Category Archives: Housing Market

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