A Fast Track To Grim Reaper Stress

A report from the Oklahoman. “Downtown housing prices are soaring in Oklahoma City to an extent that they have more than doubled over the past decade. The Property Shark report cautions the housing price growth is not entirely good news. ‘Locals are starting to feel the pressure of population growth, especially as out-of-state investors compete with would-be homebuyers — meaning prices will continue to grow,’ the report warned. ‘Additionally, it must be noted that while downtown OKC has been historically more expensive, prices have skyrocketed since the pandemic. Specifically, downtown OKC stood at a median sale price of $261,000 in 2020, only to surge to nearly $700,000 in 2023.'”

“Scott Holsey, a homebuilder with new homes being built along the east fringe of downtown believes price inflation will slow new housing construction downtown. ‘We’re seeing a slow down,’ Holsey said. ‘It’s been a bit more of a grind. Some of the other guys are feeling the same thing. Downtown is a niche market. During the COVID days, it was a sure thing. You could ask $350 to $400 a foot and it was somewhat believable. We’re at a place where we really need $400 a foot to turn a profit and that’s hard to do,’ Holsey said. ‘The thought process is whether home prices are going to go down, some will have to liquidate and sell. The majority will hold the line.'”

Atlanta Capital B in Georgia. “In Atlanta in 2024, buying your first home doesn’t just mean learning how to hire an agent. It means paying interest rates nearly double what they were less than five years ago on homes that have skyrocketed in price. It’s all made coaching prospective buyers like the ones at the Invest Atlanta seminar that much harder. Elevated home prices and lack of affordable housing are ‘huge problems’ that contribute to buyers’ overall pessimism, said Anita Allgood, Invest Atlanta’s vice president of single family & homeownership services. ‘Education about homeownership and financial literacy and awareness is also a huge challenge,’ Allgood said. ‘The reality is that real estate is always booming.'”

“Ramphis Velasquez, a community lending manager with Prosperity Home Mortgage, said some applicants are surprised to learn they can qualify for a Federal Housing Administration (FHA) mortgage loan with a credit score as low as 580. Other typical requirements include a debt-to-income ratio of 43% and a down payment that’s 3.5% of the home price. ‘I’m seeing a lot of eyes open wide when I start letting them know what they thought … is actually not the case,’ Velasquez said.”

Foothills News in Arizona. “It’s no secret that home prices in Tucson have gotten out of hand. Recent data from the National Association of Home Builders (NAHB) estimate that slightly over 90% of the city’s households are unable to afford a new, median-priced home. What are some of the ways people are finding to buy a home in Tucson right now? One strategy is choosing a home with an accessory dwelling unit, or ADU. In January 2022, Tucson amended the city’s building codes to permitted casitas, or so-called ‘granny flats,’ in residential neighborhoods. Recently, the Federal Home Loan Mortgage Corp. (commonly known as Freddie Mac) and the Federal Housing Administration updated their policies to allow income from renting out an ADU to contribute to mortgage payments. That means if you buy a home with a granny flat in its backyard, you can apply the potential income you’ll get from renting it out toward the mortgage.”

“‘Freddie Mac and FHA have opened the option to use income off of an accessory dwelling unit,’ said Tom Heath, senior loan officer at Nova Home Loans in Tucson. ‘If you’re looking to purchase a property that has a secondary unit that can be rented out, that rental income can be considered, in most cases, toward the purchase of that home. I have had people that were able to increase their purchase price by finding a home with a guest house that they plan to rent out.'”

The Los Angeles Times. “Accessory dwelling units are multiplying across California, boosted by permissive state laws that aim to increase the supply of affordable housing. Now, a handful of cities are moving to let homeowners sell their backyard cottages and converted garages separately from the houses they live in, potentially transforming ADUs into a new generation of starter homes that cost a fraction of a full-sized house on a full-sized lot. The first to act was the San José City Council, which approved an ordinance Tuesday authorizing the separate sale of ADUs as of mid-July. Housing advocates say that Sacramento and Berkeley are also working on measures to allow separate sales of ADUs, and San Diego County is exploring it. Local governments were given the authority to do so last year under Assembly Bill 1033, which also laid out the process homeowners must follow to sell their ADU without selling the land it’s sitting on.”

“Meredith Munger, a loan officer at CrossCountry Mortgage in San Diego, estimated that 60% of her customers are building ADUs for family members, and more than half of those want to sell the unit to those relatives. With such a sale, the homeowner would no longer be responsible for the debt incurred in building the ADU, and the relatives would be able to build an equity stake. Paul Dashevsky and Jon Grishpul, owners of home improvement sites GreatBuildz and Maxable, said a homeowner going through the process probably will require an attorney, a surveyor and a civil engineer. People will also have to consider what it will mean to create a homeowners association for their house and the ADU, they said.”

“‘It’s probably a yearlong process. Nobody knows yet,’ Dashevsky said. Grishpul said service providers may need to emerge in California to handle the paperwork burdens for homeowners, as they have in places like Seattle that already have gone this route. The HOA would cover the operating and maintenance costs of any shared spaces and utilities, such as water and sewer lines, which could translate into monthly fees. Its covenants, conditions and restrictions could also set rules for such things as the appearance of the property and its structures, although future owners of the house and the ADU could agree to amend them.”

KFMB in California. “Online maps showing the locations of short-term vacation rentals in San Diego are causing a stir on social media over housing availability. ‘We have a housing shortage. Why do we allow this?’ said one online commenter on Reddit. Jay Goldberg has been analyzing the city of San Diego’s short-term rental locations for a year and a half. ‘The concentration is surprising,’ said Goldberg. ‘You’re talking about 6.2 percent of all dwelling units in Ocean Beach currently licensed as short-term rentals.'”

“Goldberg said the real problem is loopholes in the city’s ordinance that allows owners to license multiple units using the names of family members. ‘The market has been overrun with corporate operators who run more than one property, who are doing this as an investment opportunity to capture the most amount of revenue they can,’ said Goldberg.”

CBS 8 in California. “Long-term tenants in La Jolla are being evicted so their apartment complex can be converted into short-term rentals. The new owners of the property appear to be taking advantage of a loophole in the city’s ordinance to license vacation rentals. ‘The reason that they gave was for a substantial remodel. It seems like they just want to get everybody out,’ said tenant Devin O’Dea. Data shows almost four percent of housing in La Jolla currently consists of short term rental properties. ‘You just point in any direction, and they’re all short term rentals,’ said O’Dea.”

“O’Dea said he didn’t even know about the planned conversion until San Diego vacation rental data expert Jay Goldberg showed up and told him about the investment firm’s license applications with the city of San Diego. ‘Several of the names of the people on the licenses are the same last names as the owners of this investment firm,’ said Goldberg. He says multiple apartment units can be converted to vacation rentals using a loophole in the city’s ordinance. ‘A person can only have one license. It could be any person, though. So, if you’re an owner with five properties, if you can find five different people to put their names and phone numbers down as owners of that license, they will get that license,’ Goldberg said.”

Orange County Register. “You really don’t need ‘affordability’ indexes to measure the preposterous expense of Southern California housing. Yes, these yardsticks of homebuying’s financial pain often overstate the monetary challenges for a suggested house hunter, who is arguably a unicorn. I mean, who buys the typical home with the typical salary while getting a typical mortgage? This buyer’s true magical power is having enough cash for a 20% downpayment, a common mathematical assumption in affordability calculations. RealtyHop’s affordability index for 100 US cities estimates how much of a household’s median income would be gobbled up by a mortgage payment for a median-priced home listed in May.”

“This math – which assumes a 7.13% mortgage rate, a 20% downpayment and property taxes – shows Los Angeles was No. 1 for its lack of affordability. The theoretical LA buyer would spend 99% of their income – yes, basically all of it – on the estimated $6,512 house payment. That buys you a $1.1 million house while eating up almost all the income of $78,671. No. 3 was Irvine with an 85% slice of pay for an $8,982 payment on a $1.48 million house compared with a $126,861 income.”

Yahoo Finance. “Bryan Tucker began looking for a starter home in the Washington, D.C., suburbs earlier this year. He soon decided it wasn’t worth it. In Arlington, Va., where he was looking, he found that most options he was interested in were priced over $1 million and way out of his budget. So he decided to renew his apartment lease another year. ‘I have looked,’ said Tucker, a 27-year-old project manager in the tech industry. ‘The only options that are really affordable for me for the next year are condos.'”

“‘The monthly cost of owning a home today is 61% more than leasing an apartment,’ Richard Campo, CEO Camden Property Trust (CPT), a Houston-based owner of 58,000 apartment homes, said on the company’s first quarter earnings call in early May. ‘This is not going to change anytime soon.'”

From Fortune. “There was a recent boom in multifamily construction, which is why we saw rents fall, and there’s still a backlog of apartment buildings in the works, so prices can’t move up too much, as Redfin points out. That’s not great for investors, but it is for anyone who needs to rent a home to live in. The median asking rent declined the most in Jacksonville, falling 10.1% in May from the previous year. The median asking rent fell 8.7% in San Diego during the same time period, 7.2% in Austin, 5.9% in Seattle, and 5.5% in Phoenix.”

“‘Rents are falling in the Sunbelt in part because the region has been building more apartments than other parts of the country (like the Midwest and Northeast) to meet demand brought on by the influx of people who moved in during the pandemic,’ the analysis read. ‘But the pandemic housing boom is now in the rearview mirror, and property owners are facing vacancies, which is causing rents to cool.'”

The Real Deal. “In 2022, Alan Stalcup and his firm, GVA, a syndicator known for pooling money to buy up apartment complexes in the hope of flipping them at a profit, bought 11 apartment complexes across North Carolina, South Carolina and Oklahoma for $132 million. The deal was supposed to be financed with a single loan of $95 million. Or so one equity investor, Overwatch Fund, thought. Overwatch has filed a lawsuit against Austin-based GVA and Stalcup, claiming the firm and its principal misrepresented the deal to investors by saying the properties would be financed with a $95 million, but then going with a $153 million loan instead.”

“Overwatch claimed it never knew about the $153 million loan, provided by Benefit Street Partners, nor did it know the properties would be pooled in with five others. In April, Overwatch sued after allegedly suffering a $7 million loss in equity after a lender foreclosed on the 285-unit Solara apartment complex in San Antonio last year. GVA has lost many other properties to foreclosure, and is delinquent on more than half a billion dollars worth of securitized debt tied to his portfolio. If the five properties at the center of the lawsuit run into financial issues and GVA failed to pay off the larger loan, Benefit Street could foreclose, wiping out Overwatch’s equity.”

From Barron‘s. “Mortgage rates inched down to their lowest level since mid-May this week. Rates below 7% are a sliver of good news in a tough housing market—but it will take a lot more to improve buyers’ sour moods. Federal Reserve Chair Jerome Powell mentioned the effects of high interest rates on homebuying in Wednesday’s press conference, noting that they are greatly affecting the housing market. ‘Ultimately, the best thing we can do for the housing market is to bring inflation down so that we can bring rates down so that the housing market can continue to normalize,’ said Powell.”

From CBC News. “Help from parents is increasingly becoming a deciding factor in who is able to realize their dream of owning a home and who is not. A report from Statistics Canada released last month found that as of the 2021 reference year — the latest available from the Canadian Housing Statistics Program — around one in six properties owned by buyers born in the 1990s were actually co-owned with their parents. None of this is a surprise to Paul Kershaw. He’s a professor at the University of British Columbia’s School of Population and Public Health. ‘So when my mom started out in the housing market in the mid 1970s, it would have taken five years of full-time work for a typical young adult to save a 20 per cent down payment on an average price home,’ Kershaw told Cost of Living. ‘If you flash forward to today, it’s 17 years on average, 22 in B.C. and Ontario.'”

The Financial Post. “When lenders size you up for a mortgage , they analyze your ratio of debt to income, down payment, credit and so on, and most people get approved. But not everyone gets approved for the mortgage they should get. In many cases, by stretching their budget, folks land heftier mortgages than their wallets can bear. Burdensome mortgages not only make them house-poor but research shows the stress they cause might just shave years off a borrower’s life. One-third (33 per cent) of mortgagors surveyed by Mortgage Professionals Canada (MPC) say they regret taking on the size of mortgage they did. On a percentage basis, that’s 27 per cent more than 12 months before. And, for those renewing in the next year, the share with regret is 10 percentage points higher.”

“It does make one ponder why folks willingly dive into such mortgage misery. One factor is needlessly exorbitant home prices. Many feel they don’t have a choice but to pay up. That reality is driven mainly by too much population growth and not enough home building. Credit for the population boom goes to the federal government, while the lack of building can be blamed on all levels of government. The second reason is homebuyer expectations. People have blind faith that prices will keep climbing. In fact, 72 per cent of Canadians think prices will go up in the next 12 months, finds that MPC survey. And most, (58 per cent) say their purchase was at least partially motivated by their expectation of home appreciation.”

“You can’t rely on lenders to tell you your mortgage is too hefty. And stretching your home purchase budget to the max, as CMHC says nearly half of buyers do, is a fast track to that grim reaper stress we were talking about.”

The Globe and Mail in Canada. “A court-ordered report into the spending patterns of a former child actor’s insolvent real estate empire in Ontario alleges a pattern of lavish personal spending and ‘a pervasive lack of proper record keeping’ about how $144-million in loaned money was spent. The case involves a real estate rental investment business, known as Balboa Inc. et al. in court filings, that sought insolvency protection in January, after it accumulated 407 homes and rental properties across Northern Ontario beginning in 2019 financed with private mortgages that later fell into default.”

“The companies are controlled by Robert (Robby) Clark, a U.S.-born actor who, as a 13-year-old, began starring in YTV’s The Zack Files, which aired between 2000 and 2002. He filed for creditor protection earlier this year on behalf of his companies and business partners. The report, published Tuesday night, says KSV identified ‘numerous instances’ of borrowed funds transferred by the companies to either Mr. Clark and his partners or other companies they owned or controlled. George Benchetrit, partner with Chaitons LLP and the representative counsel for the secured lenders, said in an e-mailed statement that his clients are ‘shocked and appalled’ with the conduct outlined in the KSV report.”

“‘The monitor has identified misappropriations of funds lent by innocent investors who trusted these companies with well over $100-million of monies advanced to them, including retirement savings, and has concluded that funds were improperly used for personal benefits and extravagant expenses of the principals without any discernible benefit to the business,’ the statement says.”

“In an interview with The Globe and Mail in late March, Mr. Clark said the directors didn’t take salaries or charge a management fee to run the enterprise, and claimed that ’98 per cent of the capital invested is directly related to expenses in the companies’ for everything from operations, acquisitions and renovations. ‘It’s easy to get misconceptions; Instagram lifestyle is, you know, very different from reality,’ Mr. Clark said in response to questions about social-media videos of himself at private villas, on yachts and in private jets. ‘I can understand how people would get the wrong perspective of how things were done.'”

Blog TO in Canada. “An Ontario home sold at a devastating loss after multiple failed attempts to sell is the latest window into just how unpredictable prices tend to be in the province’s real estate market. According to its listing, the two-bedroom, two-bathroom property, located near Niagara-on-the-Lake, provides views of the Toronto skyline and direct access to Lake Ontario. The lakefront property was first sold in March 2022 for $1.46 million, at a time when cheaper borrowing rates contributed to an uptick in demand and skyrocketing prices in the province’s real estate market.”

“Just one month later, the home was put back on the market for $1.59 million, but failed to attract any buyers. The property was re-listed at the same price point in August and November 2022 without any success. In January 2023, the home entered the market again at $1.55 million at a slight discount, but its price shot back up again when it was re-listed for the fifth time in April 2023 for $1.6 million. The home’s price increase didn’t stop there. In July 2023, it was relisted for a sixth time for a staggering $1.68 million. After failing to attract buyers once again, it slashed $400,000 off its price tag and was relisted for $1.28 million in January 2024.”

“Even this heavy price reduction didn’t get the home sold, and eventually, the property was listed for a seventh and final time, just under the $1 million mark in March 2024. Following two years of failed sales, the home finally got scooped up for $980,000 — exactly 480,000 less than it was originally sold for in 2022. It’s important to note that the property was under a power of sale, which differs from a regular home sale. The clause is written into a mortgage note that authorizes the mortgagee to sell their property in the event of default to repay the mortgage debt.”