Category Archives: Housing Market

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

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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…

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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.

https://www.zerohedge.com/s3/files/inline-images/bfmC628.jpg?itok=rB2F5FDh

“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