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Amid The Mansion Price Freefall, Cracks Have Already Begun To Show Up

A report from Bisnow on New York. “There has been a slew of bad news for the New York City residential market in recent years, particularly at the high end. Now developers, brokers and landlords are looking for new ways to stay profitable. A flood of product of pricey new rental and condos hitting the market has forced some sponsors to cut asking prices and landlords to offer up steep concessions in order to lure people in for some time now.”

“Hudson Cos. principal Aaron Koffman believes people are becoming choosier when it comes to buying condos. His firm is building One Clinton in Brooklyn Heights, where a five-bedroom, three-bathroom unit is asking $6.4M, according to StreetEasy. ‘It’s not if you build it they will come like it used to be … [but] there is good residential product out there. I think it’s just how you differentiate yourself,’ he said. ‘Developers are going to be a little more discerning than we have in the past.'”

From Mansion Global on New York. “A New York City duplex that once asked $120 million is now being offered for $59 million, after another price cut on Friday. The Manhattan home, which was owned by the late ‘King of Wall Street’ and former Salomon Brothers CEO John Gutfreund and his wife first came to the market in April 2016, a month after Gutfreund’s death at the age of 86, according to listing records.”

“It experienced a couple of reductions off the $120 million price tag before it was removed from the market briefly last September, then relisted for $68 million.”

From Mansion Global on Connecticut. “Music executive Tommy Mottola has sold his Georgian-style Greenwich, Conn. estate for $14.875 million, or 25% off its original asking price. Mr. Mottola first listed the property for sale for $19.95 million in April, 2017, The Wall Street Journal reported.”

From Radar Online on California. “Is Alexis Bellino’s ex-husband Jim facing money troubles? Just as the former The Real Housewives of Orange County star is fighting an order forcing him to pay Shannon Beador’s legal fees in a defamation suit, has learned he’s once again slashed the price on his mega mansion – and has now chopped nearly $1 million off the initial asking price!”

“According to Trulia, the 4,539 sq ft, 4 bed, 4 bath home in Dana Point, Calif. is currently listed for $5.18 million. Jim was awarded the Dana Point home in his divorce from Alexis in 2018. It was first listed in November 2018 for $5.9 million, before being slashed on January 8 to $5.85 million. Just a few weeks later, on January 28, a much bigger price cut brought the home down to $5.595 million. With still no sale, another $100,000 was chopped off on February 15th, bringing the price down to $5.495 million.”

“Amid the mansion price freefall, Jim was locked in a nasty lawsuit with RHOC stars Tamra Judge and Shannon Beador, suing them for $1 million for defamation. As Radar previously reported, Jim sued the RHOC ladies after they claimed he was a “shady mother**ker” on Heather McDonald’s podcast.”

From Bloomberg. “Consumer credit scores have been artificially inflated over the past decade and are masking the real danger the riskiest borrowers pose to hundreds of billions of dollars of debt. That’s the alarm bell being rung by analysts and economists at both Goldman Sachs Group Inc. and Moody’s Analytics, and supported by Federal Reserve research, who say the steady rise of credit scores as the economy expanded over the past decade has led to ‘grade inflation.'”

“This means debtors are riskier than their scores indicate because the metrics don’t account for the robust economy, skewing perception of borrowers’ ability to pay bills on time. When a slowdown comes, there could be a much bigger fallout than expected for lenders and investors.”

“‘Borrowers with low credit scores in 2019 pose a much higher relative risk,’ said Cris deRitis, deputy chief economist at Moody’s Analytics. ‘Because loss rates today are low and competition for high-score borrowers is fierce, lenders may be tempted to lower their credit standards without appreciating that the 660 credit-score borrower today may be relatively worse than a 660-score borrower in 2009.'”

“What has analysts concerned is that cracks have already begun to show up in the form of a rising number of missed payments by borrowers with the highest risk, despite a decade of growth. And now with the economy showing signs of weakness, as seen with the recent inversion of the Treasury yield curve, those delinquencies could grow and lead to larger-than-expected losses for investors in riskier asset-backed securities.”

“The concern that’s come up, Goldman and Moody’s say, is that lenders haven’t adjusted their underwriting standards as average credit scores have risen during one of the longest economic recoveries on record. So as cracks start to appear in the economy, someone whose credit score rose to 650 from 550 since the Great Recession may pay their bills more like they did 10 years earlier.”

“‘Borrowers’ scores may have migrated up, but inherently their individual risk, and their attitude towards credit and ability to pay their bills, has stayed the same.’ deRitis said. ‘You might have thought 700 was a good score, but now it’s just average.'”

“FICO acknowledges that the credit score alone may not be enough to make informed underwriting decisions, and other factors need to be considered.”

“‘The relationship between FICO score and delinquency levels can and does shift over time,’ said Ethan Dornhelm, vice president of scores and predictive analytics at FICO. ‘We recognize there’s a lot more context you can obtain beyond a consumer’s credit file. We do not think that score inflation is the issue, but the risk layering on underwriting factors outside of credit scores, such as DTI, loan terms, and even trends in macroeconomic cycles, for example.'”

This Post Has 36 Comments
  1. ‘We do not think that score inflation is the issue, but the risk layering on underwriting factors outside of credit scores, such as DTI, loan terms’

    The thing is Ethan, you got all these things, at the same time!

    1. @ Ben, didnt they also remove the term “sub-prime” mortgage to simply “non-prime” to justify lending to less qualified individuals?

    1. The prices seem to be stale as of the end of march. I think their web crawler/spider is broken.

  2. This is music to my ears.
    I purposefully took a job in Italy that my work pays for my living expenses and I travel around Europe for dirt cheap via low cost carriers waiting for the boom boom of the housing market in the states.

    I just did a Zillow check for Portland OR because my buddy told me to check out this “good deal”, hes from there and knows its gone bonkers.
    For shits n giggles I set my filter to a max of $325k, and min sq footage of 800…..well, not many places at all showed up in the entire Portland metro, even areas that used to be pretty much drug/homeless/impoverished areas. Now some of the properties have had multiple price reductions and 50+ days on the market, so there’s definite chinks in the armor…more to follow…

  3. This greedhead will take a beating. I’ve been to Dana Point and it’s a nice area. You can drive to Irvine for work but this price is ridiculous.

    Price history
    3/12/2019 Price change $5,180,000(-5.7%)
    2/15/2019 Price change $5,495,000(-1.8%)
    1/28/2019 Price change $5,595,000(-4.4%)
    1/8/2019 Price change $5,850,000–
    11/18/2018 Listing removed $22,500–
    11/2/2018 Listed for sale $5,900,000–
    10/23/2018 Price change $25,000(+28.2%)
    9/29/2018 Price change $19,500(-30.4%)
    7/23/2018 Listed for rent $28,000–
    5/10/2018 Sold $4,000,000(-11.1%)
    2/23/2018 Pending sale $4,500,000–
    9/12/2017 Price change $4,500,000(-5.3%)
    3/24/2017 Listed for sale $4,750,000(+211.5%)
    8/3/1995 Sold $1,525,000–

      1. “why would anyone want to buy a house during a divorce”

        silly question… The real question should be why would anyone NOT want to buy a house during a divorce.. by the time the divorce is over the value will have GUARANTEED shot up 10% or more and they could use some of those profits (not all because there sooooo much) to pay off all those pesky lawyer fees.

    1. “5/10/2018 Sold $4,000,000(-11.1%)

      11/2/2018 Listed for sale $5,900,000–”

      Why the missing markup percentage? The math isn’t hard…trying to get an extra $1,900,000 (+47.5%) less than six months after overpaying $4 million for the place.

      Enjoy the Dutch auction experience!

    1. My assumption has been that the rise of the non-bank lenders was some sort of work around or protection so that the banks could make bad loans again without the risks to themselves and their bonuses that they were taking 10 years ago. I don’t know yet if I’m right but I suspect I’ll knew relatively soon.

      1. IIRC The article says the traditional banks will go down with the non banks because they loan money to the non banks.

        1. Of course. I expect the problem was that they needed a work around to make short term money. I assume the risk is still all there. But it’s ok. They know the taxpayers via the Fed are always standing by for them, ready to pay full price for anything that’s lost value and endangered their bonuses.

          1. Full price plus an extra 10% for the hassle, and possible bad news coverage is baked in the cake.

  4. For those who want a break from worrying over falling home prices, enjoy!

    What Would Stocks Do in “a World Without Buybacks,” Goldman Asks
    by Wolf Richter • Apr 8, 2019
    Companies buying back their own shares has “consistently been the largest source of US equity demand.” Without them, “demand for shares would fall dramatically.” Too painful to even imagine.

    Goldman Sachs asked a nerve-racking question and came up with an equally nerve-racking answer: What would happen to stocks “in a world without buybacks.” Because buybacks are a huge deal.

    In the fourth quarter 2018, share repurchases soared 62.8% from a year earlier to a record $223 billion, beating the prior quarterly record set in the third quarter last year, of $204 billion, according to S&P Dow Jones Indices on March 25. It was the fourth quarterly record in a row, the longest such streak in the 20 years of the data. For the whole year 2018, share buybacks soared 55% year-over-year to a record $806 billion, beating the prior record of $589 billion set in 2007 by a blistering 37%!

      1. It would be good for those positioned in short funds, puts, or high quality quality government bonds.

  5. Speaking of price free falls and Crack! have a gander at this beauty crack house for sale. 75% off from original dream price today only! get it will its hot (or before it collapses). county says cant rebuild but just let them know i said its ok to. think of the instant equity, wake up to nature and the aroma of the finest meth in all of the bay area. hurry wont last long!

    1. Meth or weed?

      “Two parcels, 079-031-31 and 079-031-32, totaling 26,789 sq ft. LAND ONLY. The current structure is not habitable and the county will not permit a re-build or septic installation. Please do not visit the property unless accompanied by an agent. Extreme caution is advised (emphasis added).”

      1. “Meth or weed?”

        Well I am glad you asked! Northern Boulder Creek has been known as the more “methy” area of the santa cruz mountains as it takes longer for the law enforcement to get up there (dont worry tweekers, we have meth available in all areas!) while the southern regions have more sun and thus better for growing that fine Gonga. There are some co-op setups that manufacture both meth and grow marajuana together. if its black tar your after, hitch a ride down highway 9 and pull right up the counties tent city. free food, clothes, lodging, and any drug you want. The county has a needle exchange a few blocks from there so if after your morning withdrawal vomit leaves you wanting a good fix, just zombie walk over and get a clean needle and enough oxycotten to get you back to homebase. take the virtual tour here:

    2. “Please do not visit the property unless accompanied by an agent. Extreme caution is advised.”

      LMAO!! Who would buy a piece of property with a warning like that on the listing?

  6. “A New York City duplex that once asked $120 million is now being offered for $59 million, after another price cut on Friday.

    Tens of millions of Yellen Bux valuations wiped out in a single transaction…in aggregate, the “wealth destruction” (albeit fake wealth created by fake money) is staggering. Yet it pales in comparison with what’s still to come.

    1. I guess it depends on what the seller who asked $120 million paid. Maybe they bought it for $60 million and thought they could double their money. Apparently there are lots of investors out there who think they will be able to sell for whatever price pops into their heads.

  7. “FICO acknowledges that the credit score alone may not be enough to make informed underwriting decisions, and other factors need to be considered.”

    Um, yeah. Like the moral hazard created by the Fed since 2008 that will result in FBs and debt donkeys shirking their financial obligations when it becomes onerous or impractical to keep servicing them.

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