Right Now There’s Downward Pressure On Price – They Don’t Want To Catch A Falling Sword

A report from Fortune. “The long-bemoaned housing shortage may not exist after all. Rather, there’s a shortage of cheap rents and affordable homes, according to a new study. The peer-reviewed study, published in April in the academic journal Housing Policy Debate, found that between 2000 and 2020, the U.S. had a surplus of 3.3 million homes—defying conventional wisdom that the nation is facing a housing shortage. The study examined how fast the housing stock grew between the first two decades of the 2000s and compared it to the number of new households formed during that time period. From 2000 to 2010 the U.S. had a surplus of 4.6 million housing units, while in the following decade there was a shortage of 1.3 million fewer units than population growth would demand. All combined, that nets out to a surplus of 3.3 million homes from 2000 to 2020. ‘The issue is not so much about aggregate shortfall of housing units, but rather a mismatch between the cost of housing and the incomes of households,’ said. Alex Schwartz, one of the study’s authors.”

From Bloomberg. “The inventory of new US homes stands at the highest since the bursting of the housing bubble more than a decade ago. The total number of one-family homes for sale rose to 481,000 in May, the highest since 2008, according to fresh government data released Wednesday. Nearly 100,000 of those have already been completed and are still awaiting a buyer, the most in more than 14 years. At the current sales rate, it would take 9.3 months — the longest since 2022 — to exhaust total inventory.”

The Wall Street Journal. “Homes are as overvalued as they were near the peak of the 2000s bubble, according to a variety of metrics, including a Federal Reserve model. A model in the Fed’s semiannual financial stability report incorporates all these elements and shows that homes are now 25% overvalued, just below the 28% peak in 2007, using the Labor Department’s measure of rent, and 19% overvalued using private measures of market rents. On the other hand, don’t expect prices to plunge as they did from 2006 to 2011. Since then, income and appraisal standards have become far more stringent, credit scores are higher, especially at the bottom end, and foreclosure prevention is more effective, said Laurie Goodman, a housing finance scholar at the Urban Institute. Over 90% of mortgage-backed securities are now federally backed. ‘You will not have the big price declines because you’ve taken out the contagion effect that caused them,’ she said.”

From Fox News. “The Biden administration has approved a move that could essentially put taxpayers on the hook for risky borrowing practices and potential real estate losses – and a former mortgage insider is sounding off on the plan. ‘The people who should be really mad, I think, are first-time homebuyers who are trying to get their foot in the housing market. They can’t because housing is unaffordable,’ said Structured Finance Association CEO Michael Bright, also a former president of Freddie Mac and Fannie Mae sister company Ginnie May. Mortgage giant Freddie Mac received the green light from the White House to offer second-lien mortgages, aiming to help homeowners who are locked into lower rates access their home equity. The proposal allows homeowners to access their home equity while keeping their low interest rate on their current loan.”

“But Bright warned that there are consequences of the government stepping in and guaranteeing second mortgages. ‘Freddie Mac is doing this, but Fannie Mae is going to have to follow. They always do,’ the CEO said. ‘I really think we’ve jumped the shark on this one. Having the government subsidize and incentivize equity extraction through second mortgages, we’re not solving any problems in our economy. Consumer spending is actually too high. The Fed is working on that through inflation.'”

From Moneywise. “American mortgage holders now have access to a whopping $11 trillion in tappable equity — out of $17 trillion in total — which is a record for U.S. homeowners, a number so huge that if all 48 million American homeowners spent $10 million of their tappable equity a day, it would take more than 3,000 years to exhaust it. We’re talking 12.1 million tons of dollar bills. It’s more money than the GDP of Japan, India and the U.K. combined. The ICE report identifies just five markets on the West Coast as responsible for about a quarter of that $11 trillion equity figure: Los Angeles, San Francisco, San Jose, San Diego and Seattle. That four of the five are in California dovetails with another rich fact of real estate life: Roughly one-fifth of the nation’s total housing value is in California. Whether you live out by the Pacific, or in any area where your tappable equity is overflowing, consider yourself fortunate. You’re living in an opportune time like no other, able to enjoy a financial home sweet home run.”

The Union Tribune. “San Diego County built more housing in 2023 than it had in 17 years. There were 11,673 building permits pulled across the county, a 21 percent increase from 2022, said the Construction Industry Research Board. It took until now to figure out the number because the Sacramento-based research board takes the time to contact all 58 counties and 538 cities in California for permit data.”

News.com.au on California. “Kanye West has shocked the real estate world by demolishing a $US53 million ($A80 million) Malibu beachfront mansion, designed by a renowned Japanese architect. According to the New York Post, the controversial rapper, also known as Ye, purchased the home in 2021. The property, which was once a stunning blend of glass and nature, has seen its value drop by $US14 million ($A21 million) due to the destruction. Last year, Ye parted ways with the house, initially listing it at $US53 million ($A80 million) — already $US4.5 million ($A6.7 million) less than he paid for it in 2021. In April, the home received a whopping $US14 million ($A21 million) price cut, and is currently on the market for $39 million ($A58 million). It is likely to drop even further in the coming months, sources told the New York Post. Despite efforts to sell the mansion, the property remains for sale.”

From Newsweek. “The former pandemic boomtown of Austin, Texas, is still seeing sellers slashing the asking price on their homes by as much as 30 percent. A newly built, three-bedroom, three-bathroom single-family home in New York Avenue, Austin, was listed for sale on Zillow on Monday, June 24, for $899,000—over $400,000 less than it was sold for in August 2023. The house, which has a total interior livable area of 1,494 square feet, was built last year. The listing’s description said that the property has been ‘priced to sell,’ adding that there are ‘new projects in the pipeline’ and ‘investors say ‘sell it’.”

“A single-family home on 403 Middle Lane, Austin, listed for sale on Zillow has seen price cuts of around 23 percent since it was first put on the market in March. Over three months ago, the property was listed for $349,900; on Wednesday, the price was cut to $269,900. It was the fourth price cut since March, and the property remains unsold. An apartment on 1840 Burton Dr, Austin, listed for sale on Zillow has seen seven price cuts since it was put on the market on April 19 for $199,000. The property near downtown Austin is now selling for $159,900—about 20 percent less.”

Click Orlando in Florida. “There are now just six months left before the state-wide deadline for condo buildings to get their mandatory engineering assessments done. In Volusia County, this costs over $100,000 per condo owner at one building. Parks Huffstetler said he is a snowbird and dealing with the high cost of the fees at his condo in SurfSide Club South in Ormond Beach. ‘Now it’s over $100,000 per owner,’ Huffstetler said. ‘The hope is, when we get the restoration part done, then the units will be worth more and I can sell. Right now, we’re stuck.’ Huffstetler bought his condo in late 2021 and said he was not told about the upcoming assessment fees. Another resident in the building, Janet Stone, said she is in the same boat and felt a bit blindsided. ‘I’m a retired teacher so we don’t have hundreds of thousands of dollars set aside somewhere that we can contribute so it put me in a position where I had to return to work,’ she said.”

“This comes on top of skyrocketing insurance prices for condominiums and, along the coast, repairs from the 2022 hurricanes. ‘We have buildings where it’s every few weeks we get a call of ‘I just have got to sell I can’t afford to do this,’ Krista Goodrich said. Goodrich, a vacation rental property manager in Volusia and Flagler counties, said she is seeing firsthand how this is hitting the condo market. ‘The inventory has certainly increased of what’s available on the market and I think that’s going to stay for a while because people are very fearful of buying a property that’s got a giant assessment on it,’ she said.”

The Globe and Mail. “When the Bank of Canada cut its key interest rate in early June, some industry watchers predicted that the move would re-energize buyers in the Toronto-area real estate market. Instead, it’s the sellers who have been galvanized into action. Robin Pope, broker with Pope Real Estate, says the languid spring market has slowed even more in June. ‘It did nothing – people were hoping it would do something,’ says Mr. Pope. ‘It had no impact.’ Mr. Pope points to the example of a well-polished Toronto row house listed by a colleague with an asking price of $1.95-million. ‘After 10 days of being on the market, not one inquiry, not one showing,’ says Mr. Pope, adding that traffic was so slow the agent needed to verify the listing was actually online.”

“Anna Wong, real estate agent with Strata.ca., has been watching new listings stream onto the Multiple Listing Service of the Toronto Regional Real Estate Board since the central bank announcement. Ms. Wong has been surprised to see homeowners rush to put a ‘for sale’ sign on their property when active listings have been steadily rising. ‘Maybe they just weren’t paying attention to the market, or they really need to sell,’ she says. ‘People are pushing it out, but there’s nobody to pick it up.’ Ms. Wong says much of the increase in inventory is coming from the condo segment, with units languishing in the downtown core. If sellers are not desperate, she is advising them to hold off. ‘I don’t think it makes sense to go into this push with everybody else,’ she says. ‘It’s hard for sellers to hear, ‘you’ve got to hold your horses.’”

“In the condo market, Mr. Pope says, potential buyers are wary of buying a unit today that they are betting may be cheaper a few months from now. ‘Right now there’s downward pressure on price – they don’t want to catch a falling sword.’ Some of that pressure comes from new supply coming on-stream. Industry analysts at Urbanation Inc. estimate more than 26,000 condo units in the Greater Toronto Area will reach completion in 2024. ‘That’s a big number when the condo market is underperforming,’ Mr. Pope says. And with more listings arriving, inflexible sellers risk losing to the competition. ‘Any miscalculated counter-offer can end up with an end to negotiations,’ he notes. ‘Sellers forget that they’re not in a bubble – every hour it changes – you don’t want a buyer to walk away because another seller has stolen your buyer.'”

From CBC News. “Alijan Alijanpour met Arash Missaghi when Missaghi commissioned a Persian miniature painting of his late mother for $50,000 a decade ago. Missaghi paid for that commission and a few more — earning the internationally renowned Iranian Canadian artist’s trust. But since then, Alijanpour, 68, alleges Missaghi stole his life’s work: 38 paintings, worth more than a million dollars combined and which took him more than 20 years to complete, according to his lawsuit. He also says Missaghi left him drowning in debt from a $1.2-million mortgage that he alleges Missaghi orchestrated and had forged in his name.”

“‘I lost so much,’ Alijanpour told CBC Toronto through a translator. ‘I have never seen such a person like him in my life.’ Missaghi and Samira Yousefi were shot and killed at Missaghi’s Toronto office last week by a man named Alan Kats, who then killed himself. Kats’s widow, Alisa Pogorelovsky, said her husband ‘could not handle losing our life savings, and that is what led to this tragic event.'”

“Peter Smiley, a Toronto civil lawyer who started working on cases against Missaghi in 2018, said last week’s tragedy ‘was the almost-inevitable result of decades of institutional inaction.’ ‘These are criminal matters which, by virtue of the inaction of the police and the inaction of the Crown, have been forced into the civil justice system,’ he said. Missaghi has remained an undischarged bankrupt since declaring bankruptcy in 2000. On paper, Smiley said this means he has no assets in his name against which to enforce a civil judgment.”

“But in reality, the lawyer alleges, Missaghi just concealed his ‘considerable assets’ obtained from fraud using shell companies and straw purchases. In a recent order issued in Pogorelovsky’s civil case, Ontario Superior Court Justice Lee Akazaki wrote that Missaghi and his wife ‘control or have controlled upwards of $50 million in North American assets.’ ‘If you were a victim of a Missaghi fraud, you were put in the unenviable position of [pursuing] this multi-millionaire, undischarged-bankrupt fraudster through the court system who was defending himself with the best lawyers in Toronto,’ said Smiley. ‘Which he is paying for with the money that he stole from you.'”

The Vancouver Sun in Canada. “Disgraced city mortgage broker Greg Martel will not be released from the debts that have been mounting around him. The B.C. Supreme Court has adjourned Martel’s bankruptcy discharge hearing, which means he will remain an ‘undischarged bankrupt’ and his debts of more than $300 million will remain intact. In making the ruling, the court cited the opposition of the trustee overseeing ­Martel’s bankruptcy and a scathing report the trustee provided in making the case that Martel not be discharged. The report, prepared by trustee PricewaterhouseCoopers and filed with the Office of the Superintendent of Bankruptcy, noted Martel had been ­running a massive Ponzi scheme and ­investors who are out more than $317 million will never see a dime of that money, which Martel never used to make bridge loans as promised.”

“The report, signed by PwC partner Neil Bunker, said ­Martel failed to comply with many of the duties required in his own bankruptcy and that of his company, My Mortgage Auction Corp. My Mortgage Auction was the vehicle through which Martel took investors’ money with the promise that it would be used to provide short-term loans for real estate transactions and construction. PwC said no loans were issued. ‘Martel orchestrated a ­massive Ponzi scheme through MMAC and raised over $270 million from investors on false pretences which has resulted in claims from at least 930 investors totalling more than $317 million,’ the report said. ‘The trustee does not expect that the investors will receive any recovery from the bankruptcy estates of Martel or MMAC.'”

“PwC tracked more than 50,000 transactions through more than 40 accounts at financial institutions. The report said ‘investor funds loaned to MMAC for the purpose of funding bridge loans were not used to fund bridge loans but instead were used for other purposes.’ The other purposes included paying other investors, funding related companies and funding large operating expenses. ‘The flow of funds indicates that MMAC operated as a Ponzi scheme,’ it said. ‘Martel often mixed his personal affairs with those of MMAC and the other corporations which he owned and controlled — all of which were or ultimately became insolvent.'”

“Martel’s spending between 2018 and 2023 included $3.1 million on travel, $3.1 million on vehicles, $1.1 million on rent, $261,000 on meals, $200,000 on jewelry, and $150,000 on recreation and vacations. Martel’s whereabouts are unknown to PwC, but it said it learned he had been exiled from Thailand after Aug. 30 and later travelled to Dubai. Warrants for Martel’s arrest have been issued in Canada and the U.S.”