No Protection From The Bloodbath

It’s Friday desk clearing time for this blogger. “The Federal Reserve looks on course to lose money next year as it raises short-term interest rates to try to rein in inflation, according to former New York Fed President William Dudley. ‘If they’re losing money they’re not going to be selling agency MBS,’ Dudley said. ‘Every one they sell is going to add to their losses.'”

“Real estate stocks are part of the downward trend, including both REITs and other large publicly traded real estate companies. The worst hit is regional mall-owning REITs, with returns down about 37.7%. Office specialists have seen their returns down an average of about 30%, self-storage is off 23.3% and healthcare off 13.4%. Even REITs specializing in the darling property types of the pandemic era—industrial and apartments—have taken a shellacking this year. Industrial REIT returns are off more than 27.7% and apartment REIT returns are off more than 23.5%.”

“And size provides no protection from the bloodbath. Office specialist Vornado Realty Trust is down more than 36% year to date, and more than 9.5% in the last five days while Equity Residential, the largest public multifamily landlord by asset value, has seen its stock tumble more than 24% this year, and 4% over the last five days. Major investors are feeling the pinch too. Blackstone Group, which has made headlines recently with its multibillion-dollar deals in real estate — such as buying  American Campus Communities for nearly $13B — is down almost 30% year-to-date and a whopping 18.6% just this week. Homebuilders, who have spent the last year trying to meet strong demand for their product, are getting no love from investors either. PulteGroup, for example, is off more than 35% this year, and 16% this week.”

“Last month’s sales tally was one of the lowest for May in records dating back to 1988. After falling to an 18-year low last winter, Southern California listings rose 29% to 34,193 homes last month, according to Zillow. ‘The market’s changed,’ said Katherine Orth of Sierra Madre, a broker-associate with DPP Real Estate. ‘It’s not like a bubble bursting. It’s more like a punch in the stomach. … The sellers are coming to the realization the party is over.'”

“Redfin figures show that more home sellers are adjusting their asking prices downward. Redfin Deputy Chief Economist Taylor Marr said said nearly 21% of sellers in Los Angeles County and nearly 28% in Orange County and the Inland Empire dropped their listing price last month, compared with 10% dropping their prices in May 2021. ‘All of these areas have had pretty dramatic increases in price drops, and they’re likely to continue increasing,’ Marr said.”

“The post-pandemic housing bubble in Denton is already beginning to deflate. The larger housing market bubble in Denton County is starting to come unglued. New home inventory is rising rapidly as the backlog of new construction finally works its way to the market. New listings from builders rose by a staggering 236% in Denton County last month. That’s not a misprint. The supply of new homes in Denton County is up 136% year-over-year in terms of months of inventory through May.”

“My inbox has seen a lot of activity the past few weeks from builders offering new sections of homes and ‘opportunities’ for would-be buyers. The opportunities for buyers are going to improve in the months ahead as housing bubble 2.0 begins to unwind. The bid for some of the overpriced luxury new construction is really hitting a big air pocket as buyers suddenly have second thoughts about locking in record-high prices for some of the lovely new homes on postage-stamp lots.”

“The Orlando market includes Orange, Osceola, Lake and Seminole counties. While prices continue to soar, there are signs that balance in the market could be on the way. According to the ORRA, inventory increased by 44.2% from April 2022 to May 2022. Over 1,200 additional homes hit the market, which is the highest monthly inventory increase Orlando has ever seen.”

“More than 60% of the municipalities tracked by the Home Builders Association of Arizona have issued fewer single-family homebuilder permits this year through April than the same period last year — another sign the Valley’s housing market is cooling. The drop in April permits was a precursor to what we are seeing play out today, said Steve Hensley, senior manager of Zonda Advisory. ‘The drop in permit activity is likely partly a function of builders pulling back on their speculative inventory building in anticipation to slowing demand. Market conditions are shifting as well as homebuyer strategy,’ he said.”

“Ron Magoon has a stark description of the home mortgage market for small New Hampshire banks these days. It’s ‘pretty much dried up,’ the CEO of Franklin Savings Bank said.”

“Des Moines Area Association of Realtors President Jen Stanbrough said a shift in the market may be on the horizon after 10 years of rising prices. She noted some recent price cuts as mortgage rates have pushed even higher in June. ‘What I’m seeing from price reductions, that we have not seen for a while, we will start to see a little bit of correction coming in maybe our June numbers, but I think we’re going to see that more to the end of July or August,’ Stanbrough said.”

“Utah’s housing inventory is at a 22-month high — and the number of offers for homes is down, too. That’s according to Kara Loftus, Vice President of mortgage services with Mountain America Credit Union. ‘We just don’t really know what’s going to happen. We’re in uncharted territory right now,’ said Loftus. ‘We might see a leveling off, even a decrease in values, which could affect your ability to sell your homes in the next couple of years,’ added Loftus.”

“Mariano Rivera was seemingly so desperate to sell his New York home in the Westchester County suburbs that he offloaded it for $2 million less than what he paid for it in 2006. Property records show that Rivera, 52, purchased the nine-bedroom, 8.5-bathroom estate for $5.7 million with his wife, Clara, at that time. But he finalized the sale of his home on June 9, with a $3.78 million closing price. Initially, the Riveras listed the property at an already significant discount: $4 million. It is unclear why the baseball icon was willing to take a significant loss from the start.”

“A foreclosure sale on condominium units at 1002 Walnut St. in Boulder will be permitted to go forward on Wednesday, despite the owner’s request to have a court impose an injunction on the sale. George Williams LLLP, with headquarters at 6700 Lookout Road in Boulder, filed a request for injunctive relief Monday in an attempt to stop the sale on Wednesday of the property. The company signed a promissory note, secured by a deed of trust, on Dec. 11, 2020, for more than $5.7 million.”

“Canada’s housing market continued to cool down from its red-hot pandemic pace in May, with the average price of a Canadian home that sold during the month going for $711,000, a decline of more than $100,000 in the past three months. The biggest factor driving the national number lower is Ontario, where most markets are seeing significant price declines. Rishi Sondhi, an economist with TD Bank, said there’s an interesting regional story playing out beneath the picture of the national market.”

“‘It’s also likely the case that some GTA buyers purchased their homes before selling their old ones [thinking the market would remain hot] and are now being forced to accept lower prices to complete their transactions. We would, however, expect this dynamic to run its course in relatively short order,’ Sondhi said.”

“Cailey Heaps, CEO of Toronto-based real estate firm Heaps Estrin, says the slowdown in Toronto is mostly happening in the suburbs, where prices jumped the most during the pandemic as buyers sought more space. Now, the market is regressing to the mean. ‘People who are going to be disposing of properties now are people who didn’t forecast the change in interest rates and they just can’t carry their properties,’ Heap said.”

“Sweden’s inflated housing market is teetering on the brink of a correction as price expectations turn south and buyers withdraw from a sector that hit record heights last year. The changing fortunes have been so dramatic that it ‘can almost be likened to the reaction after the fall of Lehman Brothers at the start of the global financial crisis,’ Fastighetsbyran’s chief executive, Johan Engstrom, said. The developments mark a far cry from last year when house prices soared to the highest level ever as a large number of Swedes made use of unprecedented central-bank stimulus to upgrade into bigger homes. The rally even prompted one prominent asset manager to warn the market had been gripped by hysteria.”

“A closely watched indicator of Swedish home prices tumbled the most since the onset of the pandemic. The proportion of households expecting a drop in prices totaled 47%, marking an increase of 23 percentage points from the previous month, according to the survey by SEB AB. With sellers and buyers unable to agree on deals, ‘there will likely be price weakness in many places over the coming months,’ Fastighetsbyran’s chief executive said. It’s a view that is already feeding into the country’s biggest market, Stockholm.”

“Pia-Lotta Svensson, a realtor with a branch of Fastighetsbyran in Stockholm, says current prices on her patch of Sodermalm — a once bohemian but now affluent suburb of the capital — would have been down as much as 10% if sellers would have accepted what buyers offered to pay. ‘Something happened after the first Riksbank rate increase,’ Svensson said in an interview. ‘Then came the media reports about inflation and at the same time supply doubled in a week.'”

“The number of houses sold across the Waikato fell by more than 30 per cent in the year to May, with reports of more listings and fewer buyers. And six districts within the Waikato saw monthly price falls. ‘The urgency to act is all but gone,’ said REINZ Waikato director Neville Falconer. ‘Buyers are acting with caution and waiting for prices to decline further, whilst some are struggling to secure finance.'”

“House prices are set to plunge by 18 per cent in the next two years in Sydney and Melbourne, one of the major banks has warned. Fear over plunging house prices will mean the property market does suffer in the short-term as the fear of missing out that drove the frenzy in the past few years dries out, according to Dr Andrew Wilson, consultant economist at Bluestone Home Loans.”

“‘In the short-term however, housing markets will again be confronted by the fear factor with the usual predictions from the usual suspects of house price crashes and an uncertain outlook on rates and the economy, motivating buyers and sellers to sit on their hands,’ he said. ‘The usually quieter winter selling season will be exacerbated this year by falling confidence and the fear factor resulting in likely continued downward pressure on home prices with non-discretionary sellers just having to accept what the market offers.'”

“As recently as October, forecasting firm Oxford Economics predicted that Shenzhen would be the world’s fastest-growing city between 2020 and 2022. If Shenzhen is in trouble, that is a warning sign for the world’s second-largest economy. The city is ‘the canary in the mine shaft,’ said Richard Holt, director of global cities research at Oxford Economics, adding that his team is keeping a close eye on Shenzhen. Another of the city’s major companies, top-selling property developer China Evergrande, sparked fears of a collapse last year under its heavy debts that would have wreaked havoc with China’s financial system. Down the road, Ping An Insurance Group Co, China’s largest insurer, took big losses on property-related investments.”

“In a dense area of apartments near High Tech Park, one of the city’s clusters of tech companies, estate agents would normally be swamped with graduates looking to find homes in May. An agent, who gave his name only as Zhao, told Reuters last month that business is down 50% from a year ago. ‘This place should be bustling with people, I shouldn’t have a moment of rest,’ he said, lounging on his e-scooter outside a building with 30 studio flats where rent is 2,000 yuan a month. He said several have been empty since November.”

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