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What Are We Going To Tell Our Sellers?

A report from the Wall Street Journal. “A Federal Reserve Bank president who has been warning about prices rising too high in the commercial real-estate market has a new source of concern: co-working. In an interview, Boston Fed President Eric Rosengren highlighted a potential misalignment in the property market. He noted that landlords are offering long-term leases to co-working firms, which then spend money to build out the space and rent it on a short-term basis.”

“Mr. Rosengren’s comments could bring more attention to the issue because he tied his co-working concerns to broader risk in the real-estate market, and the debate over whether the Fed should cut interest rates further. ‘My concern is basically structural,’ Mr. Rosengren said. ‘You’re getting longer-term leases and then you’re renting out the space short-term. So you have an asset-liability-mix problem.'”

“The Boston Fed president has for several years warned about inflating commercial property prices. He isn’t worried that the commercial real-estate market could trigger a recession. But he has warned that a real-estate bubble could make a downturn worse.”

The Loop North News in Illinois. “The sound of silence is all that can be heard in much of the city’s early autumn home-buying market. Veteran residential brokers call it a ‘cricket’s market.’ An informal survey by The Home Front of several top city real estate brokers in downtown and North Side neighborhoods revealed that late September and early October open houses vastly went unattended by buyers.”

“Cookies went uneaten and coffee turned cold in the pot. Colorful helium-filled balloons decorating the front porches of homes for sale gradually went flat, just like the autumn market, brokers said. ‘We have many attractive multi-million-dollar condominium and mansion listings and there currently appears to be little to no interest by affluent would-be purchasers in even taking a tour,’ said one prominent Gold Coast and Lincoln Park broker.”

“There’s ‘radio silence’ throughout the city and suburbs, from downtown Chicago to Lake Forest, Oak Park to St. Charles. At the request of multiple frustrated agents, some major brokerage firms recently held closed-door round tables to explore the current state of the market. One agent asked, ‘What are we going to tell our sellers?'”

From Fox News 13 in St Petersburg Florida. “Dark, abandoned, and vacant properties turn the American dream into a nightmare for neighborhoods across the Bay Area, and not just during the month of October. Most of these real estate zombies are foreclosure homes left to decompose without owners. Real estate professionals say zombies may never disappear. In Pinellas County, 9% of foreclosure homes sit empty, which is three times the national average.”

“Michael Madson with Lipply Real Estate says there are several problems standing in the way of fixing the problem. First, banks usually won’t lower the price of a zombie home, so as it falls into disrepair, the price seems less realistic for buyers. Also, in the Bay Area, a home-building boom is drawing buyers to new construction.”

“It can be a real horror show for neighbors, like Lynne Lovett in Tarpon Springs, who has lived across from a zombie home for a year and a half. ‘My own property value is a major concern. When I go to sell, that house is definitely an eyesore,’ she says.”

“Madson says homeowners have little defense against neighborhood zombies, the banks who own them, and local code enforcement. ‘You can call the county and report violations, but after a while the county stops talking to you about it,’ said Madson.”

From DS News on California. “Affordability issues, trade tensions and diminishing foreign demand have capped price growth in San Francisco for now, and the city is one of the most overvalued cities in the country, with an index level of 1.15. The UBS Chief Investment Office’s Global Real Estate Bubble Index 2019 notes that real prices increased by 85% between 2012 and 2018 in the city, fueled by booming technology companies and a large amount of IPO money making its way into real estate.”

“‘The weakness in the Bay Area’s housing market is exacerbated by diminishing foreign demand and the historic low affordability for the working middle class,’ UBS states. ‘With the highest number of housing permits since the late 1980s, the supply shortage may start to ease and potentially accelerate the price correction.’

This Post Has 65 Comments
  1. ‘Cookies went uneaten and coffee turned cold in the pot. Colorful helium-filled balloons decorating the front porches of homes for sale gradually went flat, just like the autumn market, brokers said…One agent asked, ‘What are we going to tell our sellers?’

    Stamp your little feet?

    1. Tell them:

      The city is bankrupt
      Public union demands will never stop
      Property taxes will go ever higher
      Federal SALT deduction limits
      People are leaving the city in record numbers
      Crime is exploding
      Sanctuary city status is attracting illegals destroying the schools and hospitals
      And socialist Democrats will never give up power

    2. One agent asked, ‘What are we going to tell our sellers?’

      If you price it to sell, it will sell. That’s what you tell them. The truth will set you free.

      1. “Buyers don’t want to catch themselves a falling knife. And rich people, like the ones you are expecting to buy your luxury property, especially hate to overpay. Reduce your asking price to current market value, and you can sell in under one week.”

    3. It’s a looooong way down folks, but drop your knives and maybe some suckers will catch a few.

  2. ‘With the highest number of housing permits since the late 1980s, the supply shortage may start to ease and potentially accelerate the price correction’

    They can build shacks!

  3. ‘Lynne Lovett in Tarpon Springs, who has lived across from a zombie home for a year and a half’

    So not that long ago. This shadow inventory thing is ongoing.

    1. Because, amazingly, the property taxes get paid. Because the banks know the empty house would be seized rather quickly and sold at auction.

      There is a lesson in their somewhere…

      “You can call the county and report violations, but after a while the county stops talking to you about it,’ said Madson.”

      1. Stop talking about it sounds kinda routine. There’s hundreds of these in just this one county.

    2. This shadow inventory thing is ongoing.

      Pshaw, Ben. Stop spreading conspiracy theories. You’ll spook the herd.

  4. “What are we going to tell our sellers?”

    Thanks for the laughs? That they are screwed? That they should keep current with their mortgage payments no matter what the pain? (I move that you tell them this.)

    1. Tell them:

      Housing prices can go down, just as much as they increased.

      Do you want to chase the market down or get out now?

      1. Or how about, “If you think it is hard to find a buyer who is willing to pay your asking price now, with unemployment and interest rates both near historic lows, just wait until unemployment and interest rates both trend back upwards towards historic levels. You ain’t seen nothing yet!”

  5. The fruits of cheap/easy money, bailouts, government guarantees and TBTF.

    “First, banks usually won’t lower the price of a zombie home, so as it falls into disrepair,”

  6. Throwing money away on rent? Hmmm I kind of like knowing what my monthly obligations are. Bad A/C? No problem. Leaking roof, it’s covered. Pay 6% to get out, nah not me! 30 days notice and can walk away!

    1. That’s assuming your broke ass LL can pay to fix such things. Sure, you can move if those things don’t get fixed (I had to do that once), but it’s a PITA.

    2. “Pay 6% to get out”

      Which isn’t a big deal if you have some equity in the house. If you rent you would have none. But I agree maintenance costs could cancel that out.

      1. 1-2% a year for repairs
        and selling yourself is a snap
        done it many times.

        inventory up slightly in 22151 DOD nirvana

    1. no intention of servicing their mortgages.

      25 million zombie mortgages! That’s what the “recovery” looks like.

    2. I’ve been watching Real Vision for a while. These folks are so advanced that I get lost very easily. Especially in the bond market.

      I think RVF’s overall message (currently) is 80% chance a recession is on the way and we’re supposed to buy the “bond market.” That’s just too nebulous to me. “Bond market” could mean anything from US Treasuries to State of Illinoise municiples. This is so confusing…

      1. Let me demystify the advice: If they are advising you to buy the “bond market” going into a recession, they almost certainly don’t mean junk bonds, or similar debt instruments whose perceived default risk would increase with the paradigm shift at the onset of recession.

        1. PS My two bits of advice: Buy what the central banks are buying.

          Quantitative Easing Is Back
          Global Economy
          Daniel Lacalle 1 hour ago

          The Federal Reserve, through its president Jerome Powell, has indicated that it is preparing to increase its balance “organically”. The effort to separate this latest monetary policy change of course from a full-blown new QE (quantitative easing) is, at the very least, amusing. If we look at what is being discussed, it has nothing to do with organic expansion and looks a lot like a new repurchase program.

  7. You’re getting longer-term leases and then you’re renting out the space short-term

    Like a dot com inverted version of the S&L Crisis.

    1. Why don’t those commercial LL’s simply renovate the space with Minimalist Millenial Gray decor and hipster snacks and rent out the space themselves? Probably because the risk of not making profit is more than the cost of such renovations. Let outfits like WeWork (i.e. Sofbank) take the hit instead.

      1. Minimalist Millenial Gray decor

        Would you post a link to this minimalist millennial gray you speak of? I am sure I have seen it, but I don’t recognize it.

          1. New houses in St. George look quite a bit different. It’s a desert aesthetic with Spanish tiled roofs and all that.

          2. There’s also boringly blase beige, for homemoaners who find minimalist millennial gray
            to be unattractive McMansion decor.

  8. The Boston Fed president has for several years warned about inflating commercial property prices. He isn’t worried that the commercial real-estate market could trigger a recession. But he has warned that a real-estate bubble could make a downturn worse.
    Insanity:
    1) Following the Fed-induced GFC, the Fed intentionally blows/reflates a massive “everything” bubble, which includes the CRE bubble.
    http://www.washingtonpost.com/wp-dyn/content/article/2010/11/03/AR2010110307372.html
    What the Fed did and why: supporting the recovery and sustaining price stability
    By Ben S. Bernanke
    Thursday, November 4, 2010
    “Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.”

    2) The Fed warns about CRE bubble, but takes no responsibility for it.

    – You can’t make this stuff up.
    – Bubbles always pop and with bad outcomes.
    – These guys are idiots. Un-elected and unaccountable idiots.

    https://twitter.com/NorthmanTrader/status/1181655672024436736
    Sven Henrich
    ‏Verified account @NorthmanTrader
    Suppose you were an idiot, and suppose you were a central banker; but I repeat myself.
    12:40 PM – 8 Oct 2019

    – The Fed and all central banks have transformed capitalism and free markets into a centrally-planned command economy (aka financial Socialism/Communism). This also, along with fiat (paper) currency has never ended well. Ref.: Former USSR, Cuba, Venzuela, Puerto Rico, U.S.: IL, CA, NY, every major blue city and state.
    – Please remind me: Why are they still in charge of our economy?
    – Things are so great (yes, everything is awsome!) that QE has been re-started (but, shhh!, don’t call it QE). Just observe the Fed “balance” sheet for confirmation of this.
    – I think that this financial can-kicking is about to run out of runway, IMHO. The only thing propping up stocks has been jawboning/hot air, and the hopium of a China “trade deal”.
    – The least of one’s problems: “Cookies went uneaten and coffee turned cold in the pot. Colorful helium-filled balloons decorating the front porches of homes for sale gradually went flat, just like the autumn market, brokers said.”
    – Humpty Dumpty
    Closing quote:
    “It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of light, it was the season of darkness, it was the spring of hope, it was the winter of despair.” – Charles Dickens, A Tale of Two Cities

    1. Define irony: a Fed president warning of asset bubbles and speculative malinvestment.

      In other news, Jack the Ripper warns London prostitutes the streets are not safe after dark.

    2. Quantitative easing; if it looks like a duck, swims like a duck, and quacks like a duck…
      Gary Wagner
      Tuesday October 08, 2019 18:24
      Kitco Commentaries | Opinions, Ideas and Markets Talk
      Featuring views and opinions written by market professionals, not staff journalists.
      Commentaries & Views

      According to Wikipedia, there is a simple test that is a form of a deductive reasoning. This is the usual expression: If It looks like a duck, swims like a duck, and quakes like a duck, then it probably is a duck. The test implies that a person can identify an unknown subject by observing that subject habitual characteristics. It is sometimes used to counter obscure arguments that somethings are not what they appear to be.

      This phrase seems to of been coined by Indiana poet James Whitcomb Riley (1849 – 1916) when he wrote, “when I see a bird that walks like a duck and swims like a duck and quacks like a duck, I call that bird a duck.”

  9. For poops and giggles, here’s some East Coast arrogance for you. A small group is building a survival prepper compound in WV and charging families for memberships. The article is pretty standard, but the gold mine is the 2000+ reader comments mocking the preppers as frightened little incels clinging to their stockpiles of guns and Crisco.

    ————–
    “Miller, along with about 100 other people who he says have purchased Fortitude Ranch memberships, believes that underground bunkers, stockpiled food, and semiautomatic weapons will see them through an apocalypse, however it may come.

    Members, who pay about $1,000 per person per year to be a part of the community, are encouraged to use the ranch’s two large rustic cabins here as vacation lodgings. In the event of emergency, however, they would head to 10-by-10-foot, claustrophobia-inducing rooms in underground shelters, some of which are constructed of metal culverts. Altogether, the compound here can hold up to 500 people.

    The organization also has two sites in Colorado. It’s working to set up a fourth in Wisconsin. The motto: “Prepare for the Worst — Enjoy the Present.””

    https://www.washingtonpost.com/local/at-fortitude-ranch-the-cabin-is-for-vacationing-the-shelters-are-for-surviving/2019/10/08/643bff30-d597-11e9-9610-fb56c5522e1c_story.html

      1. I guess it’s a timeshare now, admission ticket later. Question is, will that admission ticket be honored when the time comes?

  10. Parent PLUS Loan: Forget student debt; college loans saddle family
    https://www.usatoday.com/story/news/education/2019/10/10/student-loans-financial-aid-debt-parent-plus-loan-college-hbcu/3916173002/

    (a snip)

    “In Texas, Prairie View A&M University graduate Tania White needed her mother to take out Parent PLUS Loans for her undergraduate education 30 years ago. White’s mother borrowed $12,000 for White’s three years of college. She is still paying it back. Since White’s graduation in 1992, her mother’s debt has accrued to more than $100,000. White said the interest rate on Evans’ $100,000 debt is about 9%.

    “’You know how something is so outrageous where you have no expression or feeling behind it? That’s where we are with that,’ White said, remarking that paying back student debt has become a routine for her family.”

    (another snip)

    “Roderick Hester just dropped off his third daughter at Spelman College. He took out Parent PLUS Loans for each of them. ‘If this will give my child the best opportunity to be successful in life,’ he said, ‘This was the avenue I had to pursue. There wasn’t a lot of options.’

    “Hester owes more than $200,000 in Parent PLUS Loans.

    “’I don’t really know how I’m going to pay it back, but I’m planning on it,’ Hester said. ‘Whatever I need to do is what I have to do.’”

    1. That USA Today piece is meant to soften taxpayers for the eventual “student debt phallus” coming their way.

    2. The only “debt forgiveness” I would support is somehow getting those interest rates down to under ~4% so the loans to grow into a monster. But make the snowflakes pay back the principle at least.

      1. These loans aren’t getting paid back, with or without forgiveness. The whole damn thing is a write-down that the banks won’t put on the books.

        Forget debt forgiveness — the feds should just void their guarantee and not pony up on the losing gambles. That would is the only thing that will end the madness.

        1. The only way I would agree to discharge debt is to declare bk and write down tuition only. And I mean a real BK, the kind where you can’t even get a credit card to 7 years (or 5 or 3). None of this nonsense about buying a house in only 3 years.

          Of course, the country would explode if Millenials couldn’t get credit.

      2. But make the snowflakes pay back the principle at least.

        Sounds reasonable to me. Make it a zero interest loan and change the dynamics in the future so that debt can be discharged in some way if it becomes onerous without these students (who undoubtedly made poor choices, but so did those lending to them) don’t have to flee to Thailand.

          1. Yeah, sure. Works for me. The Hebrews let every debtor go free after a set amount of time, regardless of the debt. We probably need a debt jubilee at some point.

          2. Works for me.

            There is irony in this. Personal debt is too high because the government encouraged it to become so. Then the government forgives the debt rather than changing the incentive programs. In this way, the least prudent and productive people in our society end up with the most stuff! And all the while the government grows, when it should actually be castrated and declawed.

          3. Then the government forgives the debt rather than changing the incentive programs.

            I think you hit the nail on the head there Blue. The bondholders should take a haircut at the same time the debt is being forgiven. Shared pain, if you will. That is why I say “it takes two to tango.” Both the borrower and the lender created this situation (and, as you rightly point out, it was facilitated by government/central bank interest rate policies).

          4. Both the borrower and the lender created this situation

            So how is the borrower taking a hit if the debt is forgiven??

          5. So how is the borrower taking a hit if the debt is forgiven??

            What I mentioned above is that sometimes these student debt amounts become out of control and the outstanding debt is multiples of the original debt. One thought is to wipe away some of the debt or structure the loan forgiveness such that the entire amount is paid off as a zero-interest loan or something like that.

  11. “What are we going to tell our sellers?”

    We’ve got some good news and some bad news. The good news is for decades your generation plundered the state, with a below average state and local tax burden, above average services and, for some of you, money from extensive corruption and political graft.

    The bad news is that unlike some of you, you didn’t get out before the bill came due and stick it to some impoverished millennial, despite all kinds of government help to do so. Covering up the pension crisis. Increasing the loan to value to 50 percent in the hopes they’d be forced to bid up prices. Etc.

  12. Are you feeling spooked by unconventional monetary policy? Happy Halloween, from your friendly neighborhood central banker!

    1. Opinion FT Magazine
      The downside of negative interest rates
      Investors and consumers can be spooked by unconventional monetary policy
      Gillian Tett yesterday

      Earlier this month, I asked a former luminary of US monetary policy if he thought interest rates in America might ever tumble into negative territory by design (as a deliberate Federal Reserve policy move rather than the result of a market swing).

      “No!” he replied emphatically, explaining that he, and most of his former colleagues, strongly disliked the idea of negative interest rates, never mind the fact that Europe and Japan have been experimenting with them for some time (and President Donald Trump would probably love the Fed to follow suit).

      This is partly, he explained, because he fears that negative rates can distort markets. As the Bank for International Settlements, the central banks’ bank, pointed out in a report this week, the use of unconventional monetary policy runs the risk “of eroding incentives for the private sector to maintain adequate buffers against financial stress”. But there is also another factor in play: psychology.

    2. If these rear guard fighters win, is it safe to assume that EU interest rates will rise off historic low levels?

      The Financial Times
      Europe quantitative easing
      ECB’s Draghi ignored in-house advice on decision to restart QE
      Officials’ opinion brushed aside in unusual split over bond-buying programme
      Montage of Mario Draghi and the ECB in Frankfurt. The central bank’s president asked last month that governments loosen the purse strings to complement its stimulus.
      Opponents of Mario Draghi’s return to a looser monetary policy are fighting a rearguard action
      Martin Arnold in Frankfurt yesterday

      The European Central Bank decided to restart its bond-buying programme last month over the objections of its own officials, a further sign of how the move has reopened divisions within the institution.

      The bank’s monetary policy committee, on which technocrats from the ECB and the 19 eurozone national central banks sit, advised against resuming its bond purchases in a letter sent to Mario Draghi and other members of its governing council days before their decision, according to three members of the council.

      The leaking of the confidential contents of the committee’s letter comes as opponents to Mr Draghi’s loose monetary policy fight a rearguard action to put pressure on Christine Lagarde for her to change course after she takes over at the ECB on November 1.

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