the national housing market have yet to translate into cheaper rents: To wit, average national rent climbed 3% YoY in April, and 0.3% from the prior month, according to Yardi Matrix data cited by RentCafe.

The national average rent hit $1,436 in April, climbing about $42 from the prior year to $1,436 – which, though still positive, marked the slowest pace of growth in 11 months.

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Across major US housing markets, rent in Wichita is the most affordable, averaging $646, followed by Tulsa, at $688. On the other end of the spectrum is the average rent in Manhattan, the world’s most expensive rental market, climbed to $4,130 in April. Behind Manhattan is – of course – San Francisco, with an average rent of $3,647, then Boston ($3,357) then Brooklyn ($2,878), then San Jose ($2,720) and Los Angeles ($2,471), in sixth place. Of the largest metropolitan rental hubs, Indianapolis had the lowest average rent ($861), followed by Columbus, Ohio ($924).

While rents tended to be highest in urban enclaves along the coasts, some large rental markets in the Sun Belt boasted surprisingly affordable prices, including Las Vegas ($1,061) or Phoenix ($1,046).

But in another sign of just how skewed rents are across the US, of the 253 cities examined as part of the study, only 64% have average rents below the $1,436 national average, while the other 36% have average rents above.

Source: ZeroHedge

Existing Home Sales Tumble YoY For 14th Month – Worst Run Since Housing Crisis

Existing home sales were the odd one out in March (falling as new- and pending-home-sales spiked) but expectations were for a catch-up rebound in April, but did not, dramatically missing the expectation of a 2.7% rise by dropping (again) by 0.4% MoM…

This 0.4% decline comes after existing home sales fell 4.9% MoM in March with a tumbling mortgage rate seemingly not affecting the secondary market…

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Single-family units fell 1.1% MoM but Condos/Co-ops jumped 5.6% in April (erasing March’s 5.3% drop).

Supply increased from 3.8 to 4.2 months (the highest since Oct 2018) as median prices jumped to their highest since July 2018.

Only The West saw an increase in sales (up 1.8% MoM) in April, with the Northeast worst, down 4.5% MoM.

Worse still, existing home sales are still down 4.4% year-over-year

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This is the 14th month in a row of annual declines – the longest stretch since the housing crisis over a decade ago…but that’s probably nothing!

Source: ZeroHedge

Sliding Home Prices Turn Around In Parts Of Southern California

Single family home prices in Orange, Los Angeles and San Diego counties changed course, climbing up in April after falling year over year in March.

Sales volume was down statewide, but the median resale home price set a record high in California in April, hitting $602,920. (File photo by Marilyn Kalfus/SCNG)

Riverside County had the biggest price gain of five Southern California Counties, at 5.8%, with the median resale of a home up to $423,000 from $400,000 in April 2018. San Bernardino saw a 5.2% hike, with the price at $305,000 compared with $289,900 the prior year.

Orange County had the smallest uptick – 0.9% – but the heftiest price: It rose to $825,000 in April from $818,000 last year. Los Angeles, with a 3% increase, saw prices go to $544,170 from $528,550 last April. San Diego rose 2.2% to $649,000 from $635,000.

The analysis comes from the California Association of Realtors, which reports on the resale of houses around the state. Sales of existing houses account for just over two-thirds of all home sales in Southern California.

In March, CAR’s numbers reflected the first year-over-year price drop for Los Angeles and San Diego counties in seven years and the third in Orange County in the previous four months.

Statewide, demand weakened and sales were down, but the median home price set a record high in April, reaching $602,920 and passing the $602,760 high set in the summer of 2018. April’s price was up 3.2% from $584,460 in April 2018, CAR said.

“While we started off the spring homebuying season on a down note, home sales in the upcoming months may fare better than the top-level numbers suggest,” said Leslie Appleton-Young, CAR’s senior vice president and chief economist. “The year-over-year sales decrease was the smallest in nine months, and pending home sales increased for the second straight month after declining for more than two years.”

She said a sharp sales rebound is not expected, but neither is an acceleration of declines.

Sales volume dipped in Los Angeles (-0.1%), Riverside (-6.5%) and San Bernardino counties (-7.7%), but was up in Orange (0.5%) and San Diego counties (2.4%).

“Weak buyer demand, largely prompted by elevated home prices, is playing a role in the softening housing market,” said CAR president Jared Martin. “However, with low-interest rates, cooling competition and an increase in homes to choose from, buyers can take advantage of a more balanced housing market.”

Mortgage rates fell to 4.06%, in March, a 14-month low. The 30-year fixed-rate mortgage averaged 4.07% for the week ending May 16, down from last week’s rate of 4.10%, according to Freddie Mac.

Source: by Marilyn Kalfus | The Orange County Register

Attention Millennials: You Can Now Buy Tiny Homes On Amazon

One of the main goals of the Federal Reserve’s monetary policies of the past decade was to generate the “wealth effect”: by pushing the valuations of homes higher, would make American households feel wealthier. But it didn’t. Most Americans can’t afford the traditional home with a white picket fence around a private yard (otherwise known as the American dream), and as a result, has led to the popularity of tiny homes among heavily indebted millennials.

Tiny homes are popping up across West Coast cities as a solution to out of control rents and bubbly home prices, also known as the housing affordability crisis.

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Amazon has recognized the hot market for tiny homes among millennials and has recently started selling DIY kits and complete tiny homes.

One of the first tiny homes we spotted on Amazon is a $7,250 kit for a tiny home that can be assembled in about eight hours.

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A more luxurious tiny home on the e-commerce website is selling for $49,995 +$1,745.49 for shipping. This one is certified by the RV Industry Association’s standards inspection program, which means millennials can travel from Seattle to San Diego in a nomadic fashion searching for gig-economy jobs.

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Those who want a 20 ft/40 ft expandable container house with solar energy, well, Amazon has that too. This tiny home has it all: a post-industrial feel using an old shipping container, virtue signaling with solar panels, full bathroom, and a kitchen to make avocado and toast.

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With almost two-thirds of Millennials living paycheck to paycheck and less than half of them have $500 in savings, we’re sure this lost generation could afford one of these trailers tiny homes with their Amazon credit card. Nevertheless, the tiny home craze among millennials is more evidence that living standards are collapsing.

Source: ZeroHedge

Is This A Solution To California’s Housing Crisis, Or Threat To Single Family Homes?

Could this be the end of single-family zoning in California?

Changes to the comprehensive housing measure Senate Bill 50 – already hotly debated – allow property owners broad rights to turn single-family homes and vacant lots into two-, three- and four-unit homes and apartments.

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Real Estate On New York City’s “Billionaire’s Row” 40% Unsold Due To “Unrealistic” Prices

The area known as “Billionaire’s Row” in Manhattan is becoming one of the biggest real estate gluts in all of the city. 40% of apartments in the area are now sitting unsold in towers that top out at 100 stories, according to the New York Post.

Only half a decade after the One57 building became the city’s first “supertall” residential skyscraper, only 84 of its 132 condos have been purchased. This means that more than a third of them are still on the market and none of them are under contract.

The story is the same down the road – six nearby buildings have as much of 80% of their units available, according to data, with the total value of all unsold inventory estimated to be between $5 billion and $7 billion.

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And the supply glut is only going to get worse, as Central Park Tower, at 217-225 W. 57th St. is set to put an additional 179 apartments on the market next year. No deals for the new building have closed, which means if it opened today it would push the overall unsold percentage in the area to nearly 65%. Listings online show asking prices for units between $2.1 million and $64 million. Brokers are blaming the high prices for the sales drought.

Top broker Dolly Lenz said: 

“When people come here from other parts of the country and from around the world, the first thing they want to see is Billionaires’ Row. We toured them through the properties but many felt they were too pricey for the market — $7,000, $8,000 and $10,000 a square foot.”

Lenz also said that these prices were caused by a combination of costs of property, construction, financing and high-end marketing, in addition to developers who have clauses in their contracts that keep lenders from forcing them to drop prices.

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Many brokers feel pessimistic, expressing that the drought in Billionaire’s Row could telegraph a coming drought for the entire market. The Post provided a host of pessimistic quotes from brokers:

  • “Empty buildings are never good for the city,” one broker said.
  • “This happened in 1988 to 1992, when there were a glut of condos that didn’t sell. They were smaller and less expensive, but it led to bad times.”
  • Another broker said the prospects for selling the vacant apartments were grim.
  • “They are priced out of the constellation of buyers out there now,” the broker said.
  • “It’s all a function of price. You can do the most spectacular marketing and offer the most incredible amenities, but it all comes down to price.”
  • “There’s a whole food chain that relies on people living in these buildings,” one broker said.

One local resident said of the vacancies:

“To find out that people aren’t living in the condos is just, ugh. I wish this was all affordable housing. This really upsets me. So many are struggling in the city.”

An Extell spokeswoman disputed some data provided in the article, stating that One57 “is over 85 percent sold in units and over 90 percent sold in value.”

About one month ago, we reported that Manhattan’s housing market was on its “worst cold streak in 30 years”. We also took note of the rising prices that are pricing potential buyers – even the billionaires – out of the market.  

By one broker’s count, Q1 marked the sixth straight quarterly drop in sales volume, the worst streak in at least 30 years.

Per the FT, sales tumbled by 11%, according to broker Stribling & Associates, by 5%, according to Corcoran, and by 2.7% for co-ops and condominium apartments, according to Douglas Elliman and real estate appraisal firm Miller Samuel.

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While the average sales price for new developments climbed a staggering 89.4% to $7.6 million, that figure was exaggerated by a single purchase: Ken Griffin’s purchase of a $240 million penthouse at 220 Central Park South, which, according to some, was the most expensive home ever sold in America. But depending on the report, the median sales price ranged from 2% lower to 3.2% higher. And although the entry level market in Manhattan – that is, apartments priced at $1 million and below – had held up for most of the past year, it has recently started to suffer.

“It’s like a layer cake,” Jonathan Miller, CEO of Miller Samuel, told CNBC. “When you have softening at the top, it starts to melt into the next layer and the next layer after that, because those buyers further down have to compete on price.”

According to one broker, sellers with unrealistic expectations are the biggest barrier to sales, because they’re refusing to adjust for the fact that listings have been piling up and sitting on the market for longer periods, giving buyers more room to negotiate, and more options.

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Inventory has climbed 9% over the past nine months, and there’s a glut in new developments that’s only going to get worse.

Source: ZeroHedge

Where Home Prices Are Rising the Fastest (Slowest) In America

Since the end of the great recession, home prices in America have rebounded substantially. Since the dark days of 2009, prices have steadily climbed and are up over 50% on average from the lowest point.

This is great news for homeowners whose homes may be worth more than their pre-recession values, but less great news for homebuyers who can afford less house for the dollar. What’s more is that in some places, home prices have spiked much faster than average, while in other places, home prices have remained depressed.

So where in America are home prices increasing the fastest and the slowest? In light of fluctuating mortgage interest rates, tax reform that’s limited many homeowner deductions, and an affordability crisis in many urban areas, along with Priceonomics customer RefiGuide.org thought we’d dive deeper into the home price data published, aggregated and made available by Zillow.

Over the last year, the median home prices increased the fastest at the state level in Idaho, where prices increased by a staggering 17.2%. In just two states did home prices actually fall last year (Alaska and Delaware). The large cities with the fastest home appreciation were Newark, Dallas, and Buffalo where prices increased more than 15% in each place. The large city where prices decreased the fastest was Seattle, where home prices actually fell 2.4%.

Lastly, we looked at the expensive markets (where homes cost more than a million dollars) that had the highest price appreciation. St. Helena, CA, Quogue, NY and Stinson Beach, CA all had prices increase over 20% last year.

***

For this analysis, we looked at data from the beginning of March 2019 compared to prices one year earlier. We looked at Zillow’s seasonally adjusted median price estimate as published by Zillow Research Data.

Nationally, home prices increased 7.2% last year or about $15,000 more than the year before. However, in some states prices spiked much more than that.

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Idaho leads the country with home prices increasing by 17.2% last year, driven by strong demand in the Boise market. In Utah the impact of a thriving economy and growing population is that prices increased 14% in just one year. Nevada, likewise is seeing strong home price growth as people migrate from California and the state’s low taxes are more favorable under the most recent tax reform. Alaska and Delaware have the distinction of being the only states where home prices fell over the last year.

Next, we looked at home prices in the top one hundred largest housing markets, as measured by population. Which cities were experiencing rapid home equity appreciation and which ones are not? 

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At the city level, home prices have increased the fastest in Newark, NJ where prices have increased more than 17% as buyers who are priced out of New York City have purchased in this area. Dallas, a city with a strong economy and low taxes has seen home prices increase nearly 17% as well.

Notably, some of the most expensive and desirable cities like Seattle, Oakland and Portland have seen their prices decrease in the last year. Each of these locations has experienced price appreciation during this decade, however.

Were there any smaller cities and towns that experienced home prices rising faster than the big cities? Below shows the fifty places in the United States where home prices increased the most this last year:

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Across the Midwest and South, numerous smaller cities experienced price appreciation much greater than 25% last year. In Nettleton, MS prices increased 49% in just one year! Notably, almost none of these high-price growth cities are located on the coasts.

Lastly, what are expensive places to buy a home in America that are just getting more expensive? To conclude we looked at locations where the median home price was over one million dollars and the prices keep rising:

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In this rarefied group, prices increased the most in Saint Helena, CA. In this tony town in Napa Valley, prices increased over 25% last year. In second place was Quogue, NY a town in the Hamptons. In fact, 9 out of the top 10 expensive cities with high price appreciation are in California or New York. More specifically, many of these locations are in the vicinity of San Francisco and New York City, the two very large economic engines that are driving home prices.

***

After nearly a decade of vibrant stock market and real estate returns, this year home prices have continued to climb at a steady clip. In only two states in America did prices actually fall, and in five states prices grew more than 10% in a year. As the economy has continued roaring, places that were once known for being affordable like Idaho, Utah, and Nevada have seen home prices spike. While expensive cities like Seattle, Portland and Oakland have seen prices level off in the last year, and places like Newark, Dallas and Buffalo have become less affordable. In this stage of American economic expansion, the once affordable places are seeing their prices escalate.

Source: ZeroHedge | by Priceonomics

Mapped: The Salary Needed To Buy A Home In 50 U.S. Metro Areas

Over the last year, home prices have risen in 49 of the biggest 50 metro areas in the United States.

At the same time, mortgage rates have hit seven-year highs, making things more expensive for any prospective home buyer.

With this context in mind, today’s map comes from HowMuch.net, and it shows the salary needed to buy a home in the 50 largest U.S. metro areas.

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The Least and Most Expensive Metro Areas

As a reference point, Visual Capitalist’s Jeff Desjardins points out that the median home in the United States costs about $257,600, according to the National Association of Realtors.

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With a 20% down payment and a 4.90% mortgage rate, and taking into account what’s needed to pay principal, interest, taxes, and insurance (PITI) on the home, it would mean a prospective buyer would need to have $61,453.51 in salary to afford such a purchase.

However, based on your frame of reference, this national estimate may seem extremely low or quite high. That’s because the salary required to buy in different major cities in the U.S. can fall anywhere between $37,659 to $254,835.

The 10 Lowest Cost Metro Areas

Here are the lowest cost metro areas in the U.S., based on data and calculations from HSH.com:

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After the dust settles, Pittsburgh ranks as the cheapest metro area in the U.S. to buy a home. According to these calculations, buying a median home in Pittsburgh – which includes the surrounding metro area – requires an annual income of less than $40,000 to buy.

Just missing the list was Detroit, where a salary of $48,002.89 is needed.

The 10 Most Expensive Metro Areas

Now, here are the priciest markets in the country, also based on data from HSH.com:

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Topping the list of the most expensive metro areas are San Jose and San Francisco, which are both cities fueled by the economic boom in Silicon Valley. Meanwhile, two other major metro areas in California, Los Angeles and San Diego, are not far behind.

New York City only ranks in sixth here, though it is worth noting that the NYC metro area extends well beyond the five boroughs. It includes Newark, Jersey City, and many nearby counties as well.

As a final point, it’s worth mentioning that all cities here (with the exception of Denver) are in coastal states.

Notes on Calculations

Data on median home prices comes from the National Association of Realtors and is based on 2018 Q4 information, while national mortgage rate data is derived from weekly surveys by Freddie Mac and the Mortgage Bankers Association of America for 30-year fixed rate mortgages.

Calculations include tax and homeowners insurance costs to determine the annual salary it takes to afford the base cost of owning a home (principal, interest, property tax and homeowner’s insurance, or PITI) in the nation’s 50 largest metropolitan areas.

Standard 28% “front-end” debt ratios and a 20% down payments subtracted from the median-home-price data are used to arrive at these figures.

Source: ZeroHedge

Blow Off Top: Bay Area Median Home Price Drops For First Time In 7 Years

San Francisco Bay Area homes declined last month on a y/y basis for the first time in seven years, according to CoreLogic.

The median price paid for an existing home in the nine counties (Alameda, Contra Costa, Marin, Napa, San Francisco, San Mateo, Santa Clara, Solano, and Sonoma) was $830,000, down 0.1% compared with March 2018.

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The last time prices fell on a y/y basis was March 2012. After that, the Federal Reserve injected several more rounds of quantitative easing that sent home prices soaring for 83 consecutive months. In March 2018, the median home price gained 16.2% over March 2016.

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In 2H18, the appreciation rate dramatically slowed due to quantitative tightening, mortgage rate increase, and the start of a synchronized global slowdown.

“It’s not that surprising that we hit the wall, at least in terms of a pause,” said Andrew LePage, a CoreLogic analyst, wrote in a release.

Glen Bell, a real estate broker with BetterHomes and Gardens Reliance Partners in the East Bay region, said home sales and prices tend to accelerate between February and March as buyers prepare to move before the summer months. He said there was a slight pick up in activity, “but not as strong as last year.”

“It reflects a trend that began in mid-2018 when home sales slowed and inventory grew, forcing sellers to be more competitive,” LePage said.”The year-over-year increase in the region’s median sale price was 16.2% in March last year. But after that, the gains in the median gradually decreased each month and fell to the 2 to 3% range early this year and then disappeared this March.”

Sales of homes in the nine counties were 15% lower in March when compared with last year. It was the lowest March in terms of sales in 11 years. Sales have been slowing on a y/y basis for the last 10 months – an ominous sign that not just the top is in, but a quick reversal in price is immient.

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Santa Clara County noticed the most significant y/y median home price declines, falling 10% to $1.08 million in March. It was one of the hottest markets on the West Coast, if not the entire country last year – has fallen into a dangerous slump where prices are crashing.

“We’ve definitely seen some softness and some slowing,” said Michael Repka, chief executive and general counsel of DeLeon Realty in Palo Alto.

The total number of homes sold in the nine counties hit 6,124, up 39% from Feburary, but down 14.8% y/y, CoreLogic reported.

The slowdown in home sales and a decline in price last month “mainly reflect buyers purchasing decisions in Feburary,” LePage said in the press release. In early 1Q19, the market was recovering from a slowdown in the economy and a volatile stock market from Christmas.

Since Feburary, stock market volatility has dropped, mortgage rates are much lower, and since mid-March, IPOs have been debuting, which could bring more buyers to the market in the coming months.

Jason Nelson, an agent with Alain Pinel/Compass in Mill Valley, said that in Southern Marin, “there might be a slowdown in the market especially on the higher end.”

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S&P Dow Jones Indices published S&P CoreLogic Case-Shiller Indices Tuesday, indicating that the decline in home prices wasn’t just centered in the San Francisco Bay Area, but rather seen across the entire US.

Source: ZeroHedge

New Home Sales Soar To 16-Month Highs As Price Plunges

New home sales were expected to retrace some of February’s gains but in a reversal of yesterday’s dismal drop in existing home sales, new home sales in March soared 4.5% higher MoM (and February was revised stronger from +4.9% MoM to +5.9% MoM).

This is the 3rd straight month of rising new home sales.

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The 692k SAAR is the highest since Nov 2017 – near the post-crisis highs.

The reason – among others – is simple – median new home prices plunged to their lowest since Feb 2017 (a 9.7% from a year earlier to a two-year low of $302,700)….

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A mixed picture across regions with Northeast March new home sales plunging to 28K, down 22.2% from February, but Midwest surged from 74K to 87K, up 17.6%.

The supply of homes at the current sales rate decreased to six months from 6.3 months in February. The number of new homes for sale in the period was little changed at 344,000.

New-home purchases account for about 10 percent of the market and are calculated when contracts are signed. They are considered a timelier barometer than purchases of previously-owned homes, which are calculated when contracts close.

Let’s just hope the recent resurgence in mortgage rates doesn’t last…

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Source: ZeroHedge

Existing Home Sales Fall 5.44% Year Over Year In March

Existing Housing Sales Inventory Lowest Since 1999

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At the same time, the INVENTORY of existing home sales rose in March, but still remains near its lowest level since 1999.

Existing home sales Median Price YoY has slowed to 3.8% with The Fed’s quantitative tightening (QT). As opposed to 13.4% YoY during The Fed’s QE3.

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Time to bring out your Fed!

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Source: Confounded Interest

The Manhattan Housing Market Is On Its Worst Cold Streak In 30 Years

A confluence of factors ranging from stubborn sellers refusing to budge on their asks, the Trump tax plan’s SALT cap, and a glut of luxury apartments prompted sales of Manhattan real estate to drop again in the fourth quarter, according to reports published by a trio of residential brokers. By one broker’s count, Q1 marked the sixth straight quarterly drop in sales volume, the worst streak in at least 30 years.

Per the FT, sales tumbled by 11%, according to broker Stribling & Associates, by 5%, according to Corcoran, and by 2.7% for co-ops and condominium apartments, according to Douglas Elliman and real estate appraisal firm Miller Samuel.

https://www.zerohedge.com/s3/files/inline-images/Screen%20Shot%202019-04-03%20at%204.48.05%20PM.png?itok=PevIY0Zp

While the average sales price for new developments climbed a staggering 89.4% to $7.6 million, that figure was exaggerated by a single purchase: Ken Griffin’s purchase of a $240 million penthouse at 220 Central Park South, which, according to some, was the most expensive home ever sold in America. But depending on the report, the median sales price ranged from 2% lower to 3.2% higher. And although the entry level market in Manhattan – that is, apartments priced at $1 million and below – had held up for most of the past year, it has recently started to suffer.

“It’s like a layer cake,” Jonathan Miller, CEO of Miller Samuel, told CNBC. “When you have softening at the top, it starts to melt into the next layer and the next layer after that, because those buyers further down have to compete on price.”

According to one broker, sellers with unrealistic expectations are the biggest barrier to sales, because they’re refusing to adjust for the fact that listings have been piling up and sitting on the market for longer periods, giving buyers more room to negotiate, and more options. Inventory has climbed 9% over the past nine months, and there’s a glut in new developments that’s only going to get worse.

https://www.zerohedge.com/s3/files/inline-images/Screen%20Shot%202019-04-03%20at%204.47.37%20PM.png?itok=bxNvq8i5

And of course, New York City isn’t helping the market by passing an a one-time “mansion tax” on all apartments selling for $1 million or more – which is a large chunk of apartments sold in the borough. But it could have been worse: As one broker put it, the pied-e-terre tax that was briefly considered would have been a “market stopper.”

“The pied-à-terre tax would have been a market stopper, [the mansion tax] is a market dampener,” said Ms Liebman. “I don’t think New York City is acting very friendly right now to the wealthy buyers,” she said, adding that many are opting to buy in Florida and other states with lower taxes than New York.

But although higher taxes are expected to drive more would-be buyers toward rentals, the number of new leases in Manhattan was also down 3% in Q1. Meanwhile, leases climbed a staggering 38% year-over-year in Brooklyn.

As brokers in New York City and other high end markets like Greenwich, Conn. struggle with slowing sales, we imagine brokers in mid-tier markets are watching with a wary eye to see if the weakness spreads.

Source: ZeroHedge

‘Too Big To Sell’ – Boomers Trapped In McMansions As Retirement Looms

More wealthy baby boomers are finding themselves trapped in homes that are too big to sell. They want to downsize but can’t get what they paid.

This was guaranteed to happen, and did. Baby boomers and retirees built large, elaborate dream homes only to find that few people want to buy them.

https://imageproxy.themaven.net/https%3A%2F%2Fs3-us-west-2.amazonaws.com%2Fmaven-user-photos%2Fmishtalk%2Feconomics%2FzmfATcSa4EegwR7v_znq6Q%2FZVuJ-iAC0k2ooOKn4ZQXvw?w=1026&q=30&h=643&auto=format&fit=crop&crop=focalpoint&fp-x=0.5&fp-y=0.5&fp-z=1&fp-debug=false

Please consider a Growing Problem in Real Estate: Too Many Too Big Houses.

Large, high-end homes across the Sunbelt are sitting on the market, enduring deep price cuts to sell.

That is a far different picture than 15 years ago, when retirees were rushing to build elaborate, five or six-bedroom houses in warm climates, fueled in part by the easy credit of the real estate boom. Many baby boomers poured millions into these spacious homes, planning to live out their golden years in houses with all the bells and whistles.

Now, many boomers are discovering that these large, high-maintenance houses no longer fit their needs as they grow older, but younger people aren’t buying them.

Tastes—and access to credit—have shifted dramatically since the early 2000s. These days, buyers of all ages eschew the large, ornate houses built in those years in favor of smaller, more-modern looking alternatives, and prefer walkable areas to living miles from retail.

The problem is especially acute in areas with large clusters of retirees. In North Carolina’s Buncombe County, which draws retirees with its mild climate and Blue Ridge Mountain scenery, there are 34 homes priced over $2 million on the market, but only 16 sold in that price range in the past year, said Marilyn Wright, an agent at Premier Sotheby’s International Realty in Asheville.

The area around Scottsdale, Ariz., also popular with wealthy retirees, had 349 homes on the market at or above $3 million as of February 1—an all-time high, according to a Walt Danley Realty report. Homes built before 2012 are selling at steep discounts—sometimes almost 50%, and many owners end up selling for less than they paid to build their homes, said Walt Danley’s Dub Dellis.

Kiawah Island, a South Carolina beach community, currently has around 225 houses for sale, which amounts to a three- or four-year supply. Of those, the larger and more expensive homes are the hardest to sell, especially if they haven’t been renovated recently, according to local real-estate agent Pam Harrington.

The problem is expected to worsen in the 2020s, as more baby boomers across the country advance into their 70s and 80s, the age group where people typically exit homeownership due to poor health or death, said Dowell Myers, co-author of a 2018 Fannie Mae report, “The Coming Exodus of Older Homeowners.” Boomers currently own 32 million homes and account for two out of five homeowners in the country.

Not Just the South

It’s not just big houses across the Sunbelt. It’s big houses everywhere. If anything, I suspect it’s worse in the north. There is an exodus of people in high tax states like Illinois who want the hell out.

Already big homes were hard to sell. Now these progressive states are raising taxes.

Triple Whammy

  1. Millennials trapped in debt and cannot afford them
  2. Millennials wouldn’t buy them anyway because tastes have changed.
  3. Taxes are driving people away from states like Illinois

Good luck with that.

For the plight of Illinoisans, please consider Illinois’ Demographic Collapse: Get Out As Soon As You Can.

Authored by Mike Shedlock via MishTalk,
Source: ZeroHedge

The U.S. Economy Is In Big Trouble

Summary

  • Economic data is showing further negative divergence from the rally in the stock market.

  • The Census Bureau finally released January new home sales, which showed a 6.9% drop from December.

  • E-commerce sales for Q4 reported last week showed a 2% annualized growth rate, down from 2.6% in Q3.

  • The economy is over-leveraged with debt at every level to an extreme, and the Fed knows it.

  • I would say the odds that the Fed starts printing money again before the end of 2019 are better than 50/50 now.

“You’ve really seen the limits of monetary and fiscal policy in its ability to extend out a long boom period.” – Josh Friedman, Co-Chairman of Canyon Partners (a “deep value,” credit-driven hedge fund)

(Dave Kranzler) The Fed’s abrupt policy reversal says it all. No more rate hikes (yes, one is “scheduled” for 2020, but that’s fake news), and the balance sheet run-off is being “tapered,” but will stop in September. Do not be surprised if it ends sooner. Listening to Powell explain the decision or reading the statement released is a waste of time. The truth is reflected in the deed. The motive is an attempt to prevent the onset economic and financial chaos. It’s really as simple as that. See Occam’s Razor if you need an explanation.

As the market began to sell off in March, the Fed’s FOMC foot soldiers began to discuss further easing of monetary policy and hinted at the possibility, if necessary, of introducing “radical” monetary policies. This references Bernanke’s speech ahead of the roll-out of QE1. Before QE1 was implemented, Bernanke said that it was meant to be a temporary solution to an extreme crisis. Eight-and-a-half years and $4.5 trillion later, the Fed is going to end its balance sheet reduction program after little more than a 10% reversal of QE and it’s hinting at restarting QE. Make no mistake, the 60 Minutes propaganda hit-job was a thinly veiled effort to prop up the stock market and instill confidence in the Fed’s policies.

Economic data is showing further negative divergence from the rally in the stock market. The Census Bureau finally released January new home sales, which showed a 6.9% drop from December. Remember, the data behind the report is seasonally adjusted and converted to an annualized rate. This theoretically removes the seasonal effects of lower home sales in December and January. The Census Bureau (questionably) revised December’s sales up to 652k SAAR from 621k SAAR. But January’s SAAR was still 2.3% below the original number reported. New home sales are tanking despite the fact that median sales price was 3.7% below January 2018 and inventory soared 18%.

LGI Homes (NASDAQ:LGIH) reported that in January it deliveries declined year-over-year (and sequentially), and Toll Brothers (NYSE:TOL) reported a shocking 24% in new orders. None of the homebuilders are willing to give forward guidance. LGI’s average sale price is well below $200k, so “affordability” and “supply” are not the problem (it’s the economy, stupid).

The upward revision to December’s new home sales report is questionable because it does not fit the mortgage purchase application data as reported in December. New homes sales are recorded when a contract is signed. 90% of all new construction homes are purchased with a mortgage. If purchase applications are dropping, it is 99% certain that new home sales are dropping. With the November number revised down 599k, and mortgage purchase applications falling almost every week in December, it’s 99% likely that new home sales at best were flat from November to December. In other words, the original Census Bureau guesstimate was probably closer to the truth.

The chart to the right shows the year-over-year change in the number of new homes (yr/yr change in the number

https://static.seekingalpha.com/uploads/2019/3/22/saupload_Untitled-10.png

of units as estimated by the Census Bureau) sold for each month. I added the downward sloping trend channel to help illustrate the general decline in new home sales. As you can see, the trend began declining in early 2015.

Recall that it was in January 2015 that Fannie Mae and Freddie Mac began reducing the qualification requirements for government-backed “conforming” mortgages, starting with reducing the down payment requirement from 5% to 3%. For the next three years, the government continued to lower this bar to expand the pool of potential homebuyers and reduce the monthly payment burden. This was on top of the Fed artificially taking interest rates down to all-time lows. In other words, the powers that be connected to the housing market and the policymakers at the Fed and the government knew that the housing market was growing weak and have gone to great lengths in an attempt to defer a housing market disaster. Short of making 0% down payments a standard feature of government-guaranteed mortgage programs, I’m not sure what else can be done help put homebuyers into homes they can’t afford.

I do expect, at the very least, that we might see a “statistical” bounce in the numbers to show up over the couple of existing and new home sale reports (starting with February’s numbers). Both the NAR and the government will likely “stretch” seasonal adjustments imposed on the data to squeeze out reports which show gains, plus it looks like purchase mortgage applications may have bounced a bit in February and March, though the data was “choppy” (i.e., positive one week and negative the next).

E-commerce sales for Q4 reported last week showed a 2% annualized growth rate, down from 2.6% in Q3. Q3 was revised lower from the 3.1% originally reported. This partially explains why South Korea’s exports were down 19.1% last month, German industrial production was down 3.3%, China auto sales tanked 15% and Japan’s tool orders plummeted 29.3%. The global economy is at its weakest since the financial crisis.

It would be a mistake to believe that the U.S. is not contributing to this. The Empire State manufacturing survey index fell to 3.7 in March from 8.8 in February. Wall Street’s finest were looking for an index reading of 10. New orders are their weakest since May 2017. Like the Philly Fed survey index, this index has been in general downtrend since mid-2017. The downward slope of the trendline steepened starting around June 2018. Industrial production for February was said to have nudged up 0.1% from January. But this was attributable to a weather-related boost for utilities. The manufacturing index fell 0.4%. Wall Street was thinking both indices would rise 0.4%. Oops.

The economy is over-leveraged with debt at every level to an extreme and the Fed knows it. Economic activity is beginning to head off of a cliff. The Fed knows that too. The Fed has access to much more in-depth, thorough and accurate data than is made available to the public. While it’s not obvious from its public posture, the Fed knows the system is in trouble. The Fed’s abrupt policy reversal is an act of admission. I would say the odds that the Fed starts printing money again before the end of 2019 are better than 50/50 now. The “smartest” money is moving quickly into cash. Corporate insiders are unloading shares at a record pace. It’s better to look stupid now than to be one a bagholder later.

Source: by Dave Kranzler | Seeking Alpha

US Housing Hits A Brick Wall: “The House Price Deceleration Is Staggering”

(by Mark Hanson) RedFin puts out a monthly home sales report, which contains a lot of great data. The chart below shows Feb 2018 year-over-year price growth, which was off the charts, compared to Feb 2019 year-over-year growth, which was very weak.

This y/y growth deceleration is staggering, especially in the high-flying regions.

Very few regions escaped a significant deceleration with some prominent regions like San Jose and San Francisco even getting crushed on a year-over-year absolute basis.

The only thing that even comes close to this sharp of deceleration was circa-2007.

It was data like these I have been tracking that led to my call last year that there was no way the Fed could continue to hike in 2019.

For certain housing and related names, this is a killer unless prices re-accelerate quickly.

https://www.zerohedge.com/s3/files/inline-images/House-Price-Deceleration-Feb-2018.jpg?itok=IGorIP80

Source: ZeroHedge

New Home Sales Slump In January, Despite Drop In Prices

Following a rebound in November and December, January’s (delayed due to the govt shutdown) new home sales plunged 6.9% MoM despite a jump in homebuilder sentiment.

https://www.zerohedge.com/s3/files/inline-images/2019-03-14_7-05-01.png?itok=z81jYHNO

This pushes year-over-year growth in new home sales back into decline.

https://www.zerohedge.com/s3/files/inline-images/2019-03-14_7-06-40.png?itok=iI2VJQa9

Sales of new U.S. homes in January fell to the weakest pace since October, driven by a decline in the Midwest as still-elevated prices keep buyers on the sidelines.

https://www.zerohedge.com/s3/files/inline-images/2019-03-14_7-01-56.png?itok=8wOcford

The number of properties sold for which construction hadn’t yet started declined to 183,000, the lowest in three months, showing a weaker pipeline of building for the coming months.

The sales drop occurred despite a drop in the median sales price, down 3.8% from a year earlier to $317,200.

https://www.zerohedge.com/s3/files/inline-images/2019-03-14_7-12-07.png?itok=8Te0gwF0

As a reminder, new-home purchases are seen as a timelier barometer of the market, as they’re calculated when contracts are signed rather than when they close, like the previously-owned homes data.

Source: ZeroHedge

US Residential Construction Spending Slumps For 6th Straight Month As US Banks Report $251 Billion of “Unrealized Losses” On Securities Investments in 2018

Today is a double whammy for bad news for the US economy.

First, The Census Bureau monthly construction spending report reveals that highway and street spending rose 11.7% in January. The biggest decline was communication spending.

https://confoundedinterestnet.files.wordpress.com/2019/03/constspending.png

BUT, US residential construction spending slumped for the 6th straight month. It is beginning to resemble “The Matterhorn” plunge of the 2000s.

https://confoundedinterestnet.files.wordpress.com/2019/03/usconsrtuspen.png

The second whammy is the FDIC report  revealing that US banks reported $251 billion of “unrealized losses” on securities investments in 2018, the most since 2008.

https://confoundedinterestnet.files.wordpress.com/2019/03/us-fdic-banks-unrealized-losses-2018-q4.png

For a less grim chart from The Federal Reserve (and a different metric), here is US Commercial Bank Liabilities Net Unrealized Gains (Losses) Available for Sale.

https://confoundedinterestnet.files.wordpress.com/2019/03/unrelvvl.png

Source: Confounded Interest

***

Residential Spending Slumps For 6th Straight Month As Infrastructure Spending Soars Most Since 2003

https://www.zerohedge.com/s3/files/inline-images/2019-03-13_7-19-16.png?itok=o5Y2plu8

…government spending rescued the headline as public construction rose 4.9% in Jan… thanks to a massive surge in infrastructure spending on Highway and Street improvements…

Homeowners With Negative Equity Increased First Time Since 2015

  • The quarterly increase in negative equity was the first increase in 12 quarters
  • The number of owners with negative equity has decreased during the last four quarters by 350,000, or 14 percent
  • The average homeowner gained $9,700 in home equity over the last four quarters

CoreLogic® (NYSE: CLGX), a leading global property information, analytics and data-enabled solutions provider, today released the Home Equity Report for the fourth quarter of 2018. The report shows that U.S. homeowners with mortgages (which account for roughly 63 percent of all properties) have seen their equity increase by 8.1 percent year over year, representing a gain of nearly $678.4 billion since the fourth quarter of 2017.

https://www.corelogic.com/images/corelogic_her-report_q418_figure2_650-(2).jpg

Additionally, the average homeowner gained $9,700 in home equity between the fourth quarter of 2017 and the fourth quarter of 2018. While home equity grew in almost every state in the nation, western states experienced the most significant annual increases. Nevada homeowners gained an average of approximately $29,400 in home equity, while Hawaii homeowners gained an average of approximately $26,900 and Idaho homeowners gained an average of $24,700. California homeowners experienced the fourth-highest growth with an average increase of approximately $19,600 in home equity (Figure 1).

https://www.corelogic.com/images/corelogic_her-report_q418_figure2_650-(1).jpg

From the third quarter of 2018 to the fourth quarter of 2018, the total number of mortgaged homes in negative equity increased 1.6 percent to 2.2 million homes or 4.2 percent of all mortgaged properties. This was the first quarterly increase since the fourth quarter of 2015. Despite that quarter-over-quarter increase, on a year-over-year basis, the number of mortgaged properties in negative equity fell 14 percent, or by 351,000, from 2.6 million homes – or 4.9 percent of all mortgaged properties – in the fourth quarter of 2018.

“Our forecast for the CoreLogic Home Price Index predicts there will be a 4.5 percent increase in our national index from December 2018 to the end of 2019,” said Dr. Frank Nothaft, chief economist for CoreLogic. “If all homes experience this gain, this would lift about 350,000 homeowners from being underwater and restore positive equity.”

Negative equity, often referred to as being underwater or upside down, applies to borrowers who owe more on their mortgages than their homes are worth. Negative equity can occur because of a decline in a home’s value, an increase in mortgage debt or both. Negative equity peaked at 26 percent of mortgaged residential properties in the fourth quarter of 2009, based on the CoreLogic equity data analysis, which began in the third quarter of 2009.

https://www.corelogic.com/images/corelogic_her-report_q418_cbsa-table3_650.jpg

The national aggregate value of negative equity was approximately $300.3 billion at the end of the fourth quarter of 2018. This is up approximately $17.4 billion from $282.9 billion in the third quarter of 2018 and up year over year by approximately $14.4 billion from $285.9 billion in the fourth quarter of 2017.

“As home prices rise, significantly more people are choosing to remodel, repair or upgrade their existing homes. The increase in home equity over the past several years provides homeowners with the means to finance home remodels and repairs,” said Frank Martell, president and CEO of CoreLogic. “With rates still ultra-low by historical standards, home-equity loans provide a low-cost method to finance home-improvement spending. These expenditures are expected to rise 5 percent in 2019.”

Source: CoreLogic

It Begins: China’s Largest Property Developer Will Sell All Homes At A 10% Discount

Back in 2017, ZeroHedge explained why the “fate of the world economy is in the hands of China’s housing bubble.” The answer was simple: for the Chinese population, and growing middle class to keep spending vibrant and borrowing elevated, it had to feel comfortable and confident that its wealth would keep rising. However, unlike the US where the stock market is the ultimate barometer of the confidence boosting “wealth effect”, in China it has always been about housing as three quarters of Chinese household assets are parked in real estate, compared to only 28% in the US, with the remainder invested in financial assets.

https://www.zerohedge.com/sites/default/files/inline-images/China%20vs%20US%20Real%20Estate.jpg?itok=5IqhgbP6

Beijing knows this, of course, which is why China periodically and consistently reflates its housing bubble any time it feels the broader economy is slowing, hoping that any subsequent popping of the bubble, which happened in late 2011 and again in 2014, will be a controlled, “smooth landing” process. For now, Beijing has been successful in maintaining price stability at least according to official data, allowing the air out of the “Tier 1” home price bubble which peaked in early 2016, while preserving modest home price appreciation in secondary markets.

https://www.zerohedge.com/s3/files/inline-images/china%20housing.png?itok=0vmkt2rm

How long China will be able to avoid a sharp price decline remains to be seen, but in the meantime another problem faces China’s housing market: in addition to being the primary source of household net worth – and therefore stable and growing consumption – it has also been a key driver behind China’s economic growth, with infrastructure spending and capital investment long among the biggest components of the country’s goalseeked GDP. One result has been China’s infamous ghost cities, built only for the sake of Keynesian spending to hit a predetermined GDP number that would make Beijing happy.

Meanwhile, in the process of reflating the latest housing bubble, another dangerous byproduct of this artificial housing “market” has emerged: tens of millions of apartments and houses standing empty across the country. As we reported recently, according to recent research, roughly 22% of China’s urban housing stock is unoccupied, according to Professor Gan Li, who runs the main nationwide study. That amounts to more than 50 million empty homes.

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The reason for the massive empty inventory glut: to keep supply low and prices artificially elevated by taking out as much inventory off the market as possible. This, however, works both ways, and while it helps boost prices on the way up as the economy grow and speculators flood the housing market with easy money, the moment the trend flips the spike in supply as empty units are offloaded will lead to a panic liquidation of homes, resulting in what may be the biggest housing market crash ever observed, and putting the US home bubble of 2006 to shame.

Indeed, as Bloomberg noted, the “nightmare scenario” for Chinese authorities is that owners of unoccupied dwellings rush to sell when cracks start appearing in the property market, causing a self-reinforcing downward price spiral.

Which is why preserving the narrative (or rather myth) of constantly rising prices is so critical for China: any cracks in the facade of the price appreciation story could have a dire consequence first for the housing market, and then, the broader economy whose growth is already the slowest in modern Chinese history, as any scramble to liquidate inventory could promptly result in a bidless market as the tens of millions of empty units are suddenly exposed for both buyers and sellers to see.

* * *

While the key role of China’s housing market in the country’s economy, and thus the world’s, has long been known, a recent troubling development is that despite what Beijing deems stable home prices, the foundations behind the housing market are starting to crack. As the WSJ recently reported, in early December, a group of homeowners stormed the sales office of their Shanghai complex, “Central Washington”, whose developer, Shanghai Zhaoping Real Estate Development, was advertising new apartments at a fraction of the prices of the ones sold earlier in the year. One apartment owner said the new prices suggested the value of the apartment she bought from the developer in March had dropped by about 17.5%.

“There are people who bought multiple homes who are now trying to sell one to pay off the mortgage on another,” said Ran Yunjie, a property agent. One of his clients bought an apartment last year for about $230,000. To find a buyer now, the client would have to drop the price by 60%, according to Ran.

Meanwhile, in a truly concerning demonstration of what will happen when the bubble finally bursts, in October we reported that angry homeowners who paid full price for units at the Xinzhou Mansion residential project in Shangrao attacked the Country Garden sales office in eastern Jiangxi province last week, after finding out it had offered discounts to new buyers of up to 30%.

“Property accounts for roughly 70 per cent of urban Chinese families’ total assets – a home is both wealth and status. People don’t want prices to increase too fast, but they don’t want them to fall too quickly either,” said Shao Yu, chief economist at Oriental Securities. “People are so used to rising prices that it never occurred to them that they can fall too. We shouldn’t add to this illusion,” Shao added, echoing Ben Bernanke circa 2005.

The bottom line is that just like true price discovery for US capital markets is prohibited (and sees Fed intervention any time there is an even modest, 10-20% drop in asset prices) or else the risk of an all out panic is all too real, in China true price discovery is also not permitted, however when it comes to the country’s all important, and wealth effect boosting, real estate.

Which is a problem, because whereas China suddenly appears to be suffering from all the conventional signs of deflation in the auto retail sector, where as we noted previously, neither lower prices nor easier loans have managed to put a dent the ongoing demand plunge…

https://zh-prod-1cc738ca-7d3b-4a72-b792-20bd8d8fa069.storage.googleapis.com/s3fs-public/inline-images/chart_1.jpg

… the same ominous price cuts – which are clearly meant to boost flagging demand – are starting to emerge in China’s housing sector.

Case in point, according to China’s Paper, Hui Ka Yan, the Chairman of Evergrande, China’s biggest property developer, and China’s second richest person announced it must ramp up home sales and to do that it would sell all its properties at a 10% discount after its home sales tumbled in January amid a cooling market.

https://zh-prod-1cc738ca-7d3b-4a72-b792-20bd8d8fa069.storage.googleapis.com/s3fs-public/inline-images/evergrande%20Hui%20Ka%20Yan.jpg?itok=bNqhX9XU

Evergrande Chairman Hui Ka Yam

The fact that Evergrande has had financial difficulties for the past year is not new. In November, Evergrande, which carries the industry’s largest debt pile of any Chinese housing developer, was caught in a vicious funding squeeze and raised eyebrows with a $1.8BN, 5-year bond deal, which it had to pay a whopping 13.75% coupon, prompting analysts to say the move “carried a whiff of desperation.” The fact that chairman Hui Ka Yan, China’s second-richest person, bought $1bn of it himself, added to a sense that outside investors were shunning the company.

In many ways, Evergrande had no choice: after the property market boomed for the past three years, helping to power the economy through Xi Jinping’s crucial political transition year of 2017, in 2018 the market slowed sharply, after local governments shifted focus to controlling frothy prices and China Development Bank, the policy lender, phased out a $1 trillion subsidy program for homebuyers in smaller cities, where Evergrande’s projects are concentrated, the FT reported.

https://www.zerohedge.com/s3/files/inline-images/china%20evergrande%20debt.jpg?itok=bvj4wh7p

Even the official China News Service, usually a cheerleader for the economy, acknowledged recently that the property market “was a bit chilly”. Nomura chief China economist Ting Lu put it more starkly, forecasting a “frigid winter”.

The bigger problem for Evergrande, which had $208 billion in total liabilities at the end of June 2018 — the most of any Chinese developer — including $43bn maturing in 2019, is that should China’s housing market suffer a steep downturn, it will likely be the company to suffer the most, if for no other reason than its massive leverage which stood at a net debt to equity ratio of 400%.

Commenting on the bond sale, a high-yield debt underwriter at a western bank in Hong Kong told the FT that “Evergrande is very levered, so, yes, they do need cash,” said “That said, they are not a name we see as having a near-term liquidity crisis. That cannot be said about other smaller players.”

That was in November; and while there are no signs that the funding situation at Evergrande has deteriorated sharply since then – especially since the company is widely seen as systematically important and Beijing would never let it fail (although the same was said about Kaisa, another Chinese property developer that did default not too long ago), it now appears that the company has decided to start liquidating properties in an unexpected scramble to either gain market share, or to obtain much needed funding.

In any case, the fact that China’ largest property developer is now slashing prices across the board by as much as 10%, means that a deflationary hurricane is about to blow across what most see as the most important sector in China’s economy, and worse, should other property developers follow in slashing prices launching a race to the bottom, nobody knows how far prices could truly fall should a liquidation domino effect ensue.

What is most troubling however, is that as recently as November, the property slowdown was seen to be in large part due to efforts by city governments to restrain runaway price increases, which has included draconian interventions such as price controls and sales bans.

However, now that Evergrande is rushing to slash prices, it appears that runaway home prices are no longer a concern for Beijing, and in fact, a far greater concern is how Beijing may intervene to prevent what could soon be a price plunge spiral; many have already speculated that Beijing will have no choice but to bar Evergrande’s sales. If it doesn’t, or if homeowners have already figured out that their home prices are floating in the sky on a bubbly foundation that has now burst, the knock on effect could be devastating as instead of an asset, China’s most popular and aspirational “wealth effect” product could turn into a liability overnight.

If that happens, no amount of intervention by Beijing could stop the avalanche of selling that would ensue, not to mention the deflationary shockwave that a hard landing – i.e. crash – in China’s housing market would launch across the entire world…

Source: ZeroHedge

The Most Splendid Housing Bubbles in America Get Pricked

San Francisco Bay Area & Seattle lead with biggest multi-month drops since 2012; San Diego, Denver, Portland, Los Angeles decline. Others have stalled. A few eke out records.

San Francisco and San Diego are catching the Seattle cold, and others are sniffling too, as the most splendid housing bubbles in America are starting to run into reality.

House prices in the Seattle metro dropped 0.6% in December from November, according to S&P CoreLogic Case-Shiller Home Price Index, released this morning, and have fallen 5.7% from the peak in June 2018, the biggest six-month drop since the six-month drop that ended in February 2012 as Housing Bust 1 was bottoming out. The index is now at the lowest level since February 2018. After the breath-taking spike into June, the index is still up 5.1% year-over-year, and is 27% higher than it had been at the peak of Seattle’s Housing Bubble 1 (July 2007):

https://wolfstreet.com/wp-content/uploads/2019/02/US-Housing-Case-Shiller-Seattle-2019-02-26.png

So Seattle’s Housing Bubble 2 is unwinding, but more slowly than it had inflated. Many real estate boosters simply point at the year-over-year gain to say that nothing has happened so far — which makes it a picture-perfect “orderly decline.”


San Francisco Bay Area:

The Case-Shiller index for “San Francisco” includes five counties: San Francisco, San Mateo (northern part of Silicon Valley), Alameda, Contra Costa (both part of the East Bay ), and Marin (part of the North Bay). In December, the index for single-family houses fell 1.4% from November, the steepest month-to-month drop since January 2012. The index is now down 3% from its peak in July, the biggest five-month drop since March 2012.

Given the surge in early 2018, the index is still up 3.6% from a year ago and remains 37% above the peak of Housing Bubble 1, fitting into the theme of a perfect orderly decline:

https://wolfstreet.com/wp-content/uploads/2019/02/US-Housing-Case-Shiller-San-Francisco-Bay-Area-2019-02-26.png

Case-Shiller also has separate data for condo prices in the five-county San Francisco Bay Area, and this index fell 0.9% in December from November, after an blistering 2.4% drop in the prior month. From the peak in June 2018, the index has now dropped 4.2%, the steepest six-month drop since February 2012:

https://wolfstreet.com/wp-content/uploads/2019/02/US-Housing-Case-Shiller-San-Francisco-Bay-Area-Condos-2019-02-26.png

The Case-Shiller Home Price Index is a rolling three-month average; this morning’s release tracks closings that were entered into public records in October, November, and December. By definition, this causes the index to lag more immediate data, such as median prices, by several months.

The index is based on “sales pairs,” comparing the sales price of a house in the current month to the prior transaction of the same house years earlier (methodology). This frees the index from the issues that plague median prices and average prices — but it does not indicate prices.

It was set at 100 for January 2000; a value of 200 means prices as tracked by the index have doubled since the year 2000. Every index on this list of the most splendid housing bubbles in America, except Dallas and Atlanta, has more than doubled since 2000.

The index is a measure of inflation — of house-price inflation. It tracks how fast the dollar is losing purchasing power with regards to buying the same house over time.

So here are the remaining metros on this list of the most splendid housing bubbles in America.

San Diego:

House prices in the San Diego metro declined 0.7% in December from November and are now down 2.6% from the peak in July, the biggest five-month drop since March 2012, leaving the index at the lowest level since February 2018, and just one hair above the peak of Housing Bubble 1:

https://wolfstreet.com/wp-content/uploads/2019/02/US-Housing-Case-Shiller-San-Diego-2019-02-26.png

Los Angeles:

The Case-Shiller index for the Los Angeles metro was about flat in December with November but down 0.5% from the peak in August — don’t laugh, the largest four-month decline since March 2012. What this shows is just how relentless Housing Bubble 2 has been. The index is up 3.7% year-over-year:

https://wolfstreet.com/wp-content/uploads/2019/02/US-Housing-Case-Shiller-Los-Angeles-2019-02-26-B.png

Portland:

The Case-Shiller Index for the Portland metro inched down in December from November for the fifth month in a row and is now down 1.4% from the peak in July 2018. And that was the steepest five-month drop since March 2012. Year-over-year, the index was up 3.9%:

https://wolfstreet.com/wp-content/uploads/2019/01/US-Housing-Case-Shiller-Portland-2019-01-29.png

Denver:

House prices in the Denver metro edged down in December from November for the fourth month in a row, after an uninterrupted 33-month run of monthly increases. The four-month drop amounted to 0.9%, which, you guessed it, was the steeped such drop since March 2012. The index is at the lowest level since May 2018 but is still up 5.5% year-over-year:

https://wolfstreet.com/wp-content/uploads/2019/02/US-Housing-Case-Shiller-Denver-2019-02-26.png

Dallas-Fort Worth:

The Case-Shiller Index for the Dallas-Fort Worth metro in December ticked up by less than a rounding error to a new record, leaving it essentially flat for the seventh month in a row. The index is up 4.0% year-over-year:

https://wolfstreet.com/wp-content/uploads/2019/02/US-Housing-Case-Shiller-dallas-2019-02-26.png

Boston:

In the Boston metro, house prices dipped 0.5% in December from a record in November and are now back where they’d been in June. The Case-Shiller Index is up 5.3% from a year ago:

https://wolfstreet.com/wp-content/uploads/2019/02/US-Housing-Case-Shiller-Boston-2019-02-26.png

Atlanta:

The Case-Shiller Home Price Index for the Atlanta metro inched up a smidgen in December, to a new record, and is up 5.9% from a year ago:

https://wolfstreet.com/wp-content/uploads/2019/02/US-Housing-Case-Shiller-Atlanta-2019-02-26.png

New York City Condos:

The Case-Shiller index for condo prices in the New York City metro ticked down in December for the second month in a row after a mighty bounce in September and an uptick in October. This index can be volatile, but after all these bounces and declines, the index was up just 1.5% from a year ago, the smallest year-over-year price gain on this list of the most splendid housing bubbles in America:

https://wolfstreet.com/wp-content/uploads/2019/02/US-Housing-Case-Shiller-New-York-condos-2019-02-26.png

On a national basis, these individual markets get averaged out with other markets that didn’t quite qualify for this list since their housing bubble status has not reached the ultimate splendidness yet. Some of those markets, such as the huge metro of Chicago, remain quite a bit below their Housing Bubble 1 peaks and are now declining, while others are shooting higher.

So the Case-Shiller National Home Price Index has been about flat since July, but is still up 4.7% year-over-year and is 11% higher than it had been at its prior peak in July 2006 during Housing Bubble 1:

https://wolfstreet.com/wp-content/uploads/2019/02/US-Housing-Case-Shiller-National-Index-2019-02-26.png

It always boils down to this: Regardless of how thin you cut a slice of bologna, there are always two sides to it. When home prices drop after a housing bubble, there are many losers. But here are the winners – including a whole generation. Listen to my latest podcast, an 11-minute walk on the other side…

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US Pending Homes Sales Tumble YoY For 13th Straight Month

After plunging further in December, January Pending Home Sales rebounded more than expected (+4.6% MoM vs +1.0% MoM exp) but remains lower YoY for the 13th straight month.

https://www.zerohedge.com/s3/files/inline-images/2019-02-27_7-03-55.jpg?itok=9ismcUUK

“A change in Federal Reserve policy and the reopening of the government were very beneficial to the market,” NAR Chief Economist Lawrence Yun said in a statement.

“Homebuyers are now returning and taking advantage of lower interest rates, while a boost in inventory is also providing more choices for consumers.”

On a Year-over-year basis, the rebound left Pending Home Sales down just 2.27% YoY, but that is still the 13th annual drop in a row…

https://www.zerohedge.com/s3/files/inline-images/2019-02-27_7-05-13.jpg?itok=7nDh-48k

Source: ZeroHedge

***

More Home-Sellers are Dropping Their Prices Than in Previous Winters as Buyers Seize More Control of the Market

https://www.redfin.com/blog/wp-content/uploads/2019/02/price-drops-national_february-2019.png

More than one in five homes for sale nationwide dropped its price in the last month. In Fresno it was two in five.

How Low Will Housing Prices Go?

Now that Housing Bubble #2 Is Bursting… How Low Will It Go?

Unless the Fed is going to start buying millions of homes outright, prices are going to fall to what buyers can afford.

There are two generalities that can be applied to all asset bubbles:

1. Bubbles inflate for longer and reach higher levels than most pre-bubble analysts expected

2. All bubbles burst, despite mantra-like claims that “this time it’s different”

The bubble burst tends to follow a symmetrical reversal of very similar time durations and magnitudes as the initial rise. If the bubble took four years to inflate and rose by X, the retrace tends to take about the same length of time and tends to retrace much or all of X.

If we look at the chart of the Case-Shiller Housing Index below, this symmetry is visible in Housing Bubble #1 which skyrocketed from 2003-2007 and burst from 2008-2012.

Housing Bubble #1 wasn’t allowed to fully retrace the bubble, as the Federal Reserve lowered interest rates to near-zero in 2009 and bought $1+ trillion in sketchy mortgage-backed securities (MBS), essentially turning America’s mortgage market into a branch of the central bank and federal agency guarantors of mortgages (Fannie and Freddie, VA, FHA).

These unprecedented measures stopped the bubble decline by instantly making millions of people who previously could not qualify for a privately originated mortgage qualified buyers. This vast expansion of the pool of buyers (expanded by a flood of buyers from China and other hot-money locales) drove sales and prices higher for six years (2012-2018).

As noted on the chart below, this suggests the bubble burst will likely run from 2019-2025, give or take a few quarters.

The question is: what’s the likely magnitude of the decline? Scenario 1 (blue line) is a symmetrical repeat of Housing Bubble #2: a retrace of the majority of the bubble’s rise but not 100%, which reverses off this somewhat higher base to start Housing Bubble #3.

Since the mainstream consensus denies the possibility that Housing Bubble #2 even exists (perish the thought that real estate prices could ever–gasp–drop), they most certainly deny the possibility that prices could retrace much of the gains since 2012.

More realistic analysts would probably agree that if the current slowdown (never say recession, it might cost you your job) gathers momentum, some decline in housing prices is possible. They would likely agree with Scenario 1 that any such decline would be modest and would simply set the stage for an even grander housing bubble #3.

But there is a good case for Scenario 2, in which price plummets below the 2012 lows and keeps on going, ultimately retracing the entire housing bubble gains from 2003.

Why is Scenario 2 not just possible but likely? There are no more “saves” in the Fed’s locker. Dropping interest rates to zero and buying another trillion in MBS won’t have the same positive effects they had in 2009-2018. Those policies have run their course.

https://www.oftwominds.com/photos2019/Case-Shiller2-19a.png

Among independent analysts, Chris Hamilton is a must-read for his integration of demographics and economics. Please read (via Zero Hedge) Demographics, Debt, & Debasement: A Picture Of American Insolvency if you want to understand why near-zero interest rates and buying mortgage-backed securities isn’t going to spark Housing Bubble #3.

Millennials are burdened with $1 trillion in student loans and most don’t earn enough to afford a home at today’s nosebleed prices. When the Fed drops the Fed Funds Rate to zero, it doesn’t follow that mortgage rates drop to zero. They drop a bit, but not enough to transform an unaffordable house into an affordable one.

Buying up $1 trillion in sketchy mortgages worked in 2009 because it bailed out everyone who was at risk of absorbing huge losses as a percentage of those mortgages defaulted. The problem now isn’t one of liquidity or iffy mortgages: it’s the generation that would like to buy homes finds they don’t earn enough, and their incomes are not secure enough, to gamble everything on an overpriced house that chains them to a local economy they might want to leave if opportunities arise elsewhere.

In other words, the economy has changed, and the sacrifices required to buy a house in hot markets at today’s prices make no sense. The picture changes, of course, in areas where 2X or 3X a typical income will buy a house, and 1X a pretty good income will buy a house.

Unless the Fed is going to start buying millions of homes outright, prices are going to fall to what buyers can afford. As China’s debt bubble implodes, the Chinese buyers with cash (probably not even cash, just money borrowed in China’s vast unregulated Shadow Banking System) who have propped up dozens of markets from France to Vancouver will vanish, leaving only the unwealthy as buyers.

The only question of any real interest is how low prices will drop by 2025. We’re so accustomed to being surprised on the upside that we’ve forgotten we can surprised on the downside as well.

Source: by Charles Hugh Smith | Of Two Minds

***

US Home Price Growth Weakest Since 2012

https://zh-prod-1cc738ca-7d3b-4a72-b792-20bd8d8fa069.storage.googleapis.com/s3fs-public/styles/teaser_desktop_2x/public/2019-02/2019-02-26_6-01-23.jpg?itok=W11ixPOh


“A decline in interest rates in the fourth quarter was not enough to offset the impact of rising prices on home sales,” 

 

 

US Housing Starts Crashed In December

https://zh-prod-1cc738ca-7d3b-4a72-b792-20bd8d8fa069.storage.googleapis.com/s3fs-public/styles/teaser_desktop_2x/public/2019-02/2019-02-26_5-37-48.jpg?itok=rMJrlaQ0

 

Year-over-year, housing starts tumbled 10.9% – the biggest drop since March 2011…

 

 

Debt Among Millennials Rockets Past $1 Trillion

https://zh-prod-1cc738ca-7d3b-4a72-b792-20bd8d8fa069.storage.googleapis.com/s3fs-public/styles/teaser_desktop_2x/public/2019-02/debt%20student.jpg?h=361ea814&itok=Kp6oBBxo

“Student loans make up the majority of the $1,005,000,000,000″, a massive handicap on ability to mortgage a home purchase at today’s prices.

U.S. Existing Home Sales Fall 8.5% YoY In January

The housing market is cooling, both in terms of existing home sales YoY and median price YoY.

(Bloomberg) — Sales of previously owned U.S. homes fell to the weakest pace since November 2015, indicating that the housing market remained in a slowdown despite a drop in mortgage rates.

Contract closings decreased 1.2 percent in January from the prior month to an annual rate of 4.94 million, the National Association of Realtors said Thursday, below economists’ estimates for 5 million. The median sales price rose 2.8 percent from a year ago, the smallest increase since February 2012.

Is this a trend in median prices YoY for existing home sales?

https://confoundedinterestnet.files.wordpress.com/2019/02/medianpriceehsyoy.png

Milage in your town will vary.

Existing home sales YoY dropped 8.50% in January, continuing the cooling trend that started in 2017.

https://confoundedinterestnet.files.wordpress.com/2019/02/ehsyoy.png

I Dont Even Know What This Is Leonardo Dicaprio GIF

Source: Confounded Interest

Over Half Of Houses Listed In NYC Last Year Never Sold

A torrid post-crisis recovery in the NYC housing market came to a screeching halt last year as a chasm opened between what sellers were asking and what buyers were willing to pay.

https://ap.rdcpix.com/238832139/34d0af005e3bf18106be433233553738l-m0xd-w1020_h770_q80.jpg

But in the clearest post-mortem showing just how bad last year was for one of the world’s most unaffordable real estate markets, Property Shark found in a recent analysis that less than half of the housing inventory available sold last year. According to PS, 48% of the homes listed between March through May of last year had been sold as of Feb. 1.

It’s a symptom of New York’s softening market, where a glut of inventory has given buyers major bargaining power, said Grant Long, senior economist for StreetEasy. Of the homes that didn’t sell, only 14% are still listed. But most of the homes that were pulled off the market could easily reemerge

And of the homes from last spring that did sell, roughly 70% of them closed for less than their owners initially sought. That’s up from 62% of sales a year earlier and 61% in 2016.

The resulting glut in unsold inventory is creating problems for sellers who are facing another tidal wave of inventory.

https://www.zerohedge.com/s3/files/inline-images/Screen%20Shot%202019-02-08%20at%203.01.50%20PM.png?itok=xc33bN-d

Here’s a breakdown of the report’s findings (text courtesy of Property Shark):

1. Of All Homes Listed for Sale in Spring 2018, Fewer Than Half Sold

Just 48 percent of the homes listed during March, April, and May 2018 had sold as of February 2019. While weakness at the top of the NYC sales market has been grabbing headlines, the sluggish pace of sales has extended to homes across boroughs and price points. Manhattan homes fared slightly worse than others, with just 44 percent selling, but even in the comparably strong market in Queens, just 54 percent of homes found buyers. This is not only about price: Though 61 percent of all homes listed for $1 million or more failed to sell, so did 45 percent of all homes priced under $1 million. (Nonetheless, units priced at or above $5 million fared far worse, with just 140 of 656 units, or 21 percent, finding buyers.)

The Greenwich Club condominium in the Financial District exemplifies this trend. A total of 31 units in the building were listed for sale in March, April, and May 2018, but only six have sold. One more entered contract in December, and another six have since relisted, but many — including a 1-bedroom asking $1.25 million, 25 percent above its 2016 purchase price — left the market without fanfare in late 2018.

2. Many Homes Listed Last Spring Were Taken Off-Market

Most sellers who were unable to find buyers at suitable prices have simply pulled their listings from the market. Of all listings created in spring 2018, 40 percent are either paused, delisted, or otherwise no longer available on StreetEasy. Only 7.5 percent of all the listings from the peak months, or 14 percent of the total unsold units, are still actively seeking buyers. Listing agents marked another 4.5 percent of homes as in-contract, with the majority entering deals in late 2018 and presumably closing in early 2019. Yet with many more unsold, we will likely continue to see heightened inventory heading into the spring home-shopping season, as these sellers try again to find a buyer.

3. The Majority of 2018 Sales Closed Below Asking Price

Of homes listed last spring that managed to find a buyer, we estimate that 70 percent closed below their initial asking price[1]. The median difference between the recorded closing price (as reflected in public records) and the initial listing price on StreetEasy was 5.5 percent, for a $44,000 discount off the $800,000 median listing price for homes sold. Buyers enjoyed particularly high negotiating power in Manhattan, where 77 percent of homes sold below their initial asking price, compared to 68 percent of homes in Queens and 61 percent of homes in Brooklyn.

Homes selling below their initial asking price is not a new phenomenon, but with heightened competition for buyer interest, spring 2018 was particularly painful for sellers. In 2017 and 2016, 62 and 61 percent, respectively, of homes listed in the spring sold below ask in a comparable time period.

4. Aggressively Priced Homes Stand Out

Though these numbers make selling a home seem daunting, a significant chunk of homes – 19 percent of all sales – closed above their original asking price. While these home sales ranged across price points and neighborhoods, they tended to be among the cheapest in their respective neighborhoods for their bedroom count. Homes that ultimately sold above ask were initially listed for a median of 8.8 percent below the respective 2018 median price for their neighborhood and bedroom count. Meanwhile, homes that sold below asking price were listed a median of 1.2 percent above the respective median for their neighborhood and bedroom count. Homes that went unsold were initially listed for a median of 6.4 percent above their respective benchmark median.

* * *

To be sure, the property glut has given buyers serious bargaining power. And while sellers are hoping for a rebound (particularly if Trump does manage to repeal the SALT deduction cap, which the Senate has already said won’t happen), with more inventory set to hit the market, the downturn could persist for some time, particularly with median home values still well above the range that NYC’s population of indebted, cash-poor millennials are willing/able to pay.

Source: ZeroHedge

Housing Market Crisis 2.0: The Jury Is In For 2018-2019

Summary

  • Here is a play-by-play review of a housing crisis that began exploding one story at a time last summer.
  • What is different this time from last is that the 2007-2009 crisis started in the US and pretty much stayed in the US.
  • This one is developing all over the world simultaneously – in the US, Canada, Australia, the UK, etc.

https://static.seekingalpha.com/uploads/2019/2/10/saupload_2016-Economic-Predictions-Symbol.jpg

(by David Haggith) As happened with the first housing market crash that began in 2007 but didn’t become widely recognized until mid-2008, the present housing crisis began exploding one story at a time last summer, and this blog was perhaps the first to state that summer’s change was the turning point from decades of ascent into a collapse in housing sales and prices. I said the same thing back in 2007, and people didn’t believe me then either.

The present housing market crash, like the last, was created by the Federal Reserve artificially pressing mortgage rates down, then down further, and then down as deep they dared push for years and years. Falling interest allowed people with flat incomes to keep purchasing increasingly expensive homes. Since people buy payments more than house prices, housing prices kept rising as payments were kept in line via these artificial interest reductions.

The Fed’s ill-conceived plan, however, was never sustainable prior to the last housing market crash and is not now. I’ve said throughout the Great Recession and ensuing years that, sooner or later, we’d get to the point where the Fed would have to raise rates, and I’ve said its quantitative tightening will certainly raise rates as much as it increases its stated interbank lending interest targets. I’ve also said that, by the time the Fed started raising rates, housing prices would be unaffordable without the Fed’s artificially lowered interest; therefore, the market would have to crash all over again because, all over again, people would find themselves underwater on their mortgages.

And now, here we are. US banks have not started to go down, but they are feeling serious pressure as this article will point out, while eight months of statistics now prove housing is relentlessly falling with NO hint of letting up. As I wrote in my first Premium Post, “2019 Economic Headwinds Look Like Storm of the Century,” Housing Market Crash 2.0 is one of the numerous forces that will be knocking the US economy down in 2019. The rest of the global economy is already down further than the US.

The principal driver in Housing Market Crash 2.0 is the Federal Reserve’s Great Recovery Rewind (the downsizing of its balance sheet, which tightens financial conditions). This, I said two years ago, would cause mortgage rates to start rising one year ago, and you can now see that mortgage rates did exactly that all of last year:

https://static.seekingalpha.com/uploads/2019/2/10/saupload_Mortgage-rates-Aug-18.jpg

Mortgage rates rose only a minuscule blip when the Fed started with a tiny rolloff (tightening) near the end of 2017, even as I had said the Fed’s unwind would not likely cause any serious damage to the economy until January 2018. Rates, however, immediately ramped up steeply when the Fed doubled its roll-off rate in January (which was when I said the balance sheet unwind would start to have serious market impacts). This has hit stocks, bonds, and housing the worst… so far.

Since the housing market is one of the major areas where Americans store wealth and since it is an industry that buys products and labor from a multitude of other industries, a decline in housing impacts the economy more than any other industry.

US Housing Market Crash 2.0

Here is the path US housing prices had been following until the market rolled over:

https://static.seekingalpha.com/uploads/2019/2/10/saupload_Home-prices-Aug-18.jpg

And here is a play-by-play of how the housing market crash has gone since I made my brazen 2018 summer proclamation that it had arrived on schedule:

June-July, 2018: Average housing demand in the US was reported to have fallen 9.6 percent in June YoY, while the number of listings increased. Overall, 15% fewer offers were made on homes, which is probably why the inventory grew. In many major markets, however, inventory declined. Agents in So. Cal reported bidding wars were cooling down. Where homes had been getting 10-15 offers (causing a bidding war), they were now just getting one or two.

Prices continued to climb or remained high because sales have to slump a lot before sellers become willing to accept the harsh reality that their homes, in which they have so much of their wealth invested, are not worth as much as they were. As inventory rises, buyers become more choosy and make offers on only the best-priced homes, rather than bid prices up. As a result, prices stall so do buyers until eventually their waiting overcomes seller inertia and sellers start to move down to find the more deeply coalesced pool of buyers.

In affluent areas, however, prices already began to fall. In part, this jolt down at the top was due to the Trump Tax Cuts, which funded some cuts by curbing deductions for mortgage interest and particularly for property tax. That hit areas like Manhattan, Westchester County, New Jersey, and Connecticut the hardest because of their high property taxes that had been paid on behalf of the wealthy via income-tax breaks. (Property-tax bills in Westchester County, one of the highest in the nation, commonly hit $50,000 per year or more.)

On a quarterly basis, purchases nationally plunged 18% in the second quarter.

August 2018: Near the end of summer, reports like the following started to appear for the first time in almost a decade:

“We all think next year is going to be a tough year for real estate sales,” said Matthew Roach, a property attorney in Yorktown Heights, New York…. Some buyers are saying, “‘Look, I’m not going to spend more than $35,000 in taxes,’ ” said Angela Retelny, a broker at Compass. “Houses … have to be reduced – because their taxes are just way too high for the price range….” The state of the market is such that you’re seeing “dramatic price reductions every single day – every hour, pretty much,” she said.”

Bloomberg

But it was not just high-end markets that hit the skids. Farms in the midwest had been seeing rising bankruptcies for a few years and finally broke above the peak they hit in the last housing market crash:

https://static.seekingalpha.com/uploads/2019/2/10/saupload_chart_4.png

The rise in farm bankruptcies, however, had little to do with mortgage rates or housing prices, and everything to do with commodity prices (particularly dairy); however, as goes the farm business, so goes the sale of the farm. More people selling in distressed conditions coupled to fewer people interested in buying into a failing industry equals tougher sales; and, so, this distress was certain to flow out into declining sales and prices. (Fire sales of land and equipment due to distress last summer are now well underway.)

The impact hit first in delinquent Ag. loans in the upper midwest, which rose (when measured against the farm capital backing those loans) to strike a level worse than what was seen in the pit of the Great Recession. The Kansas City Fed predicted farm income would worsen into 2019. The Trump Trade War certainly isn’t helping.

(During this same time, my wife and I – putting my belief in a housing market crash to practice – listed our farm in the hope of selling near the peak, possibly renting and then buying back in at a lower price in a couple of years. We hope to retire our mortgage so that we can more easily retire five years from now. We both have jobs that are fairly recession proof, so we’re not too concerned about needing to grow our own food. Still, if we can’t sell at near-peak value, we’ll happily hold on here since the farm produces relatively passive income. (We let other people rent agricultural use and do 90% of the work.) If things ever did go extremely bad, we can grow a huge amount of food in a valley that always has abundant mountain water. So, we’ll be happy to sell at peak value, but happy to sit it out here if we’re already too late to get that value.)

September 2018: By the end of summer on the east coast, some markets like Connecticut saw a rise in people choosing to wait out the foreseeable housing market crash by renting, even at $10,000 a month for higher-end homes, in hopes of buying low at the bottom of the market in a not-too-distant future. Several east-coast counties saw rentals rising sharply as sales fell just as sharply. Owners also began choosing to rent out homes rather than sell them at a loss because losses on a primary residence are not deductible; but if a home has been rented for two years, it can be converted into an investment property so that, at least, the loss can be deducted from taxes. (They may have also hoped that, by renting, they could wait out the decline in prices.)

Todd David Miller, a vice president of sales at the Higgins Group, said that of the $57 million in sales his team has done so far this year, primarily in the towns of Westport and Fairfield, almost all of the sellers have either moved out of state or are renting in the area. Those who are staying in the area are gravitating toward home rentals near the beach.

“These are mainly higher-end transactions, and the majority of them had to sell at a loss,” Mr. Miller said. “They don’t want to put any more money into real estate right now….”

“We’re going through this era of uncertainty. And what do buyers do when the near-term seems uncertain? They pause. People are just nervous that values will continue to decline, and for that reason, more people are opting to rent, if they are not forced to buy”, Miller said.

The New York Times

October 2018: New home sales were expected to start rising again in October but, instead, fell miserably (8.9% MoM). That marked the seventh month of missed expectations. The midwest led the slump that month, falling a hard 22%, but the fall was bad in all parts of the US. At this point, median prices began dropping nationally, too (down 3. 6%). As a result of a backlog from declining sales, inventory began to soar (climbing 7.4 in one month). Sentiment, too, had taken a bad plunge by October with the number of people who said they planned to buy a house in the next twelve months falling by half over the past year.

Sales of new U.S. single-family homes tumbled to a more than 2-1/2-year low in October amid sharp declines in all four regions, further evidence that higher mortgage rates were hurting the housing market.

Reuters

The Fed crush was fully on.

November 2018: By November, mortgage rates across the United States had hit their highest level since the Great Recession 8-1/2 years earlier. As a result, new mortgage applications across the US fell to their lowest level since December 2014. Since refinancing mostly happens when mortgage interest is lower than it was when a mortgage was taken out, refis hit their lowest point since the year 2000. So, clearly, the Fed has crushed mortgage activity.

By this point, year-on-year sales had fallen for eight straight months across the nation. The west coast – with Seattle leading the earlier procession in sales and prices – had long been one of the nation’s hottest markets, which is why I stated at the start of last summer the housing market’s initial decline in Seattle was a “bellwether” for the whole US market. While my one crow on a wire (detractor) insisted I didn’t know a thing, time has proven my summer proclamation that Housing Market Crash 2.0 had begun to be dead on with Seattle leading the recession in sales and prices:

Since that proclamation, inventories in the region have soared due to a buildup from declining sales. Lending limits have increased due to falling prices and less assurance on the part of banks that collateral will hold its value or that repossessions won’t be the next wave. King County where Seattle is located has led the decline to where the number of single-family homes on the market has doubled in just a year.

Since my summer declaration, King County has recorded a bruising fall. In just half a year, the median price plunged from its peak of $726,000 last spring to $644,000 in November. According to Mike Rosenberg, a Seattle Times real estate reporter, this was the fastest price drop anywhere in the nation (over 11% in half a year – a crushing reversal from years before when rises 10% in a full year were seen as evidence of a superheated market; so, doesn’t that make this flash-frozen fall?) The last drop that steep was back at the start of the Great Recession in 2008! Not a time for housing anyone wants to compare to.

In Southern California, home sales in November plunged 12% YoY. In California, however, prices remain above their 2008 summit and have so far largely resisted following sales down. Nevertheless, Bank of America proclaimed, “We are calling it: existing home sales have peaked.”

LA Times noted if volatility in the stock market and Washington significantly affects consumer confidence and business investment decisions in 2019, the housing market could be due for significant correction into 2020…. Richard K. Green, director of the USC Lusk Center for Real Estate, told the LA Times, he is very pessimistic about the housing situation in Southern California. Green warns prices could plunge 5% to 10% into 2020, even with the current level of economic growth.

Zero Hedge

Things looked just as stark in Las Vegas by November where, out of the 10,000 homes on the market, 7,000 of those had not received a single offer, a figure 50% worse than the year before. Realtors started warning sellers not to panic, which, in itself, easily becomes a self-fulfilling warning. In the last few years, Las Vegas had risen to become one of the most overvalued markets in the nation. It looks like prices have finally peaked now that they have risen out of site on the back of low-interest loans and now that interest is higher and now that the Trump Tax cuts have stripped away some of the benefits of home ownership in favor of a larger general deduction that goes equally to renters or buyers.

By the end of November, the US Census Bureau reported that new home sales had rolled off a cliff. New homes sitting on the market were at their highest point in five years, and unsold supply per quarter was growing at an alarming annualized rate of 33% (meaning should it continue).

In another sign the market has turned under, housing flips have flopped in the Chicago area. The flipper boom has nearly gone bust. With properties taking longer to sell, higher interest on loans to acquire and repair those fixers eats up more profit and increases the risk involved in flipping homes. With profits sometimes now shifting into reverse, flippers are backing out of the market. The number of homes turned around by flippers in the Chicago area went from a high of 7,600 in the first three quarters of 2017 to 4,000 in the first three quarters of 2018. Across the nation, the number of homes flipped dropped 12%.

https://static.seekingalpha.com/uploads/2019/2/10/saupload_flipping_20trends.png

December 2018: The median price of a home in Manhattan fell below the one-million-dollar market for the first time in four years, and it took 15% longer to sell even at those lower prices. Again, real estate agents noted that the Trump Tax Cuts were making the situation worse, but particularly in high-end markets.

Relief started spreading to the boroughs, too. Most of Brooklyn’s trendiest neighborhoods saw more than a fifth of sellers pressed to lower their asking price. And in the pricey Hamptons, home purchases in the 4th quarter of 2018 crashed a full 35%, the biggest quarterly fall since … you guessed it, the Great Recession in 2009!

Inventory is piling up across the city, and that’s good news for buyers in search of a bargain. For sellers with dreams of making a big profit, it’s time for a reality check.

Bloomberg

Most of us don’t care what banksters are paying (or getting) for a home near their Wall Street office, but the massive year-end plunge in NYC and its surrounds is further evidence that the fall in home prices is not only unabated but worsening. What started showing up at the top of the market in the hottest markets like Seattle last summer is now, as I said would be the case, trending down to lower sectors just as seen in the spread from Manhattan to the boroughs.

This is all terrible news for my crow. If he had any integrity, he’d cannibalize and eat crow. Of course, neither crows nor trolls ever have integrity. However, for those who would like to become first-time home buyers someday, this is news to crow about. How you look at it depends on where you’re standing. Someone might even be able to become a first-time home buyer in Manhattan in a couple of years if the Fed doesn’t quickly spin on its heels and reverse its Great Recovery Rewind, as it is already sounding ready to do.

Nationally, sales dropped 11% in December, but the most valuable thing about December stats is that we get a final tally to reveal how the entire year went. A total of 5.34 million homes sold in 2018, proving the year to have the largest annual drop (about 10%) in total home sales since … you guessed it … the bottom of the Great Recession eight years ago.

Business Insider summarized 2018 as the year that…

The US housing market took a dark turn … as homebuying fell off a cliff and mortgage lenders saw a steep decline in applications, originations,and profits. Interest rates are partly to blame for the slide in housing, but that’s only half of the equation, according to analysts. It’s too soon to panic, but a deeper drought in housing is bad news for just about everybody, not just the banks. Significant housing declines have foreshadowed nine of the 11 post-war US recessions, according to UBS…. The decline has been broad, affecting every region in the US.

https://static.seekingalpha.com/uploads/2019/2/10/saupload_Home-Sales-2009-2018-1024x607.jpg

2018-2019 Housing Market Crash 2.0 appears inevitable, given how far off the cliff we’ve already fallen and how fast we’re going down.

And here is where home-buying sentiment now lies:

https://static.seekingalpha.com/uploads/2019/2/10/saupload_consumer_20housing_20sentiment.png

So, eat crow, Crow. In short, sentiment across the nation is as bad as it has ever been. It looks like how people feel after they’ve already fallen off a cliff.


How hard is Housing Market Crash 2.0 hitting banks?

At Wells Fargo, mortgage banking revenues fell 50% to $467 million in the fourth quarter, while originations declined 28% to $38 billion. JPMorgan, meanwhile, saw mortgage income fall to $203 million, a 46% drop from the same period last year. Originations fell 30% to $17.2 billion.

that’s Fifty percent!

Looking forward: Pending sales are a forward-looking indicator. Due to the lag of a month or two between a pending contract and closing, the direction of movement in pending sales tells us where we’ll most likely be in final sales a month or two down the road. November’s pending sales told us that sales in January when all reporting is completed in February will likely be down to their lowest since May 2014. And December’s sales, which were way down in November’s pending report, already came in worse way worse than November’s actuals, falling a whopping 2.2% from where they were in an already bad November. So, we can expect January’s to do no better once all reports are in.

Real estate bimbos had expected a 0.5% rise in December! Of course, they were also ebulliently predicting a warm spring market for 2019 and recently were forced by facts to temper their predictions. In my opinion, real-estate sales people (as a group, not all individuals) fit somewhere among the following groups for lying: 1) transportation sales people (car dealers and horse traders); 2) banksters; 3) stock brokers; and 4) politicians.

https://static.seekingalpha.com/uploads/2019/2/10/saupload_US-housing-Pending-home-sales-2018-12-yoy-change.pngGraph by Wolf Street

“It’s been dripping down, down, down,” NAR chief economist Lawrence Yun said…. “Frustrating that the housing market is not recovering.”
Wolf Street

Pending sales strongly indicate that Housing Market Crash 2.0 is still fully on track for 2019. Moreover, year-on-year declines have been worsening each month since the start of October even though interest rates improved in November. That, to me, supports my view that the Fed has already gone too far to stop the damage, even if it quits tightening altogether.On a longer-term perspective, consider the demographics: School-debt-ridden, under-employed millennials, who are more into buying experiences in life than things, are not inclined to buy homes that are in the housing-bubble price zone. Neither are baby-boomers looking to retire, which often involves downsizing.


None of this bothers me because my wife and I have the best of all worlds – very low fixed interest, a home we bought at the bottom of the market last time around, a chance to sell now high or stay and keep reaping the rewards of living in a beautiful place.

I benefited from the last crash. I hope others are able to reap the same reward by turning the next bottom into their blessing. It’s all about seeing clearly what is coming so you can sell high and buy low. It is what can happen to those who see reality clearly and don’t live in economic denial like my crow who could only see what he wanted to see in praise of his choice for president. My lone crow on a wire, who scoffed at a good call because he didn’t like it, now looks like the fool I warned last summer he would prove to be. He has fallen off the wire because he hasn’t a leg left to stand on. All reports everywhere have come in against consistently month after month for over half a year.

(I’m not advising anyone as everyone’s particular situation is different – just saying what I’ve done, what I’m doing and why. I’m saying what I believed would happen and is now happening so you can weigh all risks and possible rewards for yourself in your own context and your own ability to take risk in order to do as you feel best.)

Here is a picture of where we are in our developing 2018-2019 housing market crash:

https://static.seekingalpha.com/uploads/2019/2/10/saupload_Seattle_-_House_damaged_in_Perkins_Lane_landslide_1954.png

After 2018, we look about like this. 2018 pushed us just over the edge into a housing market crash that is as likely to continue sliding as the house in this picture at the top of a bluff that is giving way. (And I’ve seen places in Seattle that look exactly like that.)

Canada Housing Market Crash

One major difference between Housing Market Crash 2.0 and the last time is that this one is already global. The last one started in the US and mostly stayed in the US. This one is rapidly building in several nations because it is part of the bursting of the “Everything Bubble.”

Vancouver, June-July, 2018: Residential property sales fell 14.6% from June 2018 to July but a massive 30.1% from a year before. The 2,070 transactions that took place were the fewest since the end of the last millennium. Buyers and sellers were both reportedly sitting things out in confusion as to whether recent price gains would continue or whether the housing bubble had already burst. (As of August, prices had not started to drop.)

Sales of detached properties in July decreased 32.9% from a year before, and apartments dropped 26.5%. In fact, July’s sales were 29.3% below the 10-year average for July. Much of the plunge was attributed to Vancouver’s new law aimed at shutting out absentee Asian buyers that were ramming up housing prices while leaving the homes abandoned to become derelict in high-end neighborhoods. So, the decline is, in large part, intentional; but, if declining sales bring down prices, the dangers of falling prices to people who find themselves underwater and to their banks remain just as high.

The topping of the Canadian housing market looked like this:

https://static.seekingalpha.com/uploads/2019/2/10/saupload_vancouver_20home_20prices.jpgCanadian market looks like a bus crashing into a brick wall.

January 2019: The B.C. Real Estate Association claimed the huge drop in British Columbia housing sales was due to mortgage stress testing. In spite of the plunge, prices are holding in the province, though no longer rising since last spring. Inventory is building to a level that will probably force prices down by or before summer.

Australia Housing Market Crash

Australia is faring even worse. Melbourne housing prices have plummeted at their fastest quarterly pace ever recorded! Less than two months ago, Australian housing regulators were warned to prepare “contingency plans for a severe collapse in the housing market” that could lead to a “crisis situation.” The Australian market peaked back in October 2017. It’s been downhill ever since with momentum now hitting break-neck speed. Sidney prices are down 12% from their peak.

Experts have been left stunned after Aussie house prices plunged at “the fastest rate of decline ever seen”. And there’s more pain to come…. “We have seen the downturn accelerate over the last three months. At 4 per cent down in Melbourne that’s the fastest rate of decline we’ve ever seen of any rolling three-month period, and Sydney is virtually (the fastest outside) a really brief period in the ’80s.” Sydney’s total decline is now the worst since [CoreLogic] began collecting records in 1980… One analyst has even tipped falls of up to 30 per cent, based on the revelation from the banking royal commission that almost all mortgages written between 2012 and 2016 … over-assess borrowing capacity.
News.com.au

The defaults will be cascading in soon. While Melbourne and Sidney are in an all-out housing crash, other cities in Australia are feeling the pinch, too. Every capital city marked declines, except Canberra. As in the US and Canada, the most expensive end of the market is taking the biggest fall first. Melbourne and Sidney, however, constitute half the value of Australia’s total housing market; so a drop in only those two cities if the plunge were isolated could still be devastating to Australian banks.

Hong Kong Housing Market Crash

Even the world’s hottest housing market is in decline. In stock market terms, one could say it has “entered a correction.” After its longest streak of falling values since 2016, the price of existing homes is down almost 10% from their August peak. This is actually seen by many, including some Chinese government officials, as relief to a market that had long run too hot.

The article above would have been one of my Premium Posts. Such articles are long to readbut are intended to present the most comprehensive overviews you’ll find anywhere. I chose to make this one available to all for two reasons: 1) to show the depth and breadth of Premium Post articles so readers can assess what they are like; and 2) because it concludes an argument made last summer over a prediction made almost two years ago for last summer.

Source: by David Haggith | Seeking Alpha

Vancouver Home Prices Post Biggest Drop In Six Years As Foreign Bid Vanishes

When China started tightening its capital controls on both its upper-crust investors and its public and private companies back in 2016, we anticipated that the bubble in popular urban markets (markets like London, New York City, Sydney, Hong Kong and Vancouver) was officially doomed to burst in the not-too-distant future.

And as a flood of stories over the past year have confirmed, once the foreign (mostly Chinese) bid was withdrawn, property prices started to drop. It’s happening in Australia (and especially in Melbourne and Sydney), it’s happening in New York, it’s happening in London and – as we’ve catalogued over the past few quarters, it’s happening in Vancouver, which for a while held the ignominious title of world’s most overpriced housing market.

https://www.zerohedge.com/s3/files/inline-images/Screen%20Shot%202019-02-05%20at%201.58.03%20PM.png?itok=vFypmMTo

After a chasm opened up between bids and asks in the Vancouver housing market last year, the halt in home sales has finally started filtering through to prices as reluctant sellers finally cave and cut their prices. According to data from the Real Estate Board of Greater Vancouver, the city’s composite home price (which incorporates prices of houses, condominiums and townhouses) fell 4.5% in January from a year earlier to C$1.02 million ($780,000), the biggest decline since May 2013 and down about 8% from the June 2018 peak.

https://www.zerohedge.com/s3/files/inline-images/2019.02.05vancouver.png?itok=3mqaMpV3

As we noted above, the drop in prices follows a decline in sales – the biggest drop in two decades – that many have attributed to new taxes, higher interest rates and a crackdown on dark money flowing into the Vancouver area real estate market. Meanwhile, outbound investment, Bloomberg confirms, has slumped.

Ultimately, the Fed-led global monetary stimulus sent prices in these markets roaring to dizzying new highs during the QE era. But now that the Fed is reining in its balance sheet (and until signaling a “pause”, had been raising interest rates, too) prices that rose on the back of a tidal wave of liquidity are now coming back down.

“Today’s market conditions are largely the result of the mortgage stress test that the federal government imposed at the beginning of last year,” Phil Moore, the realtor group’s president said in a statement Monday.

[…]

“Vancouver real estate was one of the largest benefactors,” of that stimulus, says Steve Saretsky, a Vancouver realtor and author of a local real estate blog. “It may be simple to summarize the slowdown as a few local tax policies and tightening of lending standards, but in reality it’s much more complicated,” says Saretsky, who’s now trying to explain the darkening macro picture in a market where many locals have long considered home price appreciation unstoppable.

The very top end of the market has been the hardest hit: Prices in tony West Vancouver have fallen 14% yoy as of January. And as one real estate agent confirmed to BBG, now that foreign buyers are pulling back, sellers who were once asking for C$12 million or C$13 million are asking for…significantly less.

“These homes in West Van were selling for C$12 million, C$13 million two years ago,” says Adil Dinani, a realtor with Royal LePage, a unit of Brookfield Real Estate Services Inc. “Agents are asking me to throw them off for anything – C$8 million, C$8.5 million, whatever it is.”

Dinani, who’s been in the business for 14 years, says there are fewer speculative investors, and foreign buyers have really pulled back. “And what local buyer has C$6 million, C$7 million to put towards a home?” he said.

Still, with Vancouver’s housing market extremely unaffordable when benchmarked to local wages, no local buyers have the money for these homes.

Which can mean only one thing: Prices have further to fall before the equilibrium point is found.

Source: ZeroHedge

US New Home Sales Fall 7.7% YoY In November, But Rise 16.9% MoM, Most Since 1992 (Months Supply Still Elevated, Median Price Falls)

Let’s start with the +16.9% MoM number, a more cheery, pop the champagne bottle headline.

https://confoundedinterestnet.files.wordpress.com/2019/01/nhsstatsnov18-1.png

But on a YoY basis, new home sales fell 7.7% in November.

https://confoundedinterestnet.files.wordpress.com/2019/01/nhsmb30.png

Months supply of new home sales fell in November, but are still at elevated levels.

https://confoundedinterestnet.files.wordpress.com/2019/01/monthssupply.png

And the median price of new home sales fell in November as The Fed’s normalization grabs the housing market with its icy grip.

https://confoundedinterestnet.files.wordpress.com/2019/01/nhsmedpricenov18.png

“The weather started getting rough, the tiny ship was tossed….”

https://confoundedinterestnet.files.wordpress.com/2019/01/gilligansisland.png

Source: by Anthony B. Sanders | Confounded Interest

***

November New Home Sales Surge By The Most Since 1992

https://zh-prod-1cc738ca-7d3b-4a72-b792-20bd8d8fa069.storage.googleapis.com/s3fs-public/styles/teaser_desktop_2x/public/2019-01/2019-01-31_7-07-10.jpg?h=db43e95e&itok=KtWHgQee

 

…as the median price plunged to $302,400 – the lowest since Feb 2017…

The Most Splendid Housing Bubbles in America Shrink

Seattle prices drop 5.1% in five months, most since Housing Bust 1; San Francisco Bay Area, Los Angeles, San Diego, Denver, Portland all decline.

(WolfStreet) This is the most obvious one: Seattle. House prices in the Seattle metro dropped 0.7% in November from prior month, according to the Case-Shiller Home Price Index released this morning. It brought the index down 5.1% from the peak in June 2018, the biggest five-month drop since the five-month period that ended in January 2012 during the final throes of Housing Bust 1.

The historic spike through June is getting systematically unwound. The pace of the price declines over the past five months pencils out to be an annual rate of decline of 12%. The index is now at the lowest level since March 2018. Over the past 12 months, given the phenomenal spike into June, the index is still up 6.3% year-over-year and up 29% from the peak of Seattle’s Housing Bubble 1 (July 2007):

https://wolfstreet.com/wp-content/uploads/2019/01/US-Housing-Case-Shiller-Seattle-2019-01-19.png

So some of the markets in this select group of the most spending housing bubbles in America have turned south, according to the S&P CoreLogic Case-Shiller Home Price Index, confirming other more immediate data. This includes, in addition to the Seattle metro, the five-county San Francisco Bay Area, the San Diego and Los Angeles metros, the Denver metro, and the Portland metro. In these markets, house prices have dropped the fastest since Housing Bust 1. In other markets, house prices have been flat for months, such as Dallas. And in a few markets on this list of the most splendid housing bubbles in America, the bubble remained intact and prices rose.

On a national basis, individual markets get averaged out. Single-family house prices in the US, according to the Case-Shiller National Home Price Index, have now been flat on a month-to-month basis for four months in a row, and are up 5.2% compared to a year ago (not seasonally-adjusted). This year-over-year growth rate has been ticking down gradually from the 6%-plus range prevalent through July 2018.

The index is now 11.4% above the July 2006 peak of “Housing Bubble 1” — as I named it because it was the first housing bubble in this millennium. It came to be called “bubble” and “unsustainable” only after it had begun to implode during “Housing Bust 1”:

https://wolfstreet.com/wp-content/uploads/2019/01/US-Housing-Case-Shiller-National-Index-2019-01-29.png

The Case-Shiller Home Price Index is a rolling three-month average; this morning’s release is for September, October, and November data. And thus the index lags several months behind more immediate data, such as median prices. Based on “sales pairs,” it compares the sales price of a house in the current month to the prior transaction of the same house years earlier. It also incorporates other factors and formulas.

The index tracks single-family houses. In some large markets, Case-Shiller provides an additional index for condos. Unlike median-price indices, the Case-Shiller index does not indicate dollar-price levels. It was set at 100 for January 2000; a value of 200 means prices as tracked by the index have doubled since the year 2000. For example, the index value of the National Home Price Index for November is 205.85, indicating that house prices have risen 105.8% since the year 2000. Every index on this list of the most splendid housing bubbles in America, except Dallas and Atlanta, has more than doubled since 2000.

The index is a measure of inflation — of house-price inflation, where the same house requires more dollars over the years to be purchased. In other words, it tracks how fast the dollar is losing purchasing power with regards to buying the same house over time.

So here are the remaining metros in this list of the most splendid housing bubbles in America.

San Francisco Bay Area:

The Case-Shiller index for “San Francisco” includes five counties: San Francisco, San Mateo (northern part of Silicon Valley), Alameda, Contra Costa (both part of the East Bay ), and Marin (part of the North Bay). In November, the index for single-family houses fell 0.7% from October and 1.4% from September, to the lowest level since April. Since the peak in July 2018, the index is down 1.6%, the biggest four-month drop since March 2012.

The index was still up 5.6% from a year ago, after the surge in prices early 2018, and remains nearly 40% above the peak of Housing Bubble 1:

https://wolfstreet.com/wp-content/uploads/2019/01/US-Housing-Case-Shiller-San-Francisco-Bay-Area-2019-01-29.png

Also in the five-county San Francisco Bay Area, the Case-Shiller index for condo prices fell an ear-ringing 2.4% in November from October to the lowest level since February 2018, and is down nearly 3.3% from the peak in June 2018, the steepest five-month decline since the five months ended in February 2012, as Housing Bust 1 was winding down.

https://wolfstreet.com/wp-content/uploads/2019/01/US-Housing-Case-Shiller-San-Francisco-Bay-Area-Condos-2019-01-29.png

San Diego:

House prices in the San Diego metro declined 0.6% in November from October and are now down 1.2% from the peak in June, the biggest five-month drop since March 2012. This pushed the index to the lowest level since February 2018:

https://wolfstreet.com/wp-content/uploads/2019/01/US-Housing-Case-Shiller-San-Diego-2019-01-29.png

Los Angeles:

The Case-Shiller index for the Los Angeles metro edged down in November from October and is now down 0.4% from the peak in August. This sounds like nothing,  but it was the largest three-month decline since the three months ended March 2012. The index is still up 4.2% from a year earlier:

https://wolfstreet.com/wp-content/uploads/2019/01/US-Housing-Case-Shiller-Los-Angeles-2019-01-29.png

Portland:

House prices for the Portland metro in November fell for the fourth month in a row and are down 1.2% from the peak in July 2018, according to the Case-Shiller Index. And that was the steeped four-month drop since March 2012. Year-over-year, the index was up 4.4%:

https://wolfstreet.com/wp-content/uploads/2019/01/US-Housing-Case-Shiller-Portland-2019-01-29.png

Denver:

The index for the Denver metro edged down in November for the fourth month in a row, after a perfect run of 33 monthly increases in a row. It took the index to the lowest level since May 2018. The four-month drop, small as it was at 0.8%, was the steeped such drop since March 2012. The index is still up 6.2% from a year ago:

https://wolfstreet.com/wp-content/uploads/2019/01/US-Housing-Case-Shiller-Denver-2019-01-29.png

Dallas-Fort Worth:

House prices in the Dallas-Fort Worth metro in November were essentially flat for the sixth month in a row, after an uninterrupted run of 54 monthly increases. The year-over-year gain, at 4.0%, is down from the 5.0% range early and mid-2018:

https://wolfstreet.com/wp-content/uploads/2019/01/US-Housing-Case-Shiller-dallas-2019-01-29.png

Boston:

In the Boston metro, house prices have been essentially flat for five months, and remain up 5.6% from a year ago, according to the Case-Shiller Index:

https://wolfstreet.com/wp-content/uploads/2019/01/US-Housing-Case-Shiller-Boston-2019-01-29.png

Atlanta:

House prices in Atlanta inched up a wee bit to a record in November and were up 6.2% from a year ago, according to the Case-Shiller Index:

https://wolfstreet.com/wp-content/uploads/2019/01/US-Housing-Case-Shiller-Atlanta-2019-01-29.png

New York City Condos:

The Case-Shiller index for condo prices in the New York City metro can be a little volatile. After ticking down several months in a row in mid-2018, they then jumped three months in a row, but in November, they fell again. The end-effect is that the index is up 2.1% from November 2017, which is the lowest year-over-year price gain in this list of the most splendid housing bubbles in America:

https://wolfstreet.com/wp-content/uploads/2019/01/US-Housing-Case-Shiller-New-York-condos-2019-01-29.png

With Seattle’s economy still strong, the downturn in its housing market isn’t caused by layoffs & defaulting mortgages. The fabulous bubble has run out of steam on its own.

Source: by Wolf Richter | Wolf Street

 

US Pending Home Sales Fall 9.5% YoY In December To Lowest Level Since 2014 As Fed Unwinds

As The Federal Reserve continues to unwind its balance sheet, pending home sales YoY declined 9.5% YoY, the worst since 2014.\

https://confoundedinterestnet.files.wordpress.com/2019/01/phsyoydec18.png

Pending home sales got a big boost from The Fed’s third round of asset purchases (QE3), but PHS are feeling the pain of The Fed’s unwind.

https://confoundedinterestnet.files.wordpress.com/2019/01/rollercoasterphs.png

Source: Confounded Interest

***

US Pending Home Sales Crash Most In 5 Years

Following Case-Shiller’s report that home price gains are the weakest in four years, Pulte Homes’ CEO admission that 2019 will be a “challenging year,” and existing home sales carnage, Pending Home Sales were expected to very modestly rebound in December.

But they didn’t!

Pending home sales dropped 2.2% MoM (versus a 0.5% expected rise) to the lowest since 2014…

https://www.zerohedge.com/s3/files/inline-images/2019-01-30_7-03-04.jpg?itok=b2uJtbFc

This is the 12th month in a row of annual sales declines… and the biggest annual drop in 5 years…

https://www.zerohedge.com/s3/files/inline-images/2019-01-30_7-02-09.jpg?itok=kLOcP43c

Yet another sign the housing market is struggling amid elevated property prices and borrowing costs – but there’s always hope…

“The stock market correction hurt consumer confidence, record high home prices cut into affordability and mortgage rates were higher in October and November for consumers signing contracts in December,” NAR Chief Economist Lawrence Yun said in a statement.

But with mortgage rates declining recently and the Fed less likely to raise borrowing costs, “the forecast for home transactions has greatly improved.”

Finally,  the Realtors group forecasts a decline in annual home sales to 5.25 million this year from 5.34 million in 2018, which would mark the first back-to-back drops since the last recession.

Source: ZeroHedge

Existing Home Sales Plunge 10.25% In December As Global Economy Slips Into Darkness

And no, that was not a seasonal effect. Existing home sales declined 6.4% MoM in December, the largest decline since November 2015.

https://confoundedinterestnet.files.wordpress.com/2019/01/ehsdec18.png

And on a YoY basis, existing home sales plunge 10.25%.

https://confoundedinterestnet.files.wordpress.com/2019/01/ehs10.png

US existing homes are very expensive compared to household income and the surge in mortgage rates during 2018 made housing ever less affordable.

The median price for existing home sales shows a seasonal pattern with June typically being the highest for the calendar year and January being the lowest.

Let’s see how Euro Zone and Japan slipping into darkness impacts the US economy and housing market.

https://confoundedinterestnet.files.wordpress.com/2019/01/phillip.jpg

Source: Confounded Interest

***

Existing Home Sales Crash In December

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Regional breakdown:

  • December existing-home sales in the Northeast decreased 6.8 percent to an annual rate of 690,000, 6.8 percent below a year ago. The median price in the Northeast was $283,400, up 8.2 percent from December 2017.
  • In the Midwest, existing-home sales fell 11.2 percent from last month to an annual rate of 1.19 million in December, down 10.5 percent overall from a year ago. The median price in the Midwest was $191,300, unchanged from last year.
  • Existing-home sales in the South dropped 5.4 percent to an annual rate of 2.09 million in December, down 8.7 percent from last year. The median price in the South was $224,300, up 2.5 percent from a year ago.
  • Existing-home sales in the West dipped 1.9 percent to an annual rate of 1.02 million in December, 15 percent below a year ago. The median price in the West was $374,400, up 0.2 percent from December 2017.

The latest results brought the 2018 tally to 5.34 million, the weakest pace since 2015. This is the biggest annual drop in existing home sales in 8 years…

Global Housing Markets From Hong Kong To Sydney Join Global Rout

It’s not just stocks: the global housing market is in for a rough patch, which has turned ugly for many homeowners and investors from Vancouver to London, with markets in Singapore, Hong Kong, and Australia already showing increased signs of softening.

Macro factors have triggered a global economic slowdown that is unraveling luxury marketplaces worldwide, according to Bloomberg. As a result, a turning point has been reached, with home prices globally now under pressure, and rising mortgage rates leading to depressed consumer optimism, while also triggering a housing affordability crisis, S&P Global Ratings said in a December report. To make matters worse, a simultaneous drop in house prices globally could lead to “financial and macroeconomic instability,” the IMF warned in a report last April.

While each metropolis globally has its distinct characteristics of what triggered its real estate slowdown, there are a few common denominators at play: rising borrowing costs, quantitative tightening, a crackdown on money laundering and increased government regulation, emerging market capital outflows and volatile financial markets. Bloomberg notes that there is also declining demand from Chinese buyers, who were the most powerful force in many housing markets globally over the course of this cycle.

“As China’s economy is affected by the trade war, capital outflows have become more difficult, thus weakening demand in markets including Sydney and Hong Kong,” said Patrick Wong, a real estate analyst at Bloomberg Intelligence.

One of the first dominoes to fall has been in Hong Kong, home values in the city have plummeted for 13 weeks straight since August, the longest losing streak since the 2008 financial crash, data from Centaline Property Agency show. Homeowners and investors have taken great caution due to a jump in borrowing costs, a looming vacancy tax, and the trade war that has derailed economic growth in mainland China.  

“The change in attitude can be explained by a slowing mainland economy,” said Henry Mok, JLL’s senior director of capital markets. “Throw in a simmering trade war between China and the U.S., the government has taken actions to restrict capital outflows, which in turn has increased difficulties for developers to invest overseas.”

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Home prices in Singapore, which rank among the world’s most expensive places to live, logged the first decline in six quarters in the three months ended December. Bloomberg said luxury experienced the worst declines, with values in prime areas dropping 1.5%.

Most of the slowdown was caused by government policies to cool the overinflated housing market. Cooling measures were implemented in July included higher stamp duties and tougher loan-to-value rules. The policies enacted by the government have halted the home-price recovery that only lasted for five quarters, the shortest since data became available.

“Landed home prices, being bigger ticket items, have taken a greater beating as demand softened,” said Ong Teck Hui, a senior director of research and consultancy at JLL.

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The downturn in Sydney’s housing market is expected to continue this year as tighter lending standards and the worst plunge in values since the late 1980s has spooked buyers. Average Sydney home values had dropped 11.1% since their 2017 top, according to a recent CoreLogic Inc. report — surpassing the 9.6% peak to trough decline when Australia was on the cusp of entering its last recession.

Nationwide, home values declined 4.8% last year, marking the weakest housing market conditions since the 2008 financial crash.

“Access to finance is likely to remain the most significant barrier to an improvement in housing market conditions in 2019,” CoreLogic’s head of research Tim Lawless said. Weak consumer sentiment toward the property market is “likely to continue to dampen housing demand.”

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Bloomberg notes that home prices in the country are still 60% higher than in 2012, if prices plunge another 10% in 2019, well, it could spark mass panic.

The Reserve Bank of Australia is terrified that an extended downturn will crimp consumption and with the main opposition Labor party pledging to curb tax perks for property investors if it wins an election expected in May, economic optimism would further deteriorate. Treasurer Josh Frydenberg on Thursday told the nation’s top banks not to tighten credit any more as the economic downturn is expected to get much worse.

But all eyes are on what is going on in arguably the most important housing markets in the world – those of Shanghai and Beijing. A government crackdown on leverage and overheating prices have damaged sales and triggered a 5% tumble in home values from their top. Rules on multiple home purchases, or how soon a property can be flipped once it is acquired, are starting to be relaxed, and the giveaways by home builders to lure buyers are starting to get absurd.

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One developer in September was giving away new BMWs to new homebuyers at its townhouses in Shanghai. Down-payments have been slashed, with China Evergrande Group asking for 5% rather than the normal 30% deposit required.

“It’s not a surprise to see Beijing and Shanghai residential prices fall given the curbing policies currently on these two markets,” said Henry Chin, head of research at CBRE Group Inc.

As a whole, Bloomberg’s compilation of global housing data showing the unraveling of many housing markets is a sobering reminder that a synchronized global slowdown has started.

Source: ZeroHedge

***

Vancouver Condo Sales In December Drop To 10 Year Low

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Vancouver condo sales fell to a 10 year low in December with sales plunging 47.5% year-over-year, the sharpest annual decline since 2008…

Southern California Home Sales Plunge 12% In November As Prices Peak

Southern California region home sales plunged in November from a year earlier, while year over year prices increased at the slowest pace in three years amid a housing market slowdown, reported Los Angeles Times.

The 12% decline in November sales from a year earlier was the fourth consecutive monthly drop for the eight southern counties, including Imperial, Los Angeles, Orange, Riverside, San Bernardino, San Diego, Santa Barbara, and Ventura.

The decline in sales for 2018 is still less pronounced than in 2014. Across the eight counties, year over year, lagging median price is still rising — 3.5% from November 2017, to $522,750, but the trend is starting to plateau.

Some housing markets experts are not convinced that a housing bust is materializing. “The housing market is slowing, but… a slowdown does not mean the sky is falling,” said Aaron Terrazas, an economist with Zillow.

LA Times noted if volatility in the stock market and Washington significantly affects consumer confidence and business investment decisions in 2019, the housing market could be due for significant correction into 2020. However, for now, Terrazas and other economists believe the factors that have led to past housing market crashes in Southern California are not visible.

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While some economists do not expect a crash, Bank of America rang the proverbial bell on the broader US real estate market in September, warning existing home sales have peaked, reflecting declining affordability, greater price reductions and deteriorating housing sentiment. 

“Call your realtor,” the BofA note proclaimed: “We are calling it: existing home sales have peaked.”

Richard K. Green, director of the USC Lusk Center for Real Estate, told the LA Times, he is very pessimistic about the housing situation in Southern California.

Green warns prices could plunge 5% to 10% into 2020, even with the current level of economic growth. He argues a similar tune that was said in BofA’s recent housing note: the affordability crisis is topping out the market.

Here are other factors pushing homes further out of reach of Americans:  “The tax law President Trump signed last year limited the amount of deductions for property tax and mortgage interest. Meanwhile, mortgage rates are elevated. The average rate for a 30-year fixed mortgage was 4.55% this week, according to Freddie Mac. That’s down from a recent high of 4.94%, but it’s far higher than the 3.99% level of a year ago,” LA Times said.

There are signs across Southern California that suggest buyers are holding back. 

In Los Angeles County, the median time on the market increased from 41 days in November 2017 to 45 days last month, according to online brokerage Redfin. Moreover, the number of listings with price reductions jumped from 15.9% to 22.2%.

Real estate agents have said buyers have been concern about buying a home as many see the housing market shifting in real time. 

“People are sidelining themselves,” said San Fernando Valley real estate agent Jaswant Singh.

On Thursday, more evidence showed a downward shift in the market. Real estate firm CoreLogic reported a 12% decline in November sales, with the annual rise in the median price coming in at the slowest pace since 2015. 

Southern California median price slipped 0.4% from October and is now $14,250 below the all-time high reached from summer. Inventory is now flooding the market as S&P CoreLogic Case-Shiller index shows a sharp deceleration in price appreciation. 

These are the markings of a turning point in the Southern California real estate market. What comes next you might ask? Well, the start of downward momentum in prices – likely to start in 2019 as the US economy is expected to rapidly slow.

Source: ZeroHedge

Pending Home Sales Crash 7.7%, Biggest Drop In Four Years

There was some hope for a rebound in US housing indicators, after the recent existing home sales print rebounded, but that was promptly dashed after pending home sales dropped again in November, sliding -0.7% vs the expected 1.0% increase, declining in six of the last eight months, with a cumulative loss since March of -5.9% (-8.9% annualized)…

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…and crashed a whopping 7.7% compared to last year, the biggest annual drop since April 2014.

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This is the worst pending home sales print since June 2014.

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Always eager to put lipstick on a pig, commenting on the collapse NAR chief economist Larry Yun said “the latest decline in contract signings implies more short-term pullback in the housing sector and does not yet capture the impact of recent favorable conditions of mortgage rates.”

Yun added that while pending contracts have reached their lowest mark since 2014, there is no reason to be overly concerned, and he predicts solid growth potential for the long-term.

Not everyone agrees: as Bloomberg notes, the poor results underscore the challenges as elevated prices and higher mortgage rates keep many  Americans on the sidelines of the housing market. Economists consider pending-home sales a leading indicator because they track contract signings; purchases of existing homes are tabulated when deals close, typically a month or two later.

Pending home sales fell in the Midwest and South, which both dropped more than 2 percent from the prior month, while the Northeast and West saw increases. At the same time, all four major regions sustained a drop when compared to one year ago, with the West taking the brunt of the decrease. “The West crawled back lightly, but is still experiencing the biggest annual decline among the regions because of unaffordable conditions,” Yun said.

Yun suggests that affordability challenges in the West are part of the blame for the drop in sales. Home prices in the West region have risen too much, too fast, according to Yun. “Land cost is expensive, and zoning regulations are too stringent. Therefore, local officials should consider ways to boost local supply; if not, they risk seeing population migrating to neighboring states and away from the West Coast.”

While the report doesn’t signal a dramatic collapse in housing, the recovery may have trouble gaining traction. Previously released NAR data showed purchases of previously owned houses rose for a secondstraight month and exceeded forecasts in November.

Finally, not even Larry could spin the report as bullish admitting that the latest government shutdown will harm the housing market. “Unlike past government shutdowns, with this present closure, flood insurance is not available. That means that roughly 40,000 homes per month may go unsold because purchasing a home requires flood insurance in those affected areas,” Yun said. “The longer the shutdown means fewer homes sold and slower economic growth.”

That said, he did leave off on a positive note, with Yun saying he believes that there are good longer-term prospects for home sales. “Home sales in 2018 look to close out the year with 5.3 million home sales, which would be similar to that experienced in the year 2000. But given the 17 million more jobs now compared to the turn of the century, the home sales are clearly under performing today. That also means there is steady longer-term growth potential.”

Source: ZeroHedge

 

C.A.R. Report: California Housing Market Sputtered In November

California Association Of Realtors Report, Absent Seasonal Adjustments

– Existing, single-family home sales totaled 381,400 in November on a seasonally adjusted annualized rate, down 3.9 percent from October and down 13.4 percent from November 2017.

– November’s statewide median home price was $554,760, down 3.0 percent from October and up 1.5 percent from November 2017.

– Statewide active listings rose for the eighth straight month, increasing 31 percent from the previous year.

– The statewide Unsold Inventory Index was 3.7 months in November, up from 3.6 months in October.

– As of November, year-to-date sales were down 4.6 percent.

 

LOS ANGELES (Dec. 18) – California home sales remained on a downward trend for the seventh consecutive month in November as prospective buyers continued to wait out the market, according to the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.).  

Closed escrow sales of existing, single-family detached homes in California totaled a seasonally adjusted annualized rate of 381,400 units in November, according to information collected by C.A.R. from more than 90 local REALTOR® associations and MLS’ statewide. The statewide annualized sales figure represents what would be the total number of homes sold during 2018 if sales maintained the November pace throughout the year. It is adjusted to account for seasonal factors that typically influence home sales.

November’s sales figure was down 3.9 percent from the revised 397,060 level in October and down 13.4 percent from home sales in November 2017 of a revised 440,340. November marked the fourth month in a row that sales were below 400,000.

“While many home buyers continue to sit on the sidelines, serious buyers who are in a position to purchase should take advantage of this window of opportunity,” said C.A.R. President Jared Martin. “Now that interest rates have pulled back, home prices have tapered, and inventory has improved, home buyers’ prospects of getting into a home are more positive.”

The statewide median home price declined to $554,760 in November. The November statewide median price was down 3.0 percent from $572,000 in October and up 1.5 percent from a revised $546,820 in November 2017.

“The slowdown in price growth is occurring throughout the state, including regions that have strong economic fundamentals such as the San Francisco Bay Area,” said C.A.R. Senior Vice President and Chief Economist Leslie Appleton-Young. “The deceleration in home price appreciation should be a welcome sign for potential buyers who have struggled in recent years against low inventory and rapidly rising home prices.” 

Other key points from C.A.R.’s November 2018 resale housing report include:

  • On a region wide, non-seasonally adjusted basis, sales dropped double-digits on a year-over-year basis in the San Francisco Bay Area, the Central Coast, and the Southern California regions, while the Central Valley region experienced a relatively small sales dip of 3.9 percent.
  • Forty-one of the 51 counties reported by C.A.R. posted a sales decline in November with an average year-over-year sales decline of 16.8 percent. Twenty-six counties recorded double-digit sales drops on an annual basis.
  • Sales for the San Francisco Bay Area as a whole fell 11.5 percent from a year ago. All nine Bay Area counties recorded annual sales decreases, with Marin, San Francisco, San Mateo, and Sonoma counties posting double-digit annual declines.
  • The Los Angeles Metro region posted a year-over-year sales drop of 10.1 percent, as home sales fell 11.2 percent in Los Angeles County and 14.4 percent in Orange County.
  • Home sales in the Inland Empire decreased 6.7 percent from a year ago as Riverside and San Bernardino counties posted annual sales declines of 9.0 percent and 3.2 percent, respectively.
  • Home prices in the San Francisco Bay Area are no longer climbing at the double-digit pace that occurred throughout much of this year. On a year-over-year basis, the Bay Area median price ticked up 0.6 percent from November 2017. While home prices in Marin, San Francisco, San Mateo, and Santa Clara counties continued to remain above $1 million, all but San Mateo County recorded a year-over-year price decline.
  • Statewide active listings rose for the eighth consecutive month after nearly three straight years of declines, increasing 31 percent from the previous year. November’s listings increase was the largest since April 2014.
  • The unsold inventory index, which is a ratio of inventory over sales, increased year-to-year from 2.9 months in November 2017 to 3.7 months in November 2018. The index measures the number of months it would take to sell the supply of homes on the market at the current sales rate.
  • The median number of days it took to sell a California single-family home edged up from 22 days in November 2017 to 28 days in November 2018.
  • C.A.R.’s statewide sales price-to-list-price ratio* declined from a year ago at 98.9 percent in November 2017 to 97.9 percent in November 2018.
  • The average statewide price per square foot** for an existing, single-family home statewide was $282 in November 2018, up from $277 in November 2017.
  • The 30-year, fixed-mortgage interest rate averaged 4.87 percent in November, up from 3.92 percent in November 2017, according to Freddie Mac. The five-year, adjustable mortgage interest rate also increased in November to an average of 4.11 percent from 3.24 from November 2017.

Key Graphics (click links to open):

Note: The County MLS median price and sales data in the tables are generated from a survey of more than 90 associations of REALTORS® throughout the state and represent statistics of existing single-family detached homes only. County sales data are not adjusted to account for seasonal factors that can influence home sales. Movements in sales prices should not be interpreted as changes in the cost of a standard home. The median price is where half sold for more and half sold for less; medians are more typical than average prices, which are skewed by a relatively small share of transactions at either the lower-end or the upper-end. Median prices can be influenced by changes in cost, as well as changes in the characteristics and the size of homes sold. The change in median prices should not be construed as actual price changes in specific homes.

*Sales-to-list price ratio is an indicator that reflects the negotiation power of home buyers and home sellers under current market conditions. The ratio is calculated by dividing the final sales price of a property by its last list price and is expressed as a percentage.  A sales-to-list ratio with 100 percent or above suggests that the property sold for more than the list price, and a ratio below 100 percent indicates that the price sold below the asking price.

**Price per square foot is a measure commonly used by real estate agents and brokers to determine how much a square foot of space a buyer will pay for a property.  It is calculated as the sale price of the home divided by the number of finished square feet.  C.A.R. currently tracks price-per-square foot statistics for 50 counties.

Leading the way…® in California real estate for more than 110 years, the CALIFORNIA ASSOCIATION OF REALTORS® (www.car.org) is one of the largest state trade organizations in the United States with more than 190,000 members dedicated to the advancement of professionalism in real estate. C.A.R. is headquartered in Los Angeles.

# # #

November 2018 County Sales and Price Activity
(Regional and condo sales data not seasonally adjusted)

November 2018 Median Sold Price of Existing Single-Family Homes Sales
State/Region/County Nov.

2018

Oct.

2018

  Nov.

2017

  Price MTM% Chg Price YTY% Chg Sales MTM% Chg Sales YTY% Chg
Calif. Single-family home $554,760 $572,000   $546,820   -3.0% 1.5% -3.9% -13.4%
Calif. Condo/Townhome $465,770 $476,440   $451,250   -2.2% 3.2% -19.1% -17.4%
Los Angeles Metro Area $512,000 $516,000   $500,500   -0.8% 2.3% -14.0% -10.1%
Central Coast $672,500 $669,500   $685,000   0.4% -1.8% -15.9% -18.0%
Central Valley $320,000 $320,000   $310,000   0.0% 3.2% -11.7% -3.9%
Inland Empire $363,620 $359,000   $340,000   1.3% 6.9% -12.2% -6.7%
San Francisco Bay Area $905,000 $958,800   $900,000 r -5.6% 0.6% -12.7% -11.5%
                   
San Francisco Bay Area                  
Alameda $900,000 $900,000   $880,000   0.0% 2.3% -10.9% -6.7%
Contra Costa $641,000 $657,000   $615,000   -2.4% 4.2% -5.8% -8.0%
Marin $1,172,940 $1,450,000   $1,230,000   -19.1% -4.6% -25.7% -26.8%
Napa $683,500 $709,500   $682,000   -3.7% 0.2% -11.5% -6.1%
San Francisco $1,442,500 $1,600,000   $1,500,000   -9.8% -3.8% -14.0% -12.2%
San Mateo $1,500,000 $1,588,000   $1,486,000   -5.5% 0.9% -22.1% -13.7%
Santa Clara $1,250,000 $1,290,000   $1,282,500   -3.1% -2.5% -10.9% -9.9%
Solano $450,000 $430,000   $410,000   4.7% 9.8% -2.7% -3.6%
Sonoma $612,500 $650,000   $655,000   -5.8% -6.5% -25.5% -29.1%
Southern California                  
Los Angeles $553,940 $614,500   $530,920   -9.9% 4.3% -17.5% -11.2%
Orange $795,000 $810,000   $785,000   -1.9% 1.3% -7.5% -14.4%
Riverside $400,000 $400,000   $383,000   0.0% 4.4% -14.8% -9.0%
San Bernardino $299,450 $289,000   $280,000   3.6% 6.9% -8.0% -3.2%
San Diego $626,000 $635,500   $619,900   -1.5% 1.0% -8.4% -11.0%
Ventura $643,740 $650,000   $640,000   -1.0% 0.6% -18.8% -11.7%
Central Coast                  
Monterey $630,000 $620,000   $618,120   1.6% 1.9% -6.1% -11.2%
San Luis Obispo $624,000 $586,000   $615,000   6.5% 1.5% -14.4% -17.5%
Santa Barbara $550,000 $659,000   $742,000   -16.5% -25.9% -20.3% -18.8%
Santa Cruz $862,500 $885,000   $870,000   -2.5% -0.9% -24.0% -26.1%
Central Valley                  
Fresno $265,750 $272,000   $264,000   -2.3% 0.7% -6.4% -2.9%
Glenn $225,000 $253,000   $232,000   -11.1% -3.0% 12.5% -5.3%
Kern $235,250 $240,000   $235,000   -2.0% 0.1% -14.8% -1.8%
Kings $222,000 $229,000   $230,000   -3.1% -3.5% -3.4% 6.3%
Madera $265,000 $254,950   $245,000   3.9% 8.2% 2.1% -2.0%
Merced $261,930 $271,850 r $255,000   -3.6% 2.7% -22.5% -13.0%
Placer $461,000 $470,000   $450,000   -1.9% 2.4% -5.1% -13.6%
Sacramento $365,000 $360,000   $349,900   1.4% 4.3% -10.2% -7.1%
San Benito $583,200 $597,000   $649,880   -2.3% -10.3% -4.3% 10.0%
San Joaquin $365,000 $369,200   $360,500   -1.1% 1.2% -20.1% 17.5%
Stanislaus $310,000 $319,000   $298,750   -2.8% 3.8% -17.2% -9.2%
Tulare $237,400 $232,000   $215,000   2.3% 10.4% -16.2% -2.5%
Other Calif. Counties                  
Amador NA NA   $348,950   NA NA NA NA
Butte $326,940 $318,000   $315,000   2.8% 3.8% -7.1% 8.3%
Calaveras $325,000 $302,500   $318,000   7.4% 2.2% -33.6% -31.9%
Del Norte $250,000 $223,000   $214,000   12.1% 16.8% -20.0% -42.9%
El Dorado $461,750 $500,000   $470,000   -7.7% -1.8% -28.6% -27.5%
Humboldt $310,000 $315,000   $310,000   -1.6% 0.0% -24.0% 3.2%
Lake $255,000 $265,250   $262,000   -3.9% -2.7% -11.4% -23.5%
Lassen $184,000 $148,000   $189,000   24.3% -2.6% -40.0% -48.3%
Mariposa $355,000 $305,500   $250,000   16.2% 42.0% -12.5% 180.0%
Mendocino $414,000 $420,000   $374,500   -1.4% 10.5% -13.1% 6.0%
Mono $725,000 $599,900   $400,000   20.9% 81.3% -47.1% -35.7%
Nevada $399,000 $401,500   $405,750   -0.6% -1.7% -30.6% -13.9%
Plumas $289,500 $310,000   $302,000   -6.6% -4.1% -44.7% -42.2%
Shasta $283,000 $261,000   $250,000   8.4% 13.2% -17.2% 7.1%
Siskiyou $226,000 $181,500   $189,500   24.5% 19.3% -19.6% -15.9%
Sutter $296,000 $290,000   $270,000   2.1% 9.6% -16.9% -14.7%
Tehama $199,000 $233,250   $224,500   -14.7% -11.4% -38.1% -46.9%
Tuolumne $288,500 $304,000   $325,000   -5.1% -11.2% -15.4% -9.6%
Yolo $429,500 $443,750   $440,000   -3.2% -2.4% -12.5% -26.3%
Yuba $263,000 $282,000   $285,000   -6.7% -7.7% -1.3% 14.5%

r = revised
NA = not available

November 2018 County Unsold Inventory and Days on Market
(Regional and condo sales data not seasonally adjusted)

November 2018 Unsold Inventory Index Median Time on Market
State/Region/County Nov. 2018 Oct. 2018   Nov. 2017   Nov. 2018 Oct. 2018   Nov. 2017  
Calif. Single-family home 3.7 3.6   2.9   28.0 26.0   22.0  
Calif. Condo/Townhome 3.4 3.1   2.2   25.0 21.0   17.0  
Los Angeles Metro Area 4.2 4.0 3.3   32.0 30.0   27.0  
Central Coast 4.4 4.1   3.4   34.0 30.0   30.0  
Central Valley 3.3 3.3   2.9   25.0 21.0   18.0  
Inland Empire 4.7 4.3   3.9   37.0 35.0   31.0  
San Francisco Bay Area 2.3 2.5   1.5   23.0 19.0   15.0  
                     
San Francisco Bay Area                    
Alameda 1.9 2.1   1.2   17.0 15.0   13.0  
Contra Costa 2.2 2.6   1.7   19.0 16.0   14.0  
Marin 3.0 3.0   1.6   35.0 22.0   36.0  
Napa 4.6 5.0   3.8   49.0 41.0   57.5  
San Francisco 1.7 1.9   1.1   16.5 15.0   16.0  
San Mateo 1.9 1.9   1.2   16.0 12.0   12.0  
Santa Clara 2.1 2.4   1.2   18.0 14.0   9.0  
Solano 3.0 3.4   2.4   41.0 39.0   32.5  
Sonoma 3.8 3.3   1.7   49.0 47.5   44.0  
Southern California                    
Los Angeles 3.9 3.7   2.9   27.0 25.0   22.0 r
Orange 3.9 4.1   2.8   28.0 29.0   24.0  
Riverside 4.9 4.3   3.9   36.0 34.0   29.0  
San Bernardino 4.3 4.3   3.9   42.0 35.0   34.0  
San Diego 3.9 3.9   2.7   22.0 24.0   17.0  
Ventura 5.4 5.1   4.4   53.0 51.0   51.0  
Central Coast                    
Monterey 4.3 4.4   3.8   25.0 25.0   28.0  
San Luis Obispo 4.6 4.3   3.7   40.0 29.0   30.0  
Santa Barbara 5.2 4.5   3.7   41.0 40.0   35.0  
Santa Cruz 3.2 3.1   2.2   30.5 21.0   22.5  
Central Valley                    
Fresno 3.5 3.6 r 3.0   19.0 19.0   18.0  
Glenn 4.8 4.9   3.8   73.5 22.5   45.0  
Kern 3.1 2.9   3.3   26.0 21.0   25.0  
Kings 3.5 3.8   3.5   23.5 26.0   16.0  
Madera 5.1 5.7 r 4.4 r 34.0 30.0   28.0  
Merced 4.8 3.7   3.6   23.0 22.0   25.0  
Placer 3.0 3.4   2.3   27.0 25.0   17.0  
Sacramento 2.7 2.8   2.3   24.0 19.0   17.0  
San Benito 3.1 3.6   4.1   41.5 23.0   23.5  
San Joaquin 3.6 3.1   2.9   24.0 22.0   14.0  
Stanislaus 3.3 3.1   2.6   25.0 21.0   18.0  
Tulare 4.1 3.6   3.9   35.0 28.0   29.5  
Other Counties in California                    
Amador NA NA   5.4   NA NA   69.0  
Butte 2.9 3.3   2.8   24.0 21.0   18.0  
Calaveras 6.5 4.7   4.3   53.0 43.5   60.0  
Del Norte 5.6 5.0   4.0   110.0 95.0   111.0  
El Dorado 4.4 3.6   2.7   41.5 48.0   40.0  
Humboldt 5.8 4.9   5.3   24.5 27.0   28.0  
Lake 7.0 6.7   4.7   60.5 51.0   54.0  
Lassen 8.6 6.1   5.0   110.0 109.0   85.0  
Mariposa 4.8 4.6   12.2   147.0 24.0   6.0  
Mendocino 7.9 7.3   5.7   66.0 87.0   63.5  
Mono 8.4 4.8   4.9   127.0 115.0   153.5  
Nevada 5.7 4.3   3.9   41.0 40.5   33.0  
Plumas 9.8 6.1   5.1   152.0 87.0   143.0  
Shasta 4.4 3.9   4.3   26.5 34.5   33.0  
Siskiyou 7.1 6.6   5.5   60.5 20.0   60.5  
Sutter 2.9 3.1   3.0   29.5 34.0   32.0  
Tehama 9.2 5.4   4.0   49.5 48.5   63.0  
Tuolumne 5.8 5.6   3.9   58.5 47.0   42.0  
Yolo 3.7 3.7   1.9   27.0 22.0   22.0  
Yuba 2.9 3.0   3.4   30.0 33.0   17.0  

r = revised
NA = not available

Source: California Association Of Realtors

Roughly Half Of Millennials Have No Money Saved For A Down Payment

Millennials are on the cusp of surpassing baby boomers as the largest generational demographic in the US, yet a startling plurality of them are woefully under prepared to assume the typical trappings of adulthood – like starting a family and buying a home.

And in a detailed report published this week, analysts at ApartmentList illustrated just how wide of a gulf lies between millennials and their economic and financial goals. Perhaps the most surprising finding: Nearly half of millennial renters have zero money saved for a down payment – which doesn’t bode well for the housing market, where home prices have surpassed their pre-crisis highs (though signs of weakness are starting to emerge). And just 11% say they have $10,000 saved.

https://www.zerohedge.com/sites/default/files/inline-images/2018.12.12millennialstwo.JPG?itok=9BvNWq85

To wit, 72% of millennial renters cite “affordability” as the biggest factor barring them from home ownership. Student debt is another factor: While 23% of college graduates might be able to scrape together enough for a down payment, that figure falls to 12% for those who are currently paying off student loans.

But these aren’t the only factors holding millennials back from home ownership. A handful of macroeconomic trends are also to blame: Much of the generation came of age during or in the aftermath of the Great Recession, resulting in limited opportunities and stagnant wage growth in the crucial early stages of millennials’ careers. Construction of new single-family homes has lagged significantly in recent years, leading to a severe shortage of starter homes.

Roughly 9 in 10 millennial renters want to purchase a home; but just 4.4% plan to do so within the next year:

https://www.zerohedge.com/sites/default/files/inline-images/2018.12.12apartment.JPG?itok=R-mh_rNr

The “burden of affordability” primarily manifests in millennials inability to scrape together enough money for a down payment:

https://www.zerohedge.com/sites/default/files/inline-images/2018.12.12millennials.JPG?itok=EDhkDd8u

And even if they can manage to save some money, the amount needed for a down payment is often larger than they think:

https://www.zerohedge.com/sites/default/files/inline-images/2018.12.12downpayment.JPG?itok=aHdCXuQp

And at the present average savings rate, most millennials will need more than two decades to save up enough for a down payment.

https://www.zerohedge.com/sites/default/files/inline-images/2018.12.12downpaymentthree.JPG?itok=33IzSzfP

Ironically, millennials with the highest incomes receive the most help from family for their down payments.

https://www.zerohedge.com/sites/default/files/inline-images/2018.12.12millennialsfive.JPG?itok=tGb4OYOv

And as we mentioned above, student-loan debt is one of the biggest obstacles absorbing all of the money that would otherwise be saved for a down payment.

https://www.zerohedge.com/sites/default/files/inline-images/2018.12.12student.JPG?itok=eEX1e_Se

The upshot of this is that, instead of accumulating wealth in a home – which has always been the primary source of value for American families – millennials will continue throwing it away on rent, which offers them no return and no security later in life.

Source: ZeroHedge

“Residents Should Not Panic”: Thousands Of Las Vegas Homes Get ZERO Offers For November

New data published by the Greater Las Vegas Association of Realtors shows 10,000 single-family homes were on the market and by the end of November, 7,000 of those homes had zero offers, up 54% compared to 2017 and the highest number of homes in Las Vegas Valley to not get a bid in more than two years.

https://www.zerohedge.com/sites/default/files/inline-images/inventory%20.png?itok=7jkuP9Nl

Realtors are warning Las Vegas residents that they should not panic.

However, it is becoming increasingly clear that the real estate market is at a turning point, in one of the most overvalued markets in the country.

https://www.zerohedge.com/sites/default/files/inline-images/price%20chart%20real%20estate%20.png?itok=S2ZuaoVh

https://i2.wp.com/s3.amazonaws.com/glvar-photos/avatars/main/495/CROPPED-Keith_lynam_2013.jpg

“I mean that’s still crazy fast for markets across this country,” said Nevada Realtors newly elected president, Keith Lynam.

“Are we as fast as we were six months ago? No, but we couldn’t sustain that, it was not sustainable, it was never going to be sustainable. So we’re back to pretty much a normal market.”

Lynam has recognized the shift in the market and suggested a slowdown in the quarters ahead: He predicts homes will now average four to six months on the market into 2019. Before, Lynam said homes were on the market between 2.5 to 3 weeks.

While thousands of homes are going no bid in November, some homes are still selling, but not as often as they used to, a sign that the housing market is headed for trouble. Buyers acquired about 2,300 houses in November, down 12% from November 2017, the Greater Las Vegas Association of Realtors (GLVAR) reported.

The pullback in demand could be linked to fast-rising home prices, higher borrowing costs, and an affordability crisis.

Home prices were up “13.5% year-over-year in September, more than double the national rate,” according to the latest S&P CoreLogic Case-Shiller index. Nevada’s growth rate was the fastest among all other cities in the CoreLogic Case-Shiller index for the fourth straight month, a move that is not sustainable. 

In the last several months, sellers have responded with more price cuts. 

This is right in line to Bank of America’s forecast in September: Existing home sales have peaked, reflecting declining affordability, greater price reductions and deteriorating housing sentiment.

https://www.zerohedge.com/sites/default/files/inline-images/price%20cuts.png?itok=YLGKGwQK

This year’s housing market slowdown has hit the hottest markets like San Diego, San Francisco, Seattle, Denver, and New York City.

The slowdown is now spreading into less expensive markets—Tampa, Philadelphia, Phoenix, and Las Vegas. 

Las Vegas was “the poster child of the housing crash in 2008,” said Vivek Sah, director of the LIED Institute for Real Estate Studies at the University of Nevada, Las Vegas.

“There are some buyers who are not pulling the trigger because of that.”

The deceleration in less expensive housing markets like Las Vegas, suggests that the slowdown is now broad base and the entire US economy is headed for trouble in 2019.

Source: ZeroHedge

Home Builder Optimism Collapses

Upton Sinclair once noted: “It is difficult to get a man to understand something, when his salary depends on his not understanding it.”

But at some point, as Mike Tyson opined “someone punches you in the face.”

And it appears from the latest NAHB Sentiment Index that home builders in America just got ‘punched in the face’.

For the second month in a row, home builder optimism crashed amid broad-based declines across sales, expectations and buyer traffic (down 4 to 56 and well below the 60 print expected) as hope begins to collapse back to the housing market’s reality…

https://www.zerohedge.com/sites/default/files/inline-images/2018-12-17_7-04-59.jpg?itok=tCr_ZLGf

Additionally, as Bloomberg notes, a gauge of the NAHB six-month sales outlook dropped to the lowest since March 2016 while a measure of current sales for single-family homes decreased to a three-year low. That suggests demand will remain soft as there’s still a shortage of affordably-priced listings, in addition to property values that have been outpacing wage gains.

Three of four geographic regions showed a decline, led by the Northeast, where sentiment plunged by the most since June 2010.

“We are hearing from builders that consumer demand exists, but that customers are hesitating to make a purchase because of rising home costs,” NAHB Chairman Randy Noel, a custom-home builder from Louisiana, said in a statement.

“However, recent declines in mortgage interest rates should help move the market forward in early 2019.”

All eyes on Powell once again.

Source: ZeroHedge

“Canary In The Coal Mine”: House Flipping Returns Crash To Six-Year Low

Real-estate speculation has long been a characteristic of booming housing markets, and in this current cycle of artificially suppressed rates, investors have been furiously flipping homes which peaked in the first few months of 2018. The number of companies flipping houses also hit a decade high, as HGTV programming and house flipping seminars across the country suckered in the broad base of the American people. 

Now the house flipping industry has gone bust, and many investors are left holding the bag. Flipping dropped for the third consecutive quarter, due to mortgage rate increases, according to Attom Data Solutions. At the same time, the average return on investment crashed to a six-year low.

“A total of 45,901 single-family homes and condos were flipped in 3Q18, signaling a 12% drop from a year ago to a 3.5-year low from the first quarter of 2015. Houses flipped sold for an average of $63,000 more than what the home flipper purchased them for, down from the all-time high of $68,000 achieved in the first quarter and from $65,000 a year ago,” said Attom Data Solutions.

https://www.zerohedge.com/sites/default/files/inline-images/flip.png?itok=63Zy1m4r

The gross flipping profit in 3Q18 was about 42.6% ROI, the lowest level seen since the first quarter of 2012. Despite the recent market plateau, some flippers are finding it unprofitable in the current market environment.

With home price appreciation stalling, many flippers have started to notice margin compression and to make matters worse, President Trump’s tariffs have made the cost of materials just that more expensive.

The amount of flipped homes purchased with financing held steady at 38.8% in the third quarter, down from 39.2% a year ago and 40.7% the previous quarter.

“Home flipping acts as a canary in the coal mine for a cooling housing market because the high velocity of transactions provides home flippers with some of the best and most real-time data on how the market is trending,” Daren Blomquist, senior vice president at Attom, said in a press release.

We’ve now seen three consecutive quarters with year-over-year decreases in home flips. The last time that happened was in 2014 following the mortgage rate jump in the second half of 2013, but it’s still far from the 11 consecutive quarters with year-over-year decreases in home flips extending from 2Q 2006 through 4Q 2008 and leading up to the last housing crash,” he said.

Total houses flipped in the third quarter represented 5% of all single-family homes and condos sold in that quarter – the lowest reading in more than two years. The flipping rate declined from 5.1% a year ago and 5.2% from the previous quarter.

It also seems the popularity of “how to flip a house” in Google Search across the US peaked in 2017 and has since stalled.

https://www.zerohedge.com/sites/default/files/inline-images/google%20trends.png?itok=nGLqD1jo

Source: ZeroHedge

Australia Warned To Prepare For “Severe Housing Collapse” And “Banking Crisis”

Just weeks after ZeroHedge noted that Australia’s household debt to income ratio has ballooned to shocking levels over the past three decades as Sydney is ranked as one of the most overvalued cities in the world, Australia’s regulators have been warned to prepare “contingency plans for a severe collapse in the housing market” that could lead to a “crisis situation” in one or more financial institutions.

https://www.zerohedge.com/sites/default/files/inline-images/4F0EFB8500000578-6053367-image-a-50_1534137161804-1_0.jpg?itok=X9A7DJcz

Australia has transitioned from the lowest household debt-to-income ratio to the highest in the world, in just three decades.

https://www.zerohedge.com/sites/default/files/inline-images/Home-prices-global-Oct-18_0.jpg?itok=SQNAVQfs

And now Australia’s News.com.au reports that The Organisation for Economic Co-operation and Development’s (OECD) latest in-depth assessment of Australia maintains that while the “current trajectory” of house price declines “would suggest a soft landing… some risk of a hard landing remains.”

https://www.zerohedge.com/sites/default/files/inline-images/Australia-home-prices-Sydney-2018-08-01_0.png?itok=fUj7l3I2

Wage stagnation and elevated home prices have turned into the perfect storm that will bring forward a housing crisis.

The Paris-based global forum recommends the Aussie Reserve Bank begin raising the cash rate from its record low as soon as possible to prevent “imbalances accumulating further”.

The RBA last cut the cash rate to 1.5 per cent in August 2016, following an earlier cut to 1.75 per cent in May. There has not been an official cash rate increase since November 2010.

Australia’s housing market is a source of vulnerabilities due to elevated prices and related household debt. A direct hit to the financial sector from a wave of mortgage defaults is unlikely,” the report says.

“However, if house prices collapse consumer spending could suffer, via negative impact on wealth, including from exposures to bank shares, which would encourage deleveraging. Together with reduced housing-related expenditures, this would put pressure on the whole economy.”

Additionally, News.com reports that while describing the housing market slowdown as “welcome” after a period where prices were overvalued by 5 to 15 per cent and noting current evidence pointed to a soft landing, the OECD said its research in the past “has found soft landings are rare”.

The OECD report recommends contingency plans in the form of “a loss-absorbing regime in the case of financial-institution insolvency”, including controversial “bail-in provisions”.

“… the possibility of financial-institution crisis should not be discounted entirely.”

Finally, the OECD notes, unlike in the US or EU, the law does not include provisions that would automatically convert some unsecured senior bonds and deposits from other banks into equity in the event of a crisis

 “The absence of explicit bail-in provisions could slow down the speed of resolution and risk encouraging financial institutions to gamble for resuscitation.”

Notably, OECD’s ominous warnings come after RBA deputy governor Guy Debelle raised alarms (after Q3 GDP dramatically undershot expectations at just 2.8%) by suggesting the next move in rates could be down, not up, and floated the possibility of controversial money printing policies known as quantitative easing in the event of a crisis.

As John Rubino recently noted, for the past few years, homeowners just about everywhere have been able to finesse life’s problems by thinking “at least my house is going up.”… But now that’s ending, and a reverse wealth effect is kicking in. Homeowners are seeing their home equity – aka their net worth – stop growing and in some cases drop by shocking amounts. In Australia it’s $1,000 a week, which is enough to darken the mood of pretty much anyone not in the 1%. A consumer with a dark mood is an unenthusiastic shopper because new debt accelerates the decline in net worth.

As home prices fall, so therefore does “discretionary” spending. Australians will continue to eat and to air condition their bedrooms, but they’ll cut way back on vacations, new cars, etc. And the debt-based part of the economy will suffer. This will cause stock prices to fall, knocking another leg out from under the average citizen’s net worth and making them even less likely to splurge. And so on.

Credit-bubble capitalism depends on mood, which makes it fragile. That fragility is about to be on full display pretty much everywhere.

Source: ZeroHedge

Revealing The Naked Truth Of China’s Real Estate Slowdown

Warren Buffett has famously told Berkshire Hathaway investors: “You only find out who is swimming naked when the tide goes out.”

Buffett’s market wisdom can be applied to the Chinese property market.

Now, the tide is going out and the boom days are over, the industry is rapidly slowing as credit growth is the slowest on record – pointing to a weakening in the economy in coming months.

As for “swimming naked when the tide goes out,” well, it seems like one real estate firm, in southwest China used topless models covered in body paint as a last-ditch effort to unload a new property development before the market implodes.

https://www.zerohedge.com/sites/default/files/inline-images/models%20real%20estate.jpg?itok=Req8pfzX

Nanning Weirun Investment Company, a real estate developer in Nanning, capital of the southwestern Guangxi Zhuang, hired a bunch of models to advertise its condominiums by using their bare skin as a canvas, said Asia Times.

https://www.zerohedge.com/sites/default/files/inline-images/models.png?itok=EuyUbaud

Floor plans of the condos were painted on the back of each model, and their breasts were painted with logos and other advertising slogans.

https://www.zerohedge.com/sites/default/files/inline-images/buy%20a%20home%3F.png?itok=xNc7GmRG

While it is unclear if the topless models helped to spur sales, Asia Times indicated that the stunt attracted many people to the showroom last Friday.

https://www.zerohedge.com/sites/default/files/inline-images/condo%20layout.jpg?itok=lrm-K1hX

Hundreds of Sina Weibo users, China’s Twitter, criticized the promotion and called it disgusting, as others thought it was an interesting method, in the attempt to generate sales in a slowing market.

An employee at Nanning Weirun told the website Btime.com that the bodypainting promotion was a one-off event to drive sales.

The strategy is one of the more unconventional approaches being taken by desperate developers to attract new buyers as GDP growth, and the housing market are expected to fall in the first half of 2019.

Was the marketing stunt worth it for the developer?

Probably not, as the city planning authority suspended the firm’s marketing permit on Monday.

Video: Revealing the naked truth of China’s real estate slowdown

Source: ZeroHedge

Bubble Trouble: Silicon Valley & San Francisco Housing Markets Head South

The underlying dynamics changed in August and have worsened since. And, this is still the tech boom.

It’s high time to unload houses and condos in Silicon Valley and San Francisco, one of the most expensive housing markets in the US. Sellers are now flooding the market with properties. Inventory listed for sale in those three counties that make up the area – San Francisco, San Mateo, and Santa Clara – surged by 102% in November compared to November last year, to 3,931 listings.

In each of the past three months, the number of active listings (new listings plus old listings that have not sold yet but haven’t been pulled from the market) was the highest since August 2014. The chart below shows the year-over-year percentage change in active listings. The red bars in the chart mark the beginning of bubble trouble in this housing market (all data via the National Association of Realtors at realtor.com):

https://wolfstreet.com/wp-content/uploads/2018/12/US-Silicon-Valley-San-Francisco-active-listings-percent-change-2018-11.png

When inventories are piling up because sales are slowing, sellers have to figure out where the market is, and the market is where the buyers are, but buyers have become listless and refuse to participate in bidding wars. They see the prices and they do the math with higher mortgage rates, and they walk. So, motivated sellers have to do something to move the properties. And they started cutting prices.

In November, the number of properties on the market with price cuts, at 1,038, skyrocketed by over 400% year over year.

The chart of the year-over-year percentage changes in price cuts in Silicon Valley and San Francisco shows that the change of direction in the market occurred around August. By September, price cuts hit the highest level since Housing Bust 1:

https://wolfstreet.com/wp-content/uploads/2018/12/US-Silicon-Valley-San-Francisco-price-reductions-percent-2018-11-.png

The median asking price for the three counties had peaked in May at $1,369,200 and has since fallen by $132,100 or by nearly 10% from the peak, to 1,237,100. Median asking price means half are listed for more and half are listed for less. It differs from the median selling price at which homes are actually sold. Compared to November last year, the median asking price dropped by $71,200 or 5.4%:

https://wolfstreet.com/wp-content/uploads/2018/12/US-Silicon-Valley-San-Francisco-median-asking-price-2018-11.png

The chart below shows the percentage change of median asking prices, which clarifies further the underlying dynamics in the market:

https://wolfstreet.com/wp-content/uploads/2018/12/US-Silicon-Valley-San-Francisco-median-asking-price-yoy-change-2018-11-.png

After years of blaming the surging home prices in the area on a shortage of inventory for sale, the industry is suddenly faced with all kinds of inventory coming out of the woodwork, just as sales are slowing and as mortgage rates are rising, while the affordability crisis bites the market.

Buyers have lost their blind enthusiasm. They’re still buying, but at lower prices, and they’re taking their time.

Yet the hiring slowdowns – or worse, layoffs – at area tech companies and the broad wind-down of countless and hopelessly cash-burning start-ups – both a prominent feature of every tech downturn here – haven’t even started yet. The area is still booming and companies are still hiring, and this housing downturn is starting during the tech boom, and not as a consequence of a tech meltdown. Though share prices of local companies such as Google, Apple, Facebook, and many others have taken a big hit since the summer, we’re still far from a classic tech meltdown. That is yet to come.

The Case-Shiller home price index lags by about three months, but it too is now picking up the changes in the market: Seattle home prices dropped at fastest pace since Housing Bust 1, while the first price declines cropped in San Francisco, Denver, Portland, and other markets. Read…  The Most Splendid Housing Bubbles in America Deflate

Source: by Wolf Richter | Wolf Street

***

New-Home Prices Drop Nearly 7%, Supply Spikes to Highest since Housing Bust 1

Home builders not amused.

***

Update on the Housing Bust in Sydney & Melbourne, Australia

This is not exactly slow motion anymore.

US New Home Sales Fall 12% YoY In October, Down 9% MoM

Another Indicator Bites The Dust

The good news? US GDP rose 3.5% QoQ, even though Personal Consumption was lower than expected at 3.6% and lower than September’s growth.

The bad news? New home sales fell 8.9% MoM in October.

https://confoundedinterestnet.files.wordpress.com/2018/11/econov2818.png

New home sales declined 12% YoY, tied for the worst reading since 2011.

https://confoundedinterestnet.files.wordpress.com/2018/11/nhsyoyovt18.png

Yes, as The Fed withdraws monetary stimulus, home building companies are taking the Nestea plunge.

https://confoundedinterestnet.files.wordpress.com/2018/11/hbldfed.png

Another housing indicator bites the dust.

https://confoundedinterestnet.files.wordpress.com/2018/10/powellfrown.jpg

Source: Confounded Interest

2018 Will End With Too Many SoCal Homes For House Hunters To Choose From

(Ben Jones) A report from the Orange County Register in California. “When 2018 started, the housing buzz was ‘where’s the supply?’ Now with the year almost complete, the industry now wonders ‘where did all the buyers go?’ Ponder that in housing-starved Southern California, builders have the largest standing supply of completed homes to sell in six years. Yes, newly constructed residences are a pricey niche that’s not for everyone. Still, the change of momentum is remarkable.”

“Housing tracker MetroStudy reports that at the end of the third quarter, 3,401 new homes were finished but unsold in the four-county region covered by the Southern California News Group. That’s up 428 homes in 12 months, or 14 percent, and was the highest inventory level since 2012’s second quarter.”

“But this year, house hunters have pulled back — for both new and existing residences. If you need a stark measurement of the buyer reluctance, look at this: CoreLogic reported Southern California home sales of all types in September suffered their largest year-over-year decline in nearly eight years.”

“It adds up to a situation where not too long ago local builders had many buyers waiting months for homes to be completed. Today, most housing projects offer new homes ready for immediate occupancy — with special pricing, no less.”

“Look at the market upheaval in Orange County. It’s got the region’s biggest boost in new-home supply, according to MetroStudy. As of Sept. 30, O.C. had 1,074 finished residences for sale, up 277 or 35 percent in a year. It’s O.C.’s largest new-home inventory in nearly 12 years.”

“Builders, faced with their own industry competition, also are up against homeowners in the region who rushed to list their homes. As that new-home supply swelled in the third quarter, Southern California owners averaged 35,333 listings, according to ReportsOnHousing. That’s 4,568 more existing homes on the market than a year earlier — or 10 times the growth of unsold new homes.”

“Yet this is an autumn period when many owners typically take homes off the market. Who knew that 2018 would be the year when house hunters had too many homes to choose from?”

From Curbed Los Angeles. “The number of homes for sale in the Los Angeles area climbed more than 30 percent in October, according to Zillow. That suggests the region’s sky-high home prices could continue to fall, as they did in September.”

“During the month of October, inventory (the total number of houses and condos on the market) in Los Angeles and Orange counties jumped nearly 32 percent above levels recorded in October of last year. A bump in the number of homes available for sale often corresponds with falling prices, since sellers have more competition when listing their homes and are less likely to be overwhelmed with offers above asking price.”

“The spike in the number of homes available for purchase mirrors—and far exceeds—a nationwide trend. Across the country, inventory went up 3 percent since last year, marking the first yearly increase since 2014.”

“‘This is a phenomenon we’re seeing in several pricey markets throughout the country,’ says Zillow economist Aaron Terrazas. He points out that inventory has also risen by double digit percentages in San Francisco, Seattle, and San Jose.”

“Terrazas tells Curbed that much of the inventory growth in LA and other markets is driven by homes that take longer to sell, suggesting that buyers may be less willing to pay bloated prices.”

“‘This is a reflection of how poor affordability is in those areas,’ says Terrazas. ‘Buyers are starting to pull back a little bit from where they were a year ago.’”

Source: Ben Jones The Housing Bubble Blog

Desperate Home Builders Offering $100,000 Discounts, Free Vacations Amid Cooling Market

As US home sales begin to cool off, homebuilders have begun to panic – offering price cuts of more than $100,000 along with free upgrades such as media rooms, cabinets and blinds – reports Bloomberg

https://www.zerohedge.com/sites/default/files/inline-images/price%20reduced.jpg?itok=9-FrnmTFThat’s not all, real estate brokers are being enticed with free vacations such as trips to Lake Tahoe, Santa Barbara, Cabo San Lucas and even a dude ranch in Wyoming – all in the hopes that they will steer buyers towards houses in slowing markets.

This generosity flows from increasingly desperate home builders. Hot markets are cooling fast as interest rates rise. In the great housing slowdown of 2018, shoppers are reclaiming the upper hand, after years of soaring prices that placed most inventory out of reach for many families. “Everybody is hungry for the buyers,” Konara says. –Bloomberg

https://www.zerohedge.com/sites/default/files/inline-images/nhsl.png?itok=nSkT70icBuilders are definitely feeling the heat right now, as new home purchases dropped in September to the weakest pace since December 2016. Meanwhile, previously owned home sales dropped for a sixth straight month – the worst streak since 2014, according to Bloomberg. Investors in home building stocks are also feeling the pain, as the sector has lost more than a third of its value this year. 

There are pockets of robust housing activity still, however – as rising wages have put more homes in reach; starter homes are still in demand, while some smaller and more affordable markets – such has Grand Rapids, MI and Columbus, Ohio remain strong. Still, the overall trend does not look good.

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On top of interest rates, sellers in some regions face added challenges. President Trump’s tax overhaul places caps on tax deduction for mortgage interest and property taxes, hurting high-tax regions such as New York’s suburbs. In Manhattan, added supply is about to hit the market, with 4,000 new condo units to be listed for sale in 2019, almost twice as many as this year, according to brokerage Corcoran Sunshine Marketing Group. –Bloomberg

Another factor hindering home sales, according to Bloomberg, are restrictions on immigration which have made high-skilled workers in places like San Jose and Austion hesitant to buy, while a strengthening dollar has made US investment properties less appealing to wealthy buyers in South America, and Chinese buyers snapping up homes up and down the West Coast. 

In Seattle, where home prices have doubled since 2012, builders are offering cash for customers to “buy down” mortgage rates—that is, pay to get a lower interest rate. “Builders are calling us,” says Andy McDonough, senior vice president at HomeStreet Bank, which works with the companies on such promotions. “They weren’t doing this earlier because buyers were lining up.” –Bloomberg

The shifting real estate tide is perhaps most noticeable in previously sizzling markets – such as Fricso, Texas. Located 30 miles north of Dallas and full of newly constructed master planned communities, its population nearly doubled over the past decade to 177,000, while its jump of 8% last year made it the fastest-growing city in America. 

https://www.zerohedge.com/sites/default/files/inline-images/house%20being%20built.jpg?itok=9o9Fj67pAll is not well in Frisco, however, as home sales have all but ground to a screeching halt. 

On a recent weekday, Konara, the real estate broker, drives his Dodge minivan along Highway 380, a builder battleground, where national giants such as Lennar, Toll Brothers, and PulteGroup go head to head with Texas companies. He stops at sales offices, where balloons festoon posts in a vain effort to spur sales. He points to empty houses that he says were completed six months ago.

His own sales are half what they were in 2016. In many cases, he’s rebating to customers all but $1,000 of his commission on each home sale. He walks into an Indian restaurant for lunch and looks up at the television screen. A competitor, the “Maximum Cash Back Realtor,” says he’ll take only $750. “You know what that means,” Konara says. “I’ll have to do the same.” –Bloomberg

Konara received a call from Raj Patel, a 35-year-old pharmacist with two young children. Weeks away from finalizing a purchase of a $699,000 new home with “four bedrooms, a grand staircase, two patios, a balcony, a game room, a media room, and a three-car garage,” the buyer is paying $90,000 less than the advertised price – and still has reservations considering that a builder in the same community is selling a similar house with the same “bells and whistles” for $75,000 less than that

https://www.zerohedge.com/sites/default/files/inline-images/rediuced%202.jpg?itok=Gy-s3HoL
Konara tells Patel “the market is getting soft,” to which the pharmacist replies “Hopefully the market doesn’t dip much more than this.” 

Nearby, Jennifer Johnson Clarke relaxes on a couch in the living room of a model home in Frisco. There’s a wet bar to her right, a 23-foot ceiling above and an indoor Juliet balcony. Not long ago, the $1.2 million house would have been a hot commodity. Clarke, director of sales for Shaddock Homes, a 50-year-old family-owned builder, will have to work harder to sell homes based on this model. –Bloomberg

“We have an oversupply. Too many lots came on the market in the last 12 to 16 months, and demand has fallen off a cliff,” says Clarke. “I’ve not offered incentives on any scale like I’ve offered this year.” 

Source: ZeroHedge

Home Builders Come Clean – Admit Housing Market Optimism Has Collapsed

As Upton Sinclair once famously said:

“It is difficult to get a man to understand something, when his salary depends on his not understanding it.”

But, after a couple of years of exuberant ignorance, home builders have finally started to face reality – or admit reality – slashing their optimism about the US housing market dramatically…

Against expectations of a 67 print, NAHB’s optimism index crash from 68 to 60 in November – its biggest drop since 2014 (to its lowest since Aug 2016) as the highest borrowing costs in eight years restrain demand, adding to signs of a cooling housing market.

Of course the ‘hard’ housing data has been collapsing for months…

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The home builder index represents one of the first breaks in high levels of business and consumer confidence that have persisted since Trump was elected.

“Rising mortgage interest rates in recent months coupled with the cumulative run-up in pricing has caused housing demand to stall,” NAHB Chief Economist Robert Dietz said in a statement accompanying the data.

“Given that housing leads the economy, policy makers need to focus more on residential market conditions.”

Under the covers, the NAHB sub-index measuring current sales fell seven points to 67, the lowest since August 2016, while the index for the six-month outlook for transactions dropped 10 points to 65, the lowest since May 2016. A measure of prospective buyer traffic declined eight points to 45, also the lowest since August 2016.

Optimism fell across all regions with The West and Northeast falling the most.

Source: ZeroHedge

US Household Debt Hits Record $13.5 Trillion As Delinquencies Hit 6 Year High

Total household debt hit a new record high, rising by $219 billion (1.6%) to $13.512 trillion in Q3 of 2018, according to the NY Fed’s latest household debt report, the biggest jump since 2016. It was also the 17th consecutive quarter with an increase in household debt, and the total is now $837 billion higher than the previous peak of $12.68 trillion, from the third quarter of 2008. Overall household debt is now 21.2% above the post-financial-crisis trough reached during the second quarter of 2013.

Mortgage balances—the largest component of household debt—rose by $141 billion during the third quarter, to $9.14 trillion. Credit card debt rose by $15 billion to $844 billion; auto loan debt increased by $27 billion in the quarter to $1.265 trillion and student loan debt hit a record high of $1.442 trillion, an increase of $37 billion in Q3.

https://www.zerohedge.com/sites/default/files/inline-images/total%20household%20debt%20q3%202018.jpg?itok=opBhuGsn

Balances on home equity lines of credit (HELOC) continued their downward trend, declining by $4 billion, to $432 billion. The median credit score of newly originating mortgage borrowers was roughly unchanged, at 760.

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Mortgage originations edged up to $445 billion in the second quarter, from $437 billion in the second quarter. Meanwhile, mortgage delinquencies were unchanged improve, with 1.1% of mortgage balances 90 or more days delinquent in the third quarter, same as the second quarter.

Most newly originated mortgages continued went to borrowers with the highest credit scores, with 58% of new mortgages borrowed by consumers with a 760 credit score or higher.

https://www.zerohedge.com/sites/default/files/inline-images/originations%20q3%202018.jpg?itok=qy4GKtMH

The median credit score of newly originating borrowers was mostly unchanged; the median credit score among newly originating mortgage borrowers was 758, suggesting that with half of all mortgages going to individuals with high credit scores, mortgages remain tight by historical standards. For auto loan originators, the distribution was flat, and individuals with subprime scores received a substantial share of newly originated auto loans.

In what will come as a surprise to nobody, outstanding student loans rose $37BN to a new all time high of $1.44 trillion as of Sept 30. It should also come as no surprise – or maybe it will to the Fed – that student loan delinquencies remain stubbornly above 10%, a level they hit 6 years ago and have failed to move in either direction since…

https://www.zerohedge.com/sites/default/files/inline-images/delinquent%20balances%20q3%202018.jpg?itok=EOHP5Bnm

… while flows of student debt into serious delinquency – of 90 or more days – spiked in Q3, rising to 9.1% in the third quarter from 8.6% in the previous quarter, according to data from the Federal Reserve Bank of New York.

https://www.zerohedge.com/sites/default/files/inline-images/transitions%20into%20delinq.jpg?itok=rV_NSyqF

The third quarter marked an unexpected reversal after a period of improvement for student debt, which totaled $1.4 trillion. Such delinquency flows have been rising on auto debt since 2012 and on credit card debt since last year, which has raised a red flag for economists.

Auto loan balances also hit an all time high, as they continued their six-year upward trend, increasing by $9 billion in the quarter, to $1.24 trillion. Meanwhile, credit card balances rose by $14 billion, or 1.7%, after a seasonal decline in the first quarter, to $829 billion.

Despite rising interest rates, credit card delinquency rates eased slightly, with 7.9% of balances 90 or more days delinquent as of June 30, versus 8.0% at March 31. The share of consumers with an account in collections fell 23.4% between the third quarter of 2017 and the second quarter of 2018, from 12.3% to 9.4%, due to changes in reporting requirements of collections agencies.

Auto loan balances also hit an all time high, as they continued their six-year upward trend, increasing by $27 billion in the quarter, to $1.265 trillion. Meanwhile, credit card balances rose by $15 billion to $844 billion. In line with rising interest rates, credit card delinquency rates rose modestly, with 4.9% of balances 90 or more days delinquent as of Sept 30, versus 4.8% in Q2.

Overall, as of September 30, 4.7% of outstanding debt was in some stage of delinquency, an uptick from 4.5% in the second quarter and the largest in 7 years. Of the $638 billion of debt that is delinquent, $415 billion is seriously delinquent (at least 90 days late or “severely derogatory”). This increase was primarily due to the abovementioned increase in the flow into delinquency for student loan balances during the third quarter of 2018. The flow into 90+ day delinquency for credit card balances has been rising for the last year and remained elevated since then compared to its recent history, while the flow into 90+ day delinquency for auto loan balances has been slowly trending upward since 2012. About 215,000 consumers had a bankruptcy notation added to their credit reports in 2018Q3, slightly higher than in the same quarter of last year. New bankruptcy notations have been at historically low levels since 2016.

This quarter, for the first time, the Fed also broke down consumer debt by age group, and found that debt balances remain more concentrated among older borrowers. The shift over the past decade is due to at least three major forces. First, demographics have changed with large cohorts of baby boomers entering into retirement. Second, demand for credit has shifted, along with changing preferences and borrowing needs following the Great Recession. Finally, the supply of credit has changed: mortgage lending has been tight, while auto loans and credit cards have been more widely available.

https://www.zerohedge.com/sites/default/files/inline-images/borrowing%20age%20group.jpg?itok=5PLsESYJ

In addition to an overall increase in the share of debt held by older borrowers, there has been a noticeable shift in the composition of debt held by different age groups. Student and auto loan debt represent the majority of debt for borrowers under thirty, while housing-related debt makes up the vast majority of debt owned by borrowers over sixty.

https://www.zerohedge.com/sites/default/files/inline-images/loans%20by%20age%20group%20q3%202018.jpg?itok=ygoRLkGs

Confirming what many know, namely that Millennial borrowers are screwed, the Ny Fed writes that older borrowers have longer credit histories with more borrowing experience, as well as higher and typically steadier incomes; “thus, they often have higher credit scores and are safer bets for lenders.” Tighter mortgage underwriting during the years following the Great Recession has limited mortgage borrowing by younger and less creditworthy borrowers; meanwhile, student loan balances – and as most know “student” loans are usually used for anything but tuition – and participation rose dramatically and credit standards loosened for auto loans and credit cards. Consequently, there has been a relative shift toward non-housing balances among younger borrowers, while housing balances moved to the older and more creditworthy borrowers with lower delinquency rates and better performance overall.

And since this is a circular Catch 22, absent an overhaul of how credit is apportioned by age group, Millennials and other young borrowers will keep getting squeezed out of the credit market resulting in a decline in loan demand – and supply – which is slow at first and then very fast.

Source: ZeroHedge

“A Rough Decade Ahead” – ‘Math’ & The Future Of The US Housing Market

Authored by Chris Hamilton via Econimica blog,

Summary

  • New Housing is being Created at an Unprecedented 2.5x’s the pace of the Growth of the 15 to 64yr/old Population
  • Total Annual Population Growth Has Slowed 25% from Peak Growth, 2 Decades Ago
  • However, Annual Population Growth Among 15 to 64yr/olds Has Slowed Over 80% From Peak Growth & Will Continue Decelerating Through 2030
  • 15 to 64yr/olds Do Nearly all the Net Home Buying, 65+yr/olds Net Home Selling
    • 15 to 64yr/olds Have a 70% Labor Force Participation Rate vs. 27% for 65-74yr/olds, just 8% for 75+yr/olds
    • 15 to 64yr/olds Earn and Spend Double that of 65-74yr/olds & triple that of 75+yr/olds
    • 65+yr/olds Have Highest Home ownership Rate at 78% vs. Just 36% for Group with Lowest Rate, 15 to 34yr/olds
    • 15-64yr/olds are Credit Willing Relative to Credit Averse 65+yr/olds

I read an article a few days ago that got me thinking.  The article’s author claimed,

“At 5% mortgage rates and with today’s level of affordability, history shows that there is nothing in the way from having a home building boom over the next ten years to satisfy this demographic demand.”

I found the claim contrary to everything I think I know, so I thought I’d lay out the counter argument.

The chart below shows annual growth of the 15+yr/old US population (blue columns) vs. the annual growth of the 15 to 64yr/old population (red balls).  The 15+yr/old annual population growth has fallen 25% (decline of a half million annually) since the 1998 peak but more significantly, the 15 to 64yr/old annual population growth has fallen over 80% (decline of 1.8 million/yr) due to a combination of lower immigration rates and lower birth rates.

https://www.zerohedge.com/sites/default/files/inline-images/40246456-1540573727993815.png?itok=TOw6SAp-

These population growth trends will only continue to slow through 2030, according to UN and Census estimates (not really estimates, since this population is already born and simply advancing into adulthood).  The future estimates for 15 to 64yr/old population growth (presented above) include estimated immigration well above present rates.  Most, if not all (net) of the assumed 15 to 64yr/old minimal population growth is premised on ongoing immigration that continues slowing.  Thus the forward looking 15 to 64yr/old growth estimates are likely to be lower and perhaps even turning to outright annual declines.

The chart below shows average income, spending, and LFP (labor force participation) rates by age segment.  No shocker, those actively working make and spend more than those with low rates of employment.  Those who have worked longer earn more than those new to the labor force.  Elderly expenditures come into very close alignment with their (generally) fixed incomes.

https://www.zerohedge.com/sites/default/files/inline-images/40246456-15405775019409947.png?itok=pGk1ZXnO

Noteworthy is that 75+yr/olds have only an 8% LFP rate but will make up over half of the total 65+yr/old population growth through 2030.  The next largest growth segment is among 70 to 74yr/olds with a 19% LFP rate, and the smallest increase is among the 65 to 69yr/olds with a 32% LFP.   As an aside, 65+ year olds have the highest home ownership rates at 78% vs. 36% for those aged 15 to 34. So while the more affluent portion (5% to 20%?) of 65+yr/olds may be interested in a second home in the desert, the mountains, or beach…the majority already own and are eventually looking to downsize.  Simply stated, nearly all the coming growth is among those that work the least, earn the least, spend the least, already own homes, and are more likely to downsize than buy a second home.

https://www.zerohedge.com/sites/default/files/inline-images/40246456-15405820325401883.png?itok=tYwxN_9R

Putting it all together (chart below), annual 15+yr/old total population growth (blue columns), 15 to 64yr/old population growth (red line), housing starts (yellow line), and federal funds rate (black line).  Given it is the 15 to 64yr/old population that does the net home buying, (and growth among them continues decelerating…coupled with rising rates and elevated valuations versus most population growth among 75+yr/olds who are more likely to sell via downsizing and/or willing properties to their heirs) I contend the US is creating too many homes presently, not too few.  Of course, this doesn’t even factor in things like the lack of income growth among the vast majority those working, high student debt loads, slowing household formation, continued delayed family formation and the lowest birth rates in US history which were just recorded in the first quarter of 2018 (according to CDC…HERE), etc. etc.

https://www.zerohedge.com/sites/default/files/inline-images/40246456-15405930794152036.png?itok=DjqawWsJ

Contrary to the author of the article that inspired me, I contend that housing is in for another very rough decade (at the very least)… likely worse than the period during the GFC.  The math is pretty straightforward on this one.

Source: ZeroHedge

Aussie Home Prices Could Collapse 30%: UBS

https://cdn.newsapi.com.au/image/v1/af3759af717e8fe89dd7def8708517ab

Queensland Australia

A new analysis by UBS concludes that housing prices in Australia could fall as much as 30% in a deep recession scenario. UBS analyst Jonathan Mott assembled five different scenarios to predict the direction that Australia’s housing market could go. The worst case includes the first recession in 27 years, a 30% collapse in house prices and widespread litigation against the banks for mortgage mis-selling. The bear case would also include the central bank cutting rates to zero before embarking on its own version of quantitative easing, the suspension of dividends and equity raisings from the big banks.

Mott thinks that current conditions are already reflecting the very real possibility of a housing correction and also warns that risk of a credit crunch “is real and rising.”

Mott stated: “The rapidly deteriorating housing market is a signal of even tougher times ahead. The housing credit squeeze experienced over the last six months is expanding. The outlook for the banks has not been as challenged since at least 2008.”

UBS dire forecast comes at a time when tighter lending standards have restricted the availability to borrow in Australia, causing the country to enter its second year of a housing slide. Major cities like Sydney and Melbourne are leading the declines, down 7.4% and 4.7% in October from the previous year, respectively. These were the two hottest markets when prices were on their way up in years prior. Meanwhile, the Australia House Price Index has posted its first sequential decline only for the first time since 2011.

https://www.zerohedge.com/sites/default/files/inline-images/australia%20house%20price%20index.jpg?itok=1kr6GoqM

Meanwhile, the Reserve Bank of Australia has kept its rate cash rate unchanged and at a relatively low 1.5% since the middle of 2016. The crunch is coming mainly from regulators cracking down on riskier loans, such as interest-only mortgages, that are more popular with speculators than traditional buyers. On top of that, Australian Regulators have enforced more stringent verification on expenses that is tightening the amount of money people are able to borrow as Australians already have some of the highest household debt in the world, something we pointed this in August.

https://www.zerohedge.com/sites/default/files/inline-images/aussie%20household%20debt.jpg?itok=cD15MvYd

As a reminder, the Australian household debt to income ratio has ballooned to shocking levels over the past three decades as Sydney is ranked as one of the most overvalued cities in the world. According to the Daily Mail Australia, credit card bills, home mortgages, and personal loans now account for 189 percent of an average Australian household income, compared with just 60 percent in 1988:

https://www.zerohedge.com/sites/default/files/inline-images/Australia%20household%20leverage.jpg?itok=_9Eq_LU_

An additional reason Australia’s housing prices boomed was the influx of overseas capital. We recently discussed the urgency with which the Chinese middle class was trying to get capital out of the country. And one of the main ways to do this involved investing in homes in places like Australia (and Canada). Those looking to buy real estate outside of the country have negatively impacted many local economies, sometimes causing housing markets to bubble.

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In response, Australia has tightened its foreign investment rules. In 2016, the land Down Under even made it illegal for the country’s four major banks to lend to foreign property buyers without domestic incomes. New Zealand went so far as to simply prohibit foreigners from buying property altogether because the demand was driving property prices out of the reach of locals. Canada did something similar, canceling its Canadian Federal Immigrant Investor program because of the huge backlog and bubbly real estate markets in places like Vancouver and Toronto.

Source: ZeroHedge

The “Nightmare Scenario” For Beijing: 50 Million Chinese Apartments Are Empty

Back in 2017, we explained why the “fate of the world economy is in the hands of China’s housing bubble.” The answer was simple: for the Chinese population, and growing middle class, to keep spending vibrant and borrowing elevated, it had to feel comfortable and confident that its wealth would keep rising. However, unlike the US where the stock market is the ultimate barometer of the confidence boosting “wealth effect”, in China it has always been about housing as three quarters of Chinese household assets are parked in real estate, compared to only 28% in the US, with the remainder invested financial assets.

https://www.zerohedge.com/sites/default/files/inline-images/China%20vs%20US%20Real%20Estate.jpg?itok=5IqhgbP6

Beijing knows this, of course, which is why China periodically and consistently reflates its housing bubble, hoping that the popping of the bubble, which happened in late 2011 and again in 2014, will be a controlled, “smooth landing” process. For now, Beijing has been successful in maintaining price stability at least according to official data, allowing the air out of the “Tier 1” home price bubble which peaked in early 2016, while preserving modest home price appreciation in secondary markets.

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How long China will be able to avoid a sharp price decline remains to be seen, but in the meantime another problem faces China’s housing market: in addition to being the primary source of household net worth – and therefore stable and growing consumption – it has also been a key driver behind China’s economic growth, with infrastructure spending and capital investment long among the biggest components of the country’s goal seeked GDP. One result has been China’s infamous ghost cities, built only for the sake of Keynesian spending to hit a predetermined GDP number that would make Beijing happy.

Meanwhile, in the process of reflating the latest housing bubble, another dire byproduct of this artificial hou