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When You Take Risk Out Of The Equation, Investors Make Even Worse Decisions

It’s Friday desk clearing time for this blogger. “The world’s tallest residential building is giving out some sky-high discounts. A mystery buyer has plunked down $40.83 million for a five-bedroom, full-floor spread at Central Park Tower on 57th Street. That’s a steep 35% off the original $63 million asking price. The sale comes shortly after a 93rd-floor unit in the building sold for $28.58 million — more than a quarter off its initial ask of $38.75 million. Feeling FOMO? Don’t worry. To date, only 17% of the building — 30 out of 178 units — have sold.”

“Ada County realtors say an increase in houses available on the market may bring relief to would-be buyers. September marked the sixth consecutive month of inventory growth. There were 1,249 houses on the market at the end of September, an 11% jump from the previous month and a 165.7% increase from the year before. ‘Increased inventory and a slightly slower pace are good news for buyers, and may be two reasons that fewer homes sold over list price last month,’ said Boise Regional Realtors President Jeff Wills. ‘These shifts in the market should help buyers not feel quite as frantic as we saw during the spring and summer months.'”

“Home sellers got 98.5% of the initial asking price, on average, during September, showing that there may be a lid on the rising prices of homes. ‘We have been at or over 100% of the asking price through the summer, but last month we had the most negotiations over price since March,’ said Realtor Mark Hite. ‘As buyers became more focused on price and value, there was more negotiations than we have seen in six months.’ There are signs the market may be shifting more toward the favor of homebuyers, said Robert Backer, president of the Greater Chattanooga Realtors Association. New listings have continued to hit the market with a 12.1% increase in inventory to 1,295 homes last month. That bucked the usual seasonal trend in the fall.”

“For a fifth consecutive month, neighboring Rockingham County was the priciest of the 10 counties in the state for a single-family home. According to the NHAR data, the median price was $515,000, driven largely by the selling prices of homes in the Seacoast region. There the median price for a home was $662,500, second highest for the year, but well off July’s record $719,000.”

“What to make of the recent slight-but-still-noticeable swoon in the Portland real estate market? There are some signs that the city’s continuing malaise might be taking a toll that bears watching. Consider that the median sale price for a Portland home hit a high of $550,000 in March of 2021, but has since dropped to $525,000 for September, per Redfin’s data. The number of homes sold has also declined noticeably since June.”

“Sheala Hall’s family owns six rental properties in communities surrounding Rochester, and the aftermath of Minnesota’s eviction moratorium is taking a financial toll. Of the family’s combined 19 rental units, 10 occupants are behind on rent payments, with six making partial payments in an effort to maintain their housing. ‘Unfortunately, your mortgage payments, your insurance, your taxes don’t go away,’ she said. ‘It hinders being able to update the properties,’ Hall said, noting thousands of dollars in unpaid rental income are logged each week. The Hall family’s circumstances are not unique.”

“Edward O’Neil said responsible tenants save him hundreds of dollars every month. ‘We need people to come to Nevada.’ He said he lost thousands of dollars from another tenant who did not pay rent, and knows other landlords who lost more and eventually foreclosed.”

“‘So far the government and the mortgage industry have worked together to do an extraordinary job of preventing millions of unnecessary foreclosures using the foreclosure moratorium and mortgage forbearance program,’ said Rick Sharga, Executive Vice President at RealtyTrac. ‘But there are hundreds of thousands of borrowers scheduled to exit forbearance in the next two months.'”

“According to the report, the states with the greatest amount of foreclosure starts were California (3,434); Texas (2,827); Florida (2,546); New York (1,363); and Illinois (1,362). The metropolitan areas with the greatest number of foreclosure starts are New York, New York (1,456); Chicago, Illinois (1,122); Los Angeles, California (1,102); Miami, Florida (992); and Houston, Texas (866).”

“The number of Dallas-Fort Worth homes facing forced sale by lenders jumped 75% in the third quarter. Lenders flagged 638 D-FW homes for foreclosure in the just-completed quarter, compared with only 141 foreclosure filings in the second quarter, according to Attom Data Solutions. Houston ranked eighth nationally for the home loan defaults with 956 foreclosure filings.”

“Scott Hanton, broker with The Weir Team Brokerage Inc. in Toronto cautions that the market has been very halting recently. ‘The fall market really was slow for a lot of people,’ he says. ‘I’ve been warning all of my sellers that it’s so unpredictable.’ Mr. Hanton has seen a slew of deals recently where an appraiser determines that the sale price exceeds market value. In those cases, the lender typically requires a larger down payment to bridge the gap.”

“‘There’s no bank in the world that’s going to appraise this house.’ His clients have the flexibility to come up with more cash but many buyers don’t. ‘They can get in way over their heads.’ If sellers are holding out for $2-million and receive an offer for $1.8-million, for example, they believe they are giving up $200,000. That’s a misguided perspective, Mr. Hanton explains, because they’re not losing anything. ‘It’s hard to get them to overcome that – they never had $2-million on the table,’ he says.”

“Evergrande used to bid for land at prices significantly higher than market prices. Apparently, this is a common practice amongst Chinese companies. Evergrande excelled at that on its way up to becoming the property giant selling home-ownership dreams to the Chinese middle class. Earlier this overinflating price did not affect the property developers as the risks were finally transferred to the flat buyers and the banks that financed those purchases.”

“This model has worked fine for households, real estate developers, banks, and local governments up until now because housing prices were soaring up. Rising residential property prices took care of artificial overinflating of land prices. However, this was bound to affect affordability of home and household debt at some point. And it did this time.”

“Evergrande’s illiquid portfolio of property projects are financed by more than $300 billion of domestic and international liabilities, and 80% of these are short-term. The group has a huge liquidity mismatch. Apparently, the cash flow plays a vital part in the growth of these Chinese real estate companies that almost operate like a credit-driven Ponzi scheme.”

“China’s success seems to challenge two central premises of our market economics: you can’t have growth without risk, and growth is worth the risk. Economists consider these premises to be as true as the law of gravity. A market economy experiences recession when there’s a sudden shock, or people take on too much risk by lending or borrowing too much or making bad investments. Unemployment, wealth destruction, and then political accountability follow. But the risk of a recession is the cost of a growing and dynamic economy: no risk, no innovation and no sustainable wealth creation.”

“The Evergrande failure shows what happens when capital flows are directed by bureaucrats instead of markets and few pay the price of bad investment. Markets don’t always get it right, but when you take risk out of the equation, investors make even worse decisions. As investors assumed that China won’t let developers fail, highly leveraged capital continued to flow to the sector, including from foreign investors and Chinese households with lots of savings and not many places to invest it.”

“There will be more Evergrandes in China’s future, and the state won’t always be able to bail out its economy, because it can’t sustain this level of growth without meaningful risk. Throw in a shrinking population, and the CCP might not have the means to deal with the next Evergrande.”

“China may muddle through this time: it is still growing fast, so it still has some margin of error. But its population is shrinking and a distorted capital market is bound to cause more bubbles. This will end badly. It could be a crash that takes down the global economy. Or, if China is ‘lucky’, it could just be a lackluster economy that no longer enriches its citizens.”

This Post Has 63 Comments
  1. ‘As investors assumed that China won’t let developers fail, highly leveraged capital continued to flow to the sector, including from foreign investors and Chinese households with lots of savings and not many places to invest’

    Where else do we see risk-less gambling? The US guberment backed shack loan market. If these people have so much savings, why are they stamping their little feet?

    1. “Where else do we see risk-less gambling? The US guberment backed shack loan market.”

      There are plenty of lessons to be learned for US central planners in the Evergrande implosion, if they would bother paying attention.

    2. “The empire of Evergrande Group spans over 1,300 housing projects in nearly 300 cities, a football team (Guangzhou FC), an island holiday resort with 58 hotels and 15 under-construction Chinese Disneyland-like theme parks.”

      At some point Xi will modify Mao’s Conservatorship Manifesto.

  2. ‘there are hundreds of thousands of borrowers scheduled to exit forbearance in the next two months’

    Is that a lot? Divide hundreds of thousands by 60.

  3. ‘If sellers are holding out for $2-million and receive an offer for $1.8-million, for example, they believe they are giving up $200,000. That’s a misguided perspective, Mr. Hanton explains, because they’re not losing anything. ‘It’s hard to get them to overcome that – they never had $2-million on the table’

    Scott, yer supposed to protect the comps. They don’t want to give it away!

    1. “they never had $2-million on the table’”

      A loan owner never has anything on the table. All he has is debt and misery.

      1. ** ” If sellers are holding out for $2-million and receive an offer for $1.8-million, for example, they believe they are giving up $200,000. ”

        very often the sellers have large egos that just will not let them accept a loss when they are so used to winning. star athlete. whiz kid money manager. etc

        Desperate Ego Driven Seller: “yeah but MY house for sale is bigger with all deluxe features and I have a trophy wife and an ivy league kid and a tesla! ”

        Potential Buyer: “sure, sure ya do champ. but see, you have to sell. I don’t have to buy.”

        DEGS: ” err, could you just give me a minute to call my used house sales person (Realtor) . . . ? “

  4. Some good news for a Friday, Pedo Joe’s support from black voters dropping like a turd into a fountain:

    https://morningconsult.com/2021/09/22/biden-black-voters-vaccine-mandate-polling/

    Remember, there is nothing, nobody, more racist than a white liberal reacting to any non white who leaves their Democrat Party plantation.

    They’re called your “Betters” because they think they’re better than everyone else. And their support of medical apartheid only confirms this.

    Colored people drinking fountain, sit in the back of the bus, it’s the Progressive Way.

    1. 75% of Republicans in Congress voted for the Civil Rights Act.
      50% of Democrats did. The idea that the democrats have ever cared about anything other than using minorities is most insulting.

  5. “The 2020 election wasn’t stolen — it was likely bought by one of the world’s wealthiest and most powerful men pouring his money through legal loopholes.”

    Mark Zuckerberg spent $419M on nonprofits ahead of 2020 election — and got out the Dem vote

    By William Doyle
    October 13, 2021

    During the 2020 election, Facebook CEO Mark Zuckerberg spent hundreds of millions of dollars to turn out likely Democratic voters. But this wasn’t traditional political spending. He funded a targeted, private takeover of government election operations by nominally nonpartisan — but demonstrably ideological — nonprofit organizations.

    Analysis conducted by our team demonstrates this money significantly increased Joe Biden’s vote margin in key swing states. In places like Georgia, where Biden won by 12,000 votes, and Arizona, where he won by 10,000, the spending likely put him over the top.

    https://nypost.com/2021/10/13/mark-zuckerberg-spent-419m-on-nonprofits-ahead-of-2020-election-and-got-out-the-dem-vote/

    1. “The 2020 election wasn’t stolen — it was likely bought…”

      This has been my perception of Nov 03, 2020. I will also admit that I didn’t care for either candidate.

      1. I don’t have to like a President’s personality. If I did, I’d never like any of them. But DJT was the best chance we’ve had in my lifetime of righting the ship. But the deep state was too deep.

        FJB

  6. Republican outrage over Zuckerberg’s 2020 election splurge

    By Samuel Chamberlain and Bruce Golding
    October 13, 2021

    A bombshell report that suggests Mark Zuckerberg effectively “bought” the 2020 presidential election by funneling more than $400 million to local boards of election under the guise of a “non-partisan” effort has prompted outrage and calls from officials for reform.

    Florida Gov. Ron DeSantis blasted the billionaire Facebook founder during a news conference at which he said a recent election reform law had “banned Zuckerbucks” in the Sunshine State.

    “So, Zuckerberg, he spent over $400 million through these, quote, nonprofits to, quote, help with election administration,” DeSantis said Tuesday.

    “But what they would do is they would require certain things to be done like mass mail balloting, ballot harvesting, and they would focus on partisan voter turnout, basically. That was totally unacceptable.”

    https://nypost.com/2021/10/13/republican-outrage-over-zuckerbergs-2020-election-splurge/

    1. This is a single globalist oligarch. How many more would it take to fund an election steal, then bribe members of the Republicrat duopoly to go along with the charade?

    2. I’d pay good money to watch this guy, Bezos, Musk, and all of the other filth be drawn and quartered on pay-per-view.

    3. All that money and Zuck still couldn’t land himself an attractive wife. That seems to be a common theme among globalist scum.

  7. “The group has a huge liquidity mismatch.”

    Euphemism of the day. I’m not a broke, deadbeat bum. I just have a liquidity mismatch.

    1. ** “Euphemism of the day. I’m not a broke, deadbeat bum.”

      funny quote, Lehigh Guy!

      my variation thru life is: “I still have a dollar in my wallet. it makes me not a bum: just “eccentric”.

  8. I don’t buy the narrative that rising prices were due to inventory, interest rates, and inflation. I don’t think the geniuses buying in the last 18 months were talking about the overnight lending rate over dinner with their spouses. I think they were the same people stacking up two grocery carts with toilet paper. They deserve to fail, especially if they were doubling down with a property besides a primary.

    Too bad their failure isn’t going to be confined to just them. Also regrettable the gov’t is delaying the inevitable, it will only make it worse.

      1. Nah, it’s access to money.

        Fools + Access to money = Bidding wars & Outrageous prices.

        Oh, and hefty loan fees for the lenders.

        😁

        1. Don’t forget about the risk free factor. The fools can rest assured that the Fed, Fannie, Freddie, FHA, and the entire Democratic party have their backs protected in case prices ever decline.

    1. Suppressed mortgage lending rates goosed demand, and eviction and foreclosure moratoriums restricted supply. Both pandemic interventions together made prices go boom.

      1. An exacerbating factor in the most recent bubble price spike is debt-funded iBuyers like Zilldo competing with Mom and Pop buyers for already scarce inventory. Here’s to hoping their creditors find themselves as far up Shitt’s creek as Evergrande bond owners once this Ponzi finance episode blows up.

        1. The question is when? It seems like this will be never-ending. “Evergrande” I am seeing overpriced homes and people are finally not biting but inventory is still scarce. I haven’t heard or seen one foreclosure in Phoenix. There is still too much demand. Something is not adding up.

          1. My wife told me this morning that there are no rental homes available in our area. The handful of listings with 2cor more bedrooms are offered starting at $5000.

      2. “…eviction and foreclosure moratoriums…”

        Have not these moratoriums expired, or have they been endlessly extended in some areas?

        Not much in the MSM.

        Would expect a story or two about how busy the Sherriff’s department is doing evictions and how busy the banks and non-bank lenders are doing foreclosures.

        1. Have not these moratoriums expired, or have they been endlessly extended in some areas?
          heard back from a friend of mine who works in Foreclosures at a TBTF bank.
          He is not seeing any foreclosures. His exact words “No Foreclosures yet. I will let you know.”

          1. “…He is not seeing any foreclosures. His exact words “No Foreclosures yet. I will let you know….”

            Think we will be hearing the same answer 1 year from now? 2 years?, 3 years?

            Appears that the free sh*t army is firmly entrenched

  9. It turns out that dumping in $120 billion a month in Unlimited Quantitative Easing is very, very good for Megabank, Inc’s profit margins!

  10. Globalist imports bringing jihadist terror to the countries giving them asylum and benefits.

    Terror police will probe murder of Tory MP Sir David Amess: Cops arrest ‘Somalian man, 25’ as witnesses reveal how horrified onlookers screamed for help as they tried to save him after he was ‘stabbed repeatedly at his church constituency surgery’

    https://www.dailymail.co.uk/news/article-10096107/Police-swoop-road-outside-building-MP-David-Amess-holding-constituency-surgery-today.html

  11. Venezuela R Us – FJB

    Frustrated shoppers share photos of bare aisles in stores across the country and #EmptyShelvesJoe trends on Twitter as the Biden administration’s response to the supply chain crisis is slammed as ‘too little, too late’

    https://www.dailymail.co.uk/news/article-10094485/Biden-ridiculed-online-EmptyShelvesJoe-frustrated-shoppers-complain-shortages.html

    Frustrated shoppers complaining about shortages of everyday products in their local stores are attacking President Joe Biden online with the hashtag ‘Empty Shelves Joe’ as the US faces severe supply chain problems that could stretch into the new year.

    Dozens of cargo ships carrying hundreds of thousands of containers of goods from China and Asia are waiting to dock in California as concern grows about likely Christmas shortages. Some retailers such as Costco and Walmart are limiting sales of toilet paper in some areas and toy company CEOs are telling parents to buy their kids’ Christmas gifts now to avoid disappointment.

  12. No way!

    Only 28 percent of respondents said it was a good time to buy a home while 66 percent said it was not, resulting net positive responses of -38 percent. This is down 7 points from the net in August and is 54 points lower year-over-year.

  13. Attorney General Merrick Garland is withholding more information and the fake news mainstream media is covering for him. Not only is his son-in-law making millions pushing CRT garbage to schools around the country, his wife is connected with election groups who are doing all they can to prevent audits of the 2020 presidential election.

  14. “ “‘So far the government and the mortgage industry have worked together to do an extraordinary job of preventing millions of unnecessary foreclosures using the foreclosure moratorium and mortgage forbearance program,’ said Rick Sharga, Executive Vice President at RealtyTrac.”

    Did he say this with a small traight face?

  15. “ “‘So far the government and the mortgage industry have worked together to do an extraordinary job of preventing millions of unnecessary foreclosures using the foreclosure moratorium and mortgage forbearance program,’ said Rick Sharga, Executive Vice President at RealtyTrac.”

    Did he say this with a straight face?

  16. Note that this is acceptable language under Twitter’s terms of use:

    “Human society isn’t a suicide pact. If you are too dumb to get the covid vaccine, then you are not fit for continued life on Earth.

    That’s your choice, but the consequences of refusing to get the vaccine is you having to wave a fond farewell and separate from the surviving world.”

    https://twitter.com/VickerySec/status/1448468420362604545

    Globalists gonna globe.

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