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If This Oversupply Continues It Will Be A Disaster

It’s Friday desk clearing time for this blogger. “Here are some of my observations from Mortgage Bankers Association convention I attended in Austin last month. One exhibit hall lender offered primary residence mortgages void of any income information or any income documentation so long as you put 35% down and have a minimum 680 middle FICO score or higher. We are talking loan amounts to $2.5 million to boot. And, your rich uncle can gift you 100% of the down payment if you can’t cough up the dough on your own.”

“‘Prices ‘are taking a timeout,’ said Elliot Eisenberg, an economist who does consulting for MLSListings, the multiple listing service for several counties, including San Mateo and Santa Clara. ‘There isn’t that much money around anymore.’ Chinese buyers have retreated from the market since the government made it much harder to get money out of the country.”

“The median Bay Area single-family home price was $910,000 in the most recent quarter, down 7.1% from the previous quarter and down 4.2% from a year ago.”

“The Bay Area residential market has seen year-over-year sale prices drop in several months this year. That follows a record run of rising home prices that began in April 2012 and ended in March. Matt Rubenstein, a Compass agent in Walnut Creek, has noticed some nervousness among buyers — the market has stayed strong for nearly eight years, and some are concerned about an inevitable drop.”

“Home prices in King County peaked this year in May, at $700,00, down from the all-time peak of $726,275 in May 2018. Year-over-year, condominium prices in King County were down 3.75% overall, to $385,000, and nearly 7% in Seattle, to $460,000.”

“A ‘reel’ estate investment is now on the market for $7.51 million following a price drop and broker swap. The parlor floor of the townhouse at 108 Eighth Ave. in Park Slope was used for scenes in HBO’s ‘Boardwalk Empire’ and in the Martin Scorcese film ‘The Age of Innocence.’ It was priced at $8.8 million in 2018.”

“The unit was first listed in May at $2.788-million, but after extensive marketing no offer came in. The seller reduced the price 72 days later to $2.688-million. Six weeks later, they accepted an offer of $2.45-million, the amount the seller had paid in 2017. The buyer is a Vancouverite who intends to reside in the apartment. ‘It is a sign that prices have reversed in the last two years on many high-end condos,’ listing agent Paul Albrighton says. ‘The number of transactions in downtown over $2-million are very low.'”

“Buyers are paying less than a year ago in 26 London boroughs, according to Land Registry data. Colliers Wood resident Emily Howarth, 25, said: ‘Even though prices have fallen, they’re still unaffordable for the majority of first-time buyers as what you get for your money compared to further out of London isn’t comparable.'”

“A rising supply of new housing units on the market combined with a slight rise in interest rates and stricter capital requirements seem to be having an effect. The housing association OBOS that ranks among Norway’s largest residential developers reported a decline in prices in Oslo in October, down 2.8 percent from the month before. Prices were down 3.7 percent from September on a nationwide basis, and OBOS chief economist Sissel Monsvold called the declines ‘suprisingly large. ‘One reason can be that there’s a lot of housing on offer and buyers have a lot to choose from,’ Monsvold stated.”

“New fluctuations in rent costs and apartment prices across Switzerland have shown that renting may be where the smart money is – at least in the short term. The authors of the report said that while apartment prices were likely to remain stable, an oversupply of rental properties was likely to further reduce rental costs. ‘We expect stagnant or falling rents in the coming months. [Tenants] are spoiled for choice and they have increasing bargaining power relative to donors,’ the statement read.”

“The desert gave Dubai an easy excuse to keep building. But five years into Dubai’s property funk, the emirate’s leadership is drawing the line. Unsettled by chronic oversupply, property prices are down around 30% in the last five years. ‘If this oversupply continues it will be a disaster,’ Hussain Sajwani, chairman of Damac Properties PJSC, said. ‘The banking system will get affected and that’s something we can’t afford.'”

“REA Group chief executive Owen Wilson has blamed the banking regulator and state governments for intervening in the property boom and causing the most difficult market for real estate sales in decades. ‘It’s about as bad as it can get … It’s the worst market we’ve ever seen,’ Mr Wilson said. ‘APRA [the Australian Prudential Regulation Authority] looked at the housing market and decided it was getting too hot. They brought in lending restrictions on interest only loans, investor loans, foreign borrowers,’ Mr Wilson said, adding that state governments had also slugged foreign borrowers with higher stamp duties.”

“It was a lofty government rebuild plan to help repopulate central Christchurch with a range of homes across six city blocks for 2200 residents. Once built it was assumed the homes would easily fill. Just one-fifth are either sold or under contract to buyers. ‘I think we’ve built too many homes in Christchurch, and we are continuing to build them. The Fletcher-Ōtākaro project to build 900 units is over-reaching. I don’t think the demand is there for that number,’ said Mike Blackburn, a management consultant specialising in construction in Christchurch. ‘It’s not good to see all those Fletcher homes unsold – it’s not good for the market and property values.'”

“Blackburn says the Government had a ‘if you build it, they will come’ attitude. ‘It seems clear that nobody has looked at the demand side of the equation. I don’t see a strategic view.'”

“The growth rate in Shenzhen, China’s hi-tech hub, slid to its lowest level in 40 years during the first nine months of the year. ‘We industry insiders have been saying that business has been difficult, but we are still very surprised by Shenzhen’s GDP data,’ said Cindy Huang, a veteran saleswoman of high-end serviced offices in Shenzhen’s central business district. ‘It seems to be ironclad proof telling us the economy is really bad.'”


This Post Has 114 Comments
  1. ‘REA Group chief executive Owen Wilson has blamed the banking regulator and state governments for intervening in the property boom and causing the most difficult market for real estate sales in decades. ‘It’s about as bad as it can get … It’s the worst market we’ve ever seen,’ Mr Wilson said. ‘APRA [the Australian Prudential Regulation Authority] looked at the housing market and decided it was getting too hot. They brought in lending restrictions on interest only loans, investor loans, foreign borrowers’

    But Owen, Australia is to the moon Alice?

        1. The show (The Honeymooners) ran from 1955-56. I saw reruns as a kid. It’s been decades since I last saw an episode.

          I’m sure that if you asked a Millennial or younger person who Jackie Gleason was, you would probably get a shrug, even though “Bang, zoom, straight to the Moon!” might sound familiar to them

      1. I doubt that younger Americans get it.

        Not sure about your generation but this Gen-Xer gets it without needing a search engine. 🚀

        1. Just out of the grocery store and in the parking lot, I was putting a big load of stuff in the car and kept hearing little beeps. Couldn’t tell where it was coming from. I looked around twice then kept on with it. A young girl (late Gen Z) was in the car next to me. She got out and asked if I needed help with the groceries. I was horrified that she thought I looked like I needed help, but smiled, thanked her and told her I was fine. You rotten polite kids looking to help people, making me feel feeble and all 😉

          1. I feel that way when food establishment places say “sir” to me (e.g. Is there anything else I can get for you sir?).

          2. say “sir” to me
            I know; that’s the younger version.
            You can’t get by in life without a little bit of denial. I’m can be really good at it 😎 (they didn’t have any rose colored glasses.)

      2. The show was accurate in its description of blue collar lifestyle particularly housing. Part of the problem I think millennials have is they were exposed to shows where young people just starting out were living in housing that only successful professionals could afford.

        1. ” The Middle” is a modern blue collar family show. It reminds me of my midwest upbringing. Nothing in house works right and money is a constant struggle.

        2. The show was accurate in its description of blue collar lifestyle

          Living in a sketchy NYC walkup wasn’t what most of us thought of as normal.

          1. It was normal for NY

            Did you actually grow up around there? If so, how many decades before “Friends”?

  2. “One exhibit hall lender offered primary residence mortgages void of any income information or any income documentation so long as you put 35% down and have a minimum 680 middle FICO score or higher.”

    I lend the same way, and I don’t even check credit scores half the time. Would much rather lend at 60% LTV no questions asked than 95% LTV to some guy who has kept an assistant restaurant manager job for 2 years.

        1. It’s one thing for you to lend your own money on terms you agree to. It’s a whole different thing when someone is lending out gubernment backed crap with no skin in the game.

          May 25, 2018

          “In his corner of American finance, where hard selling meets hard luck, Angelo Christian is a star. Each time Christian sells a home loan, the company he works for, American Financial Network Inc., takes as much as 5 percent. Many of Christian’s customers have no savings, poor credit, or low income—sometimes all three. Some are like Joseph Taylor, a corrections officer who saw Christian’s roadside billboard touting zero-down mortgages. Taylor had recently filed for bankruptcy because of his $25,000 in credit card debt. But he just bought his first home for $120,000 with a zero-down loan from Christian’s company. Monthly debt payments now eat up half his take-home pay. ‘If he can help me, he can help anyone,’ Taylor says. ‘My credit history was just horrible.’”

          “Christian can do this kind of deal because he is, in effect, making the loan on behalf of the federal government through its most important affordable housing program. It’s a sweet deal: He gets his nearly risk-free commission. Taylor puts no money down. If things go south, the government ultimately bears the risk. Many borrowers ‘are living paycheck to paycheck and, if they lose their jobs, they go into default immediately,’ says John Burns, a housing consultant.”

          http://thehousingbubbleblog.com/?p=10443

        2. Very little for the buyer, if house goes up in price buyer wins, if it goes down walk away. Might be some tax consequences but last time even those disappeared. Now for the lender it might be bad unless the Feds allow it to keep it on its book forever without recognizing the loss and give it virtually free money to lend more. Now for taxpayers and value buyers a whole lot can and has gone wrong.

          1. Its true. All true. I played this game as a 23 year old in 2010. I figured, hey i wasnt born rich. Prices are down 50%. Let me gamble and if it goes down more i will walk away and file banruptcy. I FHAed myself out the but. I had nothing to lose.

            Now, i got no joy out of playing the game. I dont consider myself smart or anything for “winning.” And honestly i dont really get any joy out of all the yellen bux i got stacked up in my money market now. Its more like a jungle type situation—you either eat or get eaten. Does a lion feel sorry for the gazelle? Maybe, but not enough to trade places with it. I felt like i had to take a shot or just live as a schmuck for the rest of my life. Cause working hard and saving wasnt going to make it happen.

            The only differnce between me and the current crop is that I was early to the party and they are late.

          2. “Now, i got no joy out of playing the game. I dont consider myself smart or anything for “winning.””

            As the saying goes, better to be lucky than good.

    1. Would much rather lend at 60% LTV no questions asked

      40% down means you have some major skin in the game. My impression of “fog a mirror” and NINJA loans was that they were no/low down, and that you paid a premium in the interest rate, which today I suppose would mean that you pay 5% interest instead of 3%, or something like that.

    2. “I lend the same way, and I don’t even check credit scores half the time. Would much rather lend at 60% LTV no questions asked than 95% LTV to some guy who has kept an assistant restaurant manager job for 2 years.”

      Exactly. 40% down is a massive chunk and will mitigate a lot of the downside risk. However, if they turn around and do a cash-out refi then you could be hurt badly, which appears to be quite common given the percentage of refis which are cash out.

  3. “The median Bay Area single-family home price was $910,000 in the most recent quarter, down 7.1% from the previous quarter and down 4.2% from a year ago.”

    Wow! It’s cratering big time against the backdrop of endless economic boom and record low unemployment, and despite the Fed’s housing price put.

    The next recession will be a MoFo, led down by housing.

    1. The Fed has once again dropped it’s mask and is showing its political bias. Lael Brainard of the Fed had started that it must consider global warming as part of rate setting. After a former Fed official’s op-ed in which he stated that the Fed should use policy to defeat Trump is it really a stretch to think that the Fed will do anything but collapse the world’s economy to defeat Trump? Catastrophic AGW was invented to justify world government and funding mechanisms to transfer money from rich countries to the poor. Brainard has just shown herself a true globalist. Is there any doubt she opposes Trump?

    2. If the housing sector continues to contract why would it lead the economy down in the next recession? It seems like if the excesses get worked off now it would not be a leader but a follower of the next down turn.

  4. At what point will the Builder Boyz stop building? As has been discussed here in the past they build because that’s what they know how to do, and won’t stop until they are denied construction loans. Then we get those developments full of half finished houses that are left to rot.

      1. “…houses are … depreciating assets….”

        Holding costs. Not just the elephant in the room, its the entire elephant herd. Mortgage costs. Property taxes (despite Prop 13), insurance (particularly fire), maintenance costs. Utilities (hello PG&E).

        Its’ the new normal X 10.

        I might note that in all these years I have never, never read, blogged or watched *any* REIC pundit mention anything about R/E holding costs in general.. Oh sure, a few TV reports about those in NoCal [post recent fires] who are sent a non-renewal letter from the Fire insurance complex, or that a Fire insurance renew now costs $36K/year.

        1. “Holding costs.”

          None of which are automatic pass-through cost to the end user. Just ask the millions of cash flow negative and underwater landlords out there.

          1. “…millions of cash flow negative and underwater landlords out there….”

            The old saying “A boat owners happiest 2 days are the day he buys and the day he sells “.

            Probably can now apply to all those who drank the ‘easy path to riches is to become a landlord’ Koolaid.

            I am not a landlord myself, but several friends who are and have done it successfully tell me its the hardest work they have ever done. Not to mention the ‘tenants from hell’ stories and the (at least in California) how hard it can be to get rid of them.

        1. From the map I looks very close to the airport. They do brag about being 5 minutes away from DIA. It looks close enough to be able to hear the jets take off.

          1. “The main reasons that justified the construction of the new DIA included the fact that gate space was severely limited at Stapleton; its runways were unable to deal efficiently with Denver’s weather and wind patterns, causing nationwide travel disruption.” —wiki

      1. There is quite a bit of electrical work out here in the 70/470 area, but I would never live here.

        There is a lot of development going on around the airport. “Reunion” is another big one that is a stone’s throw from DIA.

    1. Mayor Pete to the “rescue”, $45 billion for affordable housing per year. It has some vague promise of credits for renters with part of that money. Sounds like an expansion of rent vouchers. So now we know how illegals can keep up house prices, give them rent vouchers. Speculators are being bailed out, those single family homes can be rented. No explanation on how those rent vouchers will not push up rents for people who actually pay their own rents.

      1. “No explanation on how those rent vouchers will not push up rents for people who actually pay their own rents.”

        How many people who pay their rent and other financial obligations would vote for these clowns?

        1. Unfortunately, close to 50 percent will vote for these clowns. Fortunately a lot of them live in California. Trump does not even need 50 percent of the population. Thank God for the wisdom of the founding fathers.

          1. California reminds me of the developing world — some really great places with rich and highly-educated people, and then a mass of sadness, poverty, and a “gimme dat” mentality.

            Then again, CA lets illegals vote. That is hard to justify but no one seems to really care.

          2. Then again, CA lets illegals vote. That is hard to justify but no one seems to really care.

            If it was a swing state people would care. As it is, why bother? Lower hanging fruit to harvest.

    2. “Then we get those developments full of half finished houses that are left to rot.”

      Last time around, I recall an instance of unsold houses being bulldozed. I think it was in Victorville, CA or thereabouts.

      1. “Way to [sic] white and sterile for me.”

        All it needs is a Stepford Wife that looks like Mary Tyler Moore and a cubicle job for the breadwinner.

  5. I just finished a few hours of pre-foreclosure auction research. For the first time since the crash I am seeing opening bids lower than the amounts owed.

      1. “Another “oh dear” moment in time….”

        Or a “woo hoo!” moment for the prudent folks awaiting sane home prices. 🙂

    1. All mortgages must reflect AOC’s prediction that the world has less than 11 years left. It is grossly unfair to Mr. Banker to leave him holding the bag on his shack loans just because the world ended.

      1. New Delhi’s AQI is over 1000. For perspective, hazardous is 300. New Delhi’s pollution levels are off the charts. The ministry of health recommends eating carrots. Yeah, I’m sure that will work. Indians are literally being gassed to death.

          1. Unfortunately, while many of the left try to make these problems seem very complex or a problem caused by western imperialism, the root cause does not take years to figure out. Go to Wikipedia and look at the average IQ for any country which seems to have a problem which defies common sense. It usually tells you all you need to know.

    2. From the article: “we see a situation where property values do start to decline and small communities that rely on a lot of property tax revenue won’t be able to deal with it.”

      I enjoyed reading this article mainly due to the validation of one of the many reasons i believe real estate is propped up and has been and will be for as long as possible. Property taxes are big money makers and when values go down the taxes follow or at least when the homes are re assessed. Not just speculators and REIC involved in this mess

  6. “New fluctuations in rent costs and apartment prices across Switzerland have shown that renting may be where the smart money is – at least in the short term.

    Us renters are not only smarter, we’re indisputably better looking.

  7. ‘If this oversupply continues it will be a disaster,’ Hussain Sajwani, chairman of Damac Properties PJSC, said. ‘The banking system will get affected and that’s something we can’t afford.’”

    TBTF banks are hiving off their toxic-waste assets onto the Fed for par, then loading up on free Fed-provided repo gambling money to speculate with wild abandon in the Fed’s Ponzi markets. Meanwhile, from all indications, the value of the collateral the TBTF banks offered up at the repo window is deteriorating at an accelerating rate. At what point will the Fed transfer that toxic waste collateral onto the public ledgers, like they did with mortgage-backed securities in 2008?

      1. It is an inconvenient truth for most on this board but until you see things like $2500 gold and/or $50 silver the PTB really do have the options to keep things going. When the rich are rushing to buy the PMs and are running to their bolt holes then a collapse is near of the present economic system. The new system will anchor money to PMs just like the founding fathers demanded but the bankers have conveniently ignored. Before there was the meme O.K. boomers, there has been close to 100 years of the PTB convincing the masses that the founding fathers just did not understand present conditions. However, they knew thousands of years of history and knew that this time is different is virtually always wrong. They did acknowledge that some change might be necessary but they made the process of amending the constitution difficult, requiring not just a bare majority of the population or at the whim of a few people in black robes to change the constitution. If we are very lucky the next economic collapse will result in a new understanding of the wisdom of the founding fathers. However, most likely it will lead to thousands of years of tyranny before people study the founding fathers like they studied the Greek and Roman democracies and attempted to frame a system which allows the maximum freedom possible but does not degenerate until the have nots using government to take from the haves who have truly earned the money or using government power to enrich a few and causing the entire system to collapse. They both go together as Roman and Greek history demonstrated, thus the real reason that students are never taught that history today.

      1. I have been saying I still think the next correction is 9 years away coinciding with the demographic shift of boomers starting to leave this earth. The only thing that changes my hypothesis is if CA actually starts to build like crazy (SB 50 gets passed, which I’m not holding my breath for) or we get self-driving cars sooner and so it is more practical to build a bit further away and commute.

        1. That’s interesting, given my read of Ben’s recent posts suggesting that a correction is already underway.

          I guess we’ll know in a decade whose perceptions proved prophetic.

          1. Slash those prices before the buyer pool dries up entirely! Desperation is starting to overpower sellers who don’t want to just give it away.

            Business
            Real Estate
            California homeowners slashing asking prices at post-recession high
            5 of the 11 big metros with the sharpest jumps in price reductions were from the Golden State.
            California homeowners slashing asking prices at post-recession high
            By Jonathan Lansner | Southern California News Group Columnist
            PUBLISHED: October 3, 2019 at 9:39 am | UPDATED: October 3, 2019 at 11:57 am

            Forget what’s fashionable in floor plans, decor or color palettes. This year’s hot housing flavor is something every house hunter can agree upon: a price discount.

            It seems the stagnant pace of homebuying in recent months — amid shaky economic news and geopolitical uncertainty — has made property owners painfully aware they’re overvaluing their homes. Thus, a faddish marketing tool has been employed and the price adjustment is back in style.

            It’s no blip. The frequency of price-cutting in Southern California, statewide and across the nation is running at or near post-recession highs.

          2. Mabye he is referring to a “correction” after the cr8r that is starting to take place now. I have 0 confidence that thisncan drag out 9 more years let alone 9 more months. We will see!

          3. https://fred.stlouisfed.org/series/ATNHPIUS41100Q

            St. George prices are almost 2x what they were in 2011. If interest rates were normal (5-7%), then maybe we wouldn’t have stupid prices. But with the Fed reversing interest rates and now talk of negative rates even, I think they are going to prevent housing from getting anywhere near 2x-3x incomes for as long as they can. The market can remain irrational for longer than one might think, but it can’t remain irrational forever because there are laws of nature (e.g. birth/death) that will eventually step in.

          4. If the “correction” refers to the erosion of the fundamentals underpinning demand, such as Baby Boomers leaving the market and the Planet or interest rates finally normalizing, then there may be a bigger CR8R in a decade following the present one due to investors exiting before prices go down. The speculative froth meltdown is clearly already underway.

        2. Open borders could change everything in a hurry. At least a billion people would move here in a heartbeat if we ever were stupid enough to adopt the policies that most of present Democratic candidates have endorsed.

          1. The victorious African tribes fighting each other kidnapped the young men and women from those conquered and sold them to the Dutch slave traders who paid well.

    1. It is true and our gain has been China’s loss: https://www.bloomberg.com/opinion/articles/2019-11-09/china-s-demand-threatens-global-growth-more-than-trade-war

      The wealthy grew rich producing goods for 10 cents an hour and then selling it at nearly the same price as manufacturers paying 20 dollars an hour in this country. Of course, many of those went out of business thus the low wage gains under Bush and Obama. MAGA is working and already the number of billionaires in the world is dropping and workers in this country are finally making progress. The globalists will stop at nothing to stop Trump but at least the wisdom of his policies has been shown.

        1. Hi Jeff!
          Thanks so much. I’m not in the market any more. Our future’s looking a little rocky, uncertain (prob not alone on that.)
          Two seconds ago I just got kicked off Twitter for saying Greta Thunberg’s parents should be shot. LOL.

          1. I know she has mental health issues but honestly I cannot look at her without thinking of the Omen. Maybe the anti-Christ will be a female. I know, “how dare you”.

          2. I posted it, then thought – ehh, maybe I shouldn’t have said shot, but it’s just an expression. I was here, it popped up on another window and I laughed. I can dispute it, but I don’t know whether it’s worth the time.

            I feel so sorry for that kid. She’s hardly a ray of sunshine, but I am familiar as my AS daughter, when in her deadly serious stage (long passed) stretched my patience to the breaking point. Her parents should be shot for parading her in public.

    1. “…the median price of existing single-family homes sold in Southern Nevada peaked at $315,000 in June of 2006. They hit a low of $118,000 in January 2012.”

      Just wow.

  8. ‘A home in The Villages which is in foreclosure was the subject of a public hearing Friday morning before the Community Development District 2 Board of Supervisors. The property is located at 2018 Palo Alto Ave. in the Village of Palo Alto and was found to be in violation of the “neat and clean” rule due to overgrown grass, weeds and vines.’

    https://www.villages-news.com/2019/11/08/home-in-the-villages-in-foreclosure-subject-of-public-hearing/

    1. I had to dig into this deeper as i thought (and laughed) about the FBs HOA thinking Palo Alto here in the bay area. Ah Florida… people on HOA boards can become quite a PITA and take that “freedom” of “owning” away from you in a flick of a board vote. When we sold our HOA bound shack i felt remorse for the new FB. I have so much more freedom now renting than i ever did “owning” that HOA bound property.

    1. The rollover debt helped drive up the new loan balance to more than $66,000. The friends now split the payment of more than $900 a month, which they owe to Pearl Hawaii Federal Credit Union for 84 months.

      Good God.

    2. “Mr. Schricker, who lives in Bethel Park, Pa., said he didn’t intend to cycle through so many vehicles. He replaced one because it had 100,000 miles and another when he went through a divorce, and he changed cars again when his family was expanding.”

      Looks like he’s keeping up with Clevon of Idiocracy fame?

      1. I’m the kind of guy who plans ahead too much if anything. Given the subject matter here a lot of people here may fall into the same category.

        But one thing I’ve learned in my life is that most people don’t plan ahead at all. And when things change they say “nobody could have seen that coming”.

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