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Inventory Is Piling Up, Discounts Are Widespread, And Investors Are Ducking And Covering

A report from CNBC. “A sharp drop in interest rates last week suddenly made millions more borrowers eligible to refinance their mortgages. Appraisals have been an issue in the housing market for buyers and refinancers. Home prices inflated so quickly that some appraisals were not keeping up. Now that home prices are cooling, that is the case less often. On the flip side, as home prices deflate, borrowers lose home equity.”

“So-called tappable equity, which is the amount available to a borrower before hitting the required minimum 20 percent equity in a home, fell in the last quarter of 2018 for the second straight quarter, according to Black Knight. After reaching a high of $6.06 trillion in the second quarter of 2018, tappable equity has since fallen by $348 billion, and by $229 billion in the fourth quarter alone. That caused a sharp drop last year in the amount of equity homeowners cashed out.”

The Business Journal in California. “A more than $35,000 drop in the median price of homes for sale in Fresno from March to April helped improve the city’s ranking in home affordability compared to other major U.S. cities. In Fresno the median home price in April was $247,400, which would require monthly mortgage payments and taxes of $1,188 a month, or 31.79 percent of household income, RealtyHop’s researchers concluded.”

From The Kansan. “While Garden City has made progress in recent years in its continued struggle to meet the housing needs of a growing community, several people who closely watch the local housing market say one particular area of need still sticks out — low-to-moderate income housing.”

“Vicki Germann, Realtor for Coldwell Banker the Real Estate Shoppe, said the local housing market is ‘heavy’ on homes in the $250,000-and-up range, particularly above $300,000, but ‘light’ on homes $200,000 and below.”

“The price of land has escalated, and with it the cost of development. The result is more developers building higher-priced homes because it’s easier to recoup the cost of development and hit their profit margins, said Kaleb Kentner, Neighborhood & Development Services director for Garden City.”

“The result has been a glut of higher-priced homes.”

“As the development of higher-priced homes took off, Kentner said, the hope was that owners of smaller, older homes in the $170,000 to $200,000 range would want to move up and buy the new, larger, higher-priced homes being built. That, in turn, would make more homes available in the moderate price range. ‘It hasn’t really been the case,’ Kentner said, referring to Garden City’s stagnant housing market.”

From The Real Deal on New York. ” Along the 57th Street corridor, clusters of so-called ghost towers — those with darkened apartments — can be spotted on any given night. ‘These buildings were targeting the Billionaires’ Club of the world,’ said attorney Pierre Debbas, the managing partner at the boutique real estate law firm Romer Debbas, who has a view of One Beacon Court from his Midtown office. ‘Most nights, there are five lights on. It’s crazy.'”

“According to the latest U.S. Census Bureau data, 60 percent of residences in a 14-block tract of Midtown East between 49th and 56th streets were ‘seasonally vacant’ between 2013 and 2017. Meanwhile, a recent study by the New York City Department of Housing Preservation and Development found that the number of pieds-à-terre in the city jumped to 75,000 from 55,000 between 2014 and 2017. City Comptroller Scott Stringer’s office estimated that 5,400 of them are worth $5 million or more.”

“During those boom years between 2014 and 2017, foreign investors — particularly from Russia and China — snapped up trophy apartments that doubled as safety deposit boxes.”

“‘Some of these buildings are half empty. Is that a big deal?’ said George Doerre, a vice president at M&T Bank, which has financed condo projects in the city. ‘That’s the question we’ve been asking for four or five years.'”

“Around a third of the condos TRD surveyed are likely owned as pieds-à-terre or investor properties. And if you strip out other units from this equation that are ineligible for the abatement — for example, those getting another type of tax break— the percentage of pieds-à-terre or investor properties shoots up to 43 percent.”

“‘You can just ride through my district at night, the East Side of Manhattan, and you’ll pass complete buildings where there are no lights on,’ said U.S. Rep. Carolyn Maloney. ‘They’re bank accounts.'”

“Inventory in the broader luxury Manhattan market is piling up, discounts are widespread, and sales velocity has slowed. And some say investors (those making financial transactions rather than buying second homes for themselves) are reacting. ‘Investors are ducking and covering right now. They’re hoping to ride the market until it comes back,’ said Dylan Pichulik, CEO of XL Real Property Management, which manages luxury residential properties for absentee owners in New York.”

“The Modlin Group’s Adam Modlin said that back in 2014 and 2015, investors who went into contract for new condos at $2,500 a foot believed their units would be worth $4,000 by the time they closed. ‘If you buy today, are you going to be in the money? No,’ he said. ‘The greater likelihood is that when the project is complete, the price will go down.'”

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This Post Has 55 Comments

  1. ‘in the second quarter of 2018, tappable equity has since fallen by $348 billion, and by $229 billion in the fourth quarter alone’

    Is that a lot?

    Eeee-bola Fresno!

  2. Is now a good time to buy the dip in Treasurys?

    The Financial Times
    US Treasury bonds
    US Treasuries suffer largest sell-off since January
    Yields on 10-year bonds jump in one of this year’s largest one-day advances
    Matthew Rocco and Richard Henderson in New York an hour ago

    US government bonds recorded their steepest sell-off in almost three months on Monday, as diminished concerns over global growth fuelled investors’ risk appetite.

    The yield on the 10-year Treasury note was up 8 basis points at 2.4938 per cent, the largest one-day advance since January 4. The benchmark yield jumped as high as 2.499 per cent during the session, which was its strongest mark in a week. Bond yields rise as prices fall.

    The bond market’s retreat came amid upbeat manufacturing data out of the US and China that sent investors flocking to stocks. The S&P 500, up 1 per cent, was on track to close at its highest level since October 9.

    “The market has concluded its fears of growth slowing are overdone,” said Doug Peebles, chief investment officer of fixed income for AllianceBernstein.
    …

  4. Wait and see what happens when the MSM starts to report correctly on price drops. Owners will be racing for the exits. Cant massage numbers 4ever.

    Ebola will morph into black plague. Time is near and even CNBC is starting but they are quick to backpedal when Yun makes statements. All in good time.

  5. “‘You can just ride through my district at night, the East Side of Manhattan, and you’ll pass complete buildings where there are no lights on,’ said U.S. Rep. Carolyn Maloney. ‘They’re bank accounts.’”

    So here’s an idea, Rep. Maloney. Draft legislation to slap punitive taxes on vacant investor-owned skyboxes. The people you’re supposed to be representing wouldn’t mind seeing the plutocrat grifters who have been shafting them nine ways to Sunday forced to dump their “investments.” Make Housing Affordable Again!

      1. What do you think tariffs are? Taxes are a way to nudge behavior at the margins. There are some on this blog that believe in a complete laissez-faire, anarcho-capitalism version of society which is stripped of all regulation and basically leaves society at the mercy of the wealthy. Taxes are necessary for a civil society and when done right can even correct for some of the ills (e.g. negative externalities) of a complete free market.

        That which you tax you get less of, that which you subsidize you get more of.

      2. Serious question: what would your solution be, Doomed?

        If you want to change people’s (i.e. Chinese investors) behavior, you have to change the incentives. I think that means either taxes (on investment properties, which make airboxes less profitable) or regulation (like laws making foreign ownership illegal). Is there something else we could do?

        Of course it would be better not to get into this mess in the first place, and for that we have the central banks to blame. But I’m assuming the cat is already out of the bag.

    1. We have a glut of luxury condos, too. Asking prices for some were close to 1 million a year ago (as you’d expect, there have been a lot of price cuts in the past few months 🙂 They are new and with granite countertops and within walking distance of downtown but they are not large and did I happen to mention that they are friggin’ condos? Sheesh.

    1. Previous quote by 50 cent:

      “I really don’t have very much” of a personal life, said 50 Cent, whose real name is Curtis James Jackson III. “I really don’t utilize this home. You got 18 bedrooms, you still sleep on one bed.”

      1. Yeah, he’ll be fine. He made out like a bandit on that vitamin water. All good hip-hop artists and rappers who have hit home runs have been in business (Dr. Dre with Beats). But I think the revelation of “you can only sleep in one bed” is pretty profound observation actually. Many more wealthy would benefit from his quip.

      2. I think I read somewhere he actually accepted payment for albums in bitcoins like 5 years ago and made out like a bandit. Or maybe that was DMX…

  9. 1) http://howto.commetrics.com/database/numbers-explained/our-stats-defined/
    MoM and YoY comparisons
    “MoM (Month-over-Month) are changes in levels expressed with respect to the previous month. MoM measures tend to be more volatile as they are more affected by one-time events (e.g. stock market crash, natural disasters, months with many working days, months with many people on vacation, etc.).”
    “YoY (Year-over-Year) figures report the changes in a year’s worth of data, in comparison with the previous year. YoY incorporates more data and thus is able to give a better long-term picture of the underlying report figure.”

    – I’ll be watching the YoY data.
    “There are three kinds of lies: lies, damned lies, and statistics.” – Mark Twain

    2) https://politicalcalculations.blogspot.com/2019/03/us-new-home-sales-market-cap-continues.html#.XJVo7hNKjs0
    Political Calculations
    March 19, 2019
    U.S. New Home Sales Market Cap Continues Shrinking

    – See charts at link. NHS is a leading housing indicator; housing is a leading U.S. economic indicator.

    “We’ve presented the trailing twelve month average for the market cap of new home sales in the U.S. from January 1976 through January 2019 in the following chart, where we confirm that new home sales peaked in March 2018 and have since been on a downward trend, falling back to levels last recorded in late 2016.”

    “The following chart presents the year-over-year growth rate of the trailing twelve month average of the U.S. new home sales market capitalization from January 2000 through January 2019, where we confirm that new home sales in the U.S. have become an economic headwind, showing negative year-over-year growth rates since they last peaked in March 2018.”

    3) If any debate remains as to the direction of U.S. housing markets, we’ll have the key Spring season data over the next few months for added clarity. Was March a flash in the pan, or something more? We’ll know soon.

  10. “A sharp drop in interest rates last week suddenly made millions more borrowers eligible to refinance their mortgages.”

    It’s just like magic.

    1. “It’s just like magic.”

      Yep. Refinancing, and lots of fees for doing so. Gotta love it.

  11. “Home prices inflated so quickly that some appraisals were not keeping up. Now that home prices are cooling, that is the case less often. On the flip side, as home prices deflate, borrowers lose home equity.”

    Yep, price equals value.

    If the fool who buys a house down the street from where you live is able to pay a higher price than the going price then – presto! – wealth is created for yourself AND for your neighbors.

    If a puke that is selling a house down the street has to endure a price cut in order for his house to sell then you and your neighbors must experience some wealth destruction.

    This is well beyond being just plain stupid, but there it is.

  12. “After reaching a high of $6.06 trillion in the second quarter of 2018, tappable equity has since fallen by $348 billion, and by $229 billion in the fourth quarter alone. That caused a sharp drop last year in the amount of equity homeowners cashed out.”

    A nation of dummies that just cannot stand prosperity.

    If housing prices rise then equity is magically created. A Miracle. This Miracle just cannot be left alone, no, it has go be diddled with; It has to be cashed out and spent.

    But sometimes the Miracle needs to take a break, maybe go on vacation for a while. This creates a true OMG! situation for the ignorant pukes who have grown to DEPEND on the presence of this Miracle. This dependence is not limited to just the cash-out-and-spend pukes, it also includes the recipients of the spending who ALSO have grown accustomed to the cash outs.

    1. “This dependence is not limited to just the cash-out-and-spend pukes, it also includes the recipients of the spending who ALSO have grown accustomed to the cash outs.”

      Heck, cash-out refinancing [is] our economy.

      1. As the development of higher-priced homes took off, Kentner said, the hope was that owners of smaller, older homes in the $170,000 to $200,000 range would want to move up and buy the new, larger, higher-priced homes being built. That, in turn, would make more homes available in the moderate price range. ‘It hasn’t really been the case,’ Kentner said, referring to Garden City’s stagnant housing market.

        Speaking of cashing out…it kind of struck me that when they built all this luxury stuff they really thought the masses would all sign on the dotted line to move up. It seems that nobody planned on them just sitting in place and using the dotted line to cash out instead. There are only two choices left…massive house price deflation OR somebody (the Fed or backed by the Fed) buys it all up at inflated prices.

  13. Red pill economics I like your posts, keep em coming!

    Same professor, Mr banker West world and all other regulars.

    We would likely have been up sheep Creek if hadn’t found this and a couple other blogs a few short years ago

    1. All the hints and announcements of further central bank liquidity carpet bombing operations is once again driving intrinsically worthless cybercoinage skyward once again.

      1. I am not sure what’s worse – the fact that this scam cryptocurrency stuff actually exists, or the smug cryptoheads who worship at the altar of such a crooked endeavor and belittle anybody who points out the folly of investing in something that is, as you say, intrinsically worthless.

        I have become very cynical about life after all of the central bank shenanigans and the associated scams that have popped up as a result. I’m trying to ignore it all and just go about my life, but it’s difficult to do.

        2. Looking on the bright side of the cryptocoin, it is possible that this latest surge merely represents a Wall Street pump-and-dump operation as Da Boyz collectively divest.

          1. This article brings to mind what the Smart Money knows about self-driving cars.

            Amid Bitcoin Uncertainty, ‘the Smart Money Knows That Crypto Is Not Ready’
            Paul Chou, a former Goldman Sachs employee, set up LedgerX, a crytocurrency exchange in Manhattan, to cater to big finance companies.
            Credit Nathan Bajar for The New York Times
            By Nathaniel Popper
            April 2, 2019

            SAN FRANCISCO — Paul Chou was among the many Bitcoin aficionados who thought big Wall Street institutions were about to become heavy hitters in the cryptocurrency markets.

            Mr. Chou came from one of those institutions, Goldman Sachs, and created a cryptocurrency exchange, LedgerX, that would cater to big investors with sophisticated financial contracts.

            Now, in the wake of last year’s Bitcoin crash, Mr. Chou is being forced to confront how few of the big finance companies acted on their cryptocurrency plans.

            “It was definitely part of the original plan that institutions would be a big part of this market,” he said. “We were wrong.”
            …

          2. True believers don’t care about the obvious failures of Bitcoin to live up to its hype. This is strong evidence that a mania is still underway.

            “…few of the more practical ambitions for Bitcoin and other cryptocurrencies have been realized, and it can still be hard to determine what is real and what is not real around digital tokens.

            An American company looking to set up Bitcoin investment funds, Bitwise Asset Management, recently said it had determined that 95 percent of the trading activity reported by Bitcoin exchanges around the world was fake.

            The structure of Bitcoin makes it hard to maintain control. All Bitcoins are accounted for on a decentralized ledger, known as the blockchain, which no single institution controls. Anyone can have access to it, giving free rein to bad actors.”

          3. Da Boyz never much cared about the practical use of anything they trade. It’s just numbers to them.

            It reminds me of a scene from the documentary movie “King Corn.” The two guys drive a truck full of corn kernels to the Chicago Mercantile Exchange and try to convince the commodity traders inside to buy the corn. The traders wouldn’t even talk to them.

          4. “King Corn.”

            How long did it take them to plant their x1 acre of corn?

            Did they get some $ before the corn even $prouted?

            Great documentary …

  15. Despite the latest round of central bank hair-of-the-dog stimulus, evidence is mounting that the decades-long housing mania is winding down.

    1. Despite the publication date, this article is not a joke.

      The Wall Street Journal
      50 Cent finally sells his 52-room Connecticut mansion, at a huge discount
      By Katherine Clarke
      Published: Apr 1, 2019 6:21 p.m. ET

      50,000-square-foot compound sells for $2.9 million after 12 years on the market
      Getty Images
      50 Cent attends a movie premiere in Los Angeles in January 2018.

      One of Connecticut’s better known white elephants — rapper 50 Cent’s massive Farmington mansion —has finally traded for $2.9 million, or 84% less than what it first sought 12 years ago, according to people familiar with the deal.

      The musician, whose birth name is Curtis James Jackson III, purchased the property from former boxer Mike Tyson for $4.1 million in 2003, property records show. That deal set a still-standing record for the most expensive home ever sold in Farmington, which is about 80 miles north of Greenwich, according to appraiser Jonathan Miller. The property first listed in 2007, then underwent several price cuts over the years and was listed by various different agencies. Most recently it was seeking for $4.995 million, according to Zillow. It had also been listed for rent at $100,000 a month.
      …

  16. With so much central bank stimulus currently in play, is it safe to assume Brexit risks are fully contained?

    Brexit: UK risks ‘trashing relationship’ with Europe, says Siemens boss
    2 April 2019

    Britain is at risk of “trashing its fabulous relationship” with the rest of Europe because of its failure to secure a Brexit deal, a top businessman says.

    Jurgen Maier, the UK chief executive of Siemens, told the BBC’s Today programme: “We are at a point of crisis right at this moment in time.

    “We need to find a way forward so we can re-establish that trust to give us the confidence to invest here again.”
    …

  17. if fraud is just 5% of the market, it can have a significant impact after several years. This is the first mainstream article that calls out agents, lawyers and notaries. Thats where the crack down needs to happen

    https://business.financialpost.com/diane-francis/money-laundering-by-foreigners-is-whats-really-destroying-housing-affordability-in-canada
    ———-
    Canada says the RCMP estimates up to $15 billion of laundered money enters Canada each year. That doesn’t include laundering by crooks who also bury proceeds in real estate. What governments must do, according to the latest report by the United Nation’s Financial Action Task Force (FATF) is crack down on money laundering enablers in Canada — lawyers, real estate agents, notaries and developers.

    “Requirements (in Canada) are inoperative toward legal counsels, legal firms and Quebec notaries,” said the FATF report. “In light of these professionals’ key gatekeeper role, in particular in high-risk sectors and activities such as real-estate transactions and the formation of corporations and trusts, this constitutes a serious impediment to Canada’s efforts to fight money laundering (or terrorist financing).”

    Naturally, vested interests claim money laundering and foreign buying are minuscule. But if true, then why did taxes on a small percentage of foreign owners in B.C. and Ontario (along with a ban on foreign buying in New Zealand) bring about price relief, mostly on luxury properties?

    1. additional

      Anti-corruption organization Transparency International offered a glimpse into the scale of foreign speculation abuse in 2015 with an analysis of Vancouver’s 100 most valuable property deals. It found nearly 50 per cent of ownerships were hidden through shell companies, nominees and trusts. The same likely applies to Toronto and Montreal, where money is parked in condos that are often left vacant.

  18. “As the development of higher-priced homes took off, Kentner said, the hope was that owners of smaller, older homes in the $170,000 to $200,000 range would want to move up and buy the new, larger, higher-priced homes being built. That, in turn, would make more homes available in the moderate price range. ‘It hasn’t really been the case,’ Kentner said, referring to Garden City’s stagnant housing market.”

    What actually happens is the builders themselves buy those $170,000 to $200,000 homes, and then tear them down to build even more luxury housing, completely removing those more affordable homes from the market — unless, of course, they’re in crime-infested slums with poor schools or are otherwise undesirably located.

    At least that has been the case here. Builders and realtors are conspiring to separate people into the haves and the have-nots, builders crying crocodile tears about how they can’t stay in business unless the houses sell for $750,000 and up. And you wonder why we have increasing numbers of people living on the streets or in RVs now.

    We would love to have a little more room, but because we won’t do so by borrowing irresponsibly there is essentially nowhere for us to go now, so we’re just going to stay put.

    2. Builders and realtors are conspiring to separate people into the haves and the have-nots, builders crying crocodile tears about how they can’t stay in business unless the houses sell for $750,000 and up.

      Well…they’re conspiring to get rich as quick as possible from leftover runway foam. Screwing the have nots is just an unfortunate side effect that they try not to think about. After all, everybody has a right to make a living taking advantage of whatever resources are available, right?

    3. Good summary. We are losing middle-class everything: middle class jobs, middle class housing, middle class clothing stores (JCPenney, Sears), and it looks like we’re losing middle-class cars too.

  19. Not in Sacramento! I see places in downtown areas selling like hotcakes for 700k plus for a tiny 2 bedroom crapshack to rich bay area people.

    1. STOP LYING. I SEE THEM SELLING FOR 2 MILLIIONS, not 700K. SOLD IN ONE DAY!!!!! BUY NOW OR FOREVER BE PRICED OUT!!! EVERYONE KNOWS SCCRAMENTO IS THE IPOS CAPITAL OF THE WORLD!!!

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