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The Inventory Glut Is A Sort Of Reset To The Market

A report from the Houston Chronicle in Texas. “While most of the nation saw home foreclosures decrease, Texas saw a spike in bank-owned properties. The lingering effects of Hurricane Harvey are partly to blame, ATTOM Data Solutions explained. ‘Some of that distress was driven by natural disasters, most notably in Houston, where foreclosure starts increased 61 percent,’ Todd Teta, chief product officer said.”

“‘Natural disasters do not explain the increase in markets such as… Austin —  which posted double-digit percentage increases in foreclosure starts in 2018,’ Teta said.”

“At least one market saw a rapid rise in year-over-year completed foreclosures: Beaumont was up 63 percent in this sector, compared to Houston, which saw a 17 percent increase. It’s worth noting that the Beaumont area was also devastated by Harvey, which could be the main reason for that increase.”

“Texas wasn’t the only state with an increase in foreclosures. Roughly 17 other states saw an uptick. ‘Plummeting foreclosure completions combined with consistently falling foreclosure timelines in 2018 provide evidence that most of the distress from the last housing crisis has now been cleaned up,’ Teta explained. ‘But there was also some evidence of distress gradually returning to the housing market in 2018, with foreclosure starts increasing from the previous year in more than one-third of all state and local housing markets.'”

From Market Watch. “The size of the average fixed-rate mortgage last week nationally was $280,900. The size of the average adjustable-rate mortgage was $688,400 – two and a half times as big.”

“That data point, courtesy of the Mortgage Bankers Association, is a reminder – perhaps an uncomfortable one – that the mortgage industry must still offer products that make it artificially affordable to get people in the door, with the intention of refinancing later.”

“That’s ‘uncomfortable’ because in many ways, it’s reminiscent of the housing bubble a decade ago. Karan Kaul, an Urban Institute researcher, called the recent explosion in the size of ARMs ‘ironic’ for their similarities to the bubble era, but said that things are very different now.”

“Perhaps most important, Kaul thinks, is the contrast between the fundamentals of the two markets. A decade ago, speculation and greed drove up prices, whereas now, in a supply-starved market, ‘demand’ might be just as easily characterized as ‘need’ for housing, of any kind.”

“It’s worth noting that ARMs account for 18% of all mortgages in California, a confirmation that in the priciest corners of a pricey market, people must be as strategic as possible.”

From 27 East in New York. “Developers on the South Fork have been busy building in recent years. As a result, the number of homes on the high end swelled. Inventory in the luxury market—the iconic Hamptons home—is the largest it’s been in the past decade: about 489 properties, compared to previous quarters in the mid-300s. Overall listing inventory is the largest it has ever been: 2,197.”

“According to real estate agents, sales are down, and many of these luxurious estates sit empty, with ‘For Sale’ signs out front.”

“Even though the Hamptons is a tourist destination for the Wall Street rich and Hollywood famous, the building industry is what pays the bills and runs the show. Now, market watchers are concerned that the pinch that developers are feeling will become everyone else’s problem, too.”

“Jesse Cole, a Manhattan real estate investor who commissions builds in the Hamptons, said the ‘inventory glut’ is a sort of ‘reset’ to the market. ‘People can pick and choose instead of going through the pain of building,’ he said.”

“‘To me, permit numbers suggest what is going to happen in a year or two in terms of actually coming to market, said Jonathan Miller, a real estate appraiser and consultant. ‘Looking at these numbers, I think it’s only going to get worse.'”

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This Post Has 78 Comments

  1. Karan Kaul, an Urban Institute researcher, called the recent explosion in the size of ARMs ‘ironic’ for their similarities to the bubble era, but said that things are very different now.”

    Who signs your paycheck, Karan?

    Thought so.

    1. Yes, Karan, things are very different this time. They’re a lot worse and the government is out of ammo to reinflate the bubble a third time.

      1. …and adding $1 trill to the debt every 12 mos. $3 trillion in annual deficits coming to a theater near you.

  2. ‘Natural disasters do not explain the increase in markets such as… Austin — which posted double-digit percentage increases in foreclosure starts in 2018’

    Notice Todd doesn’t say what does explain it. Plus, why did Attom stop reporting on this spike in foreclosures all the way from Florida to California? Yes, they refer to it but no useful detail, such as the data showing 2014 defaults surpassing last decades. The headline from the last link:

    Lack Of Building In Recent Years Brings Back Memories Of Housing Crisis

  3. ‘the mortgage industry must still offer products that make it artificially affordable to get people in the door, with the intention of refinancing later’

    I think I’ve heard this line before.

    1. Keep some tissues handy. The MSM will shortly be filled with sob stories about the “victims of predatory lending” who never should’ve qualified for mortgages in the first place.

    4. “…with the intention of refinancing later…”

      But no guarantees regarding interest rates or ability to qualify.

    5. “I think I’ve heard this line before.” . .. Me too, mu$t bee an echo eye’m li$tening to …

      Fannie-Freddie Overhaul Plan in Senate Fall$ Flat on Wall $treet
      Bloomberg
      Felice Maranz |Bloomberg |February 4, 2019

      “in 2019 most policy changes will come from the administration, as Congress is unlikely to pass legislation.”

      “KBW believes the Trump team may propose a plan to recapitalize Fannie and Freddie, and may legally be able to do so without involving Congress … ”

      “Groshans expects Treasury’$ plan for the G$Es will be released this month, and that Trea$ury and FHFA will reach agreement to permit Fannie and Freddie to retain additional capital”

  5. For Chinese Startups, an Economic Slowdown Brings a ‘Freezing Winter’

    Venture funding shrinks amid U.S. trade fight; Mobike cuts jobs, and tenants of co-working firm Inncube break leases

    “One startup that lets consumers order coffee via smartphones became a unicorn—a $1 billion valuation—in seven months.”

    “The party is over and it’s back to the fundamentals,” said Bob Bogaert, co-founder of Shanghai-based Portfolio.io, a platform that enables individual investors to trade a variety of cryptocurrencies.’

    https://www.wsj.com/articles/for-chinese-startups-an-economic-slowdown-brings-a-freezing-winter-11549366201

      2. “In 1854, the California Supreme Court ruled in People v. Hall that the Chinese “were a race of people whom nature has marked as inferior, and who are incapable of progress or intellectual development beyond a certain point, as history has shown.”

  6. “[P]eople must be as strategic as possible.”

    Increased risk as a strategy. How counter-intuitive?!

    1. If you buy now in California, you’re competing with highly leveraged gamblers, many of whom will be forced to walk away from their mortgages at the next point when the economy becomes less rosy.

      1. Speaking of highly leveraged gamblers…

        The Wall Street Journal
        Markets
        January’s Stock-Market Rally Revives Appetite for Risky Margin Loans
        Margin debt tumbled with shares in December, but a rebound last month indicates investors’ taste for risk is recovering
        By Michael Wursthorn and
        Lisa Beilfuss
        Updated Feb. 4, 2019 5:00 p.m. ET

        Nick Restaino is bullish on stocks again after January’s dramatic rebound and is using money borrowed against his investments to buy shares of popular technology companies such as Nvidia Corp. and Roku Inc.

        The 22-year-old student in Doylestown, Pa., bought shares of those stocks in recent weeks and reversed short bets he made in December. He did it with cash on hand and about $15,000 in borrowed money, roughly doubling his buying power.
        …
        To Read the Full Story
        Subscribe

  9. “…Kaul thinks, is the contrast between the fundamentals of the two markets. A decade ago, speculation and greed drove up prices,…”

    Kaul, you mean “speculation and greed” have disappeared and the REIC is now only employs good, honest, ethical people?

    Thanks for the update, pal. I guess I didn’t get the memo.

  10. Econ folks: Is the interest on our national debt compounded (literally or effectively)? If so, is that interest considered part of the trillion dollars a year that people claim Trump is adding? Where might I find a more balanced and nuanced discussion of our national debt, its drivers and possible solutions? Beyond we spend too much and it’s all Trump’s fault.

    1. For insight, compare the growth in the national debt with the annual cost of keeping Iran “sandwiched” from Afghanistan and Iraq. Current costs are now roughly $1-trillion/yr.

    2. I’ve skimmed through The Creature from Jekyll Island so I understand that the Federal Reserve is neither federal nor a reserve.

        1. Imagine throwing this out as a topic for discussion in the spirit of Mike Myers in SNL’s Coffee Talk: “The Federal Reserve is neither federal nor a reserve.” http://gph.is/2driAS0 Can someone do that and report back? Professor?

    3. “Claim” ? Does your Google work today? When do the republicans give me less gov and less spending as ryan promised? I like facts and science.

          1. Yes! I wasn’t absolutely sure until “I like science and facts” and then saw the Vox article.

    2. Fed $hifts to Jim Bullard’s world after new intere$t-rate $trategy

      Greg Robb, senior economics reported |Published: Feb 5, 2019

      Fed has adopted the cautiou$ approach he’s long advocated

      (Detail$ of the Fed $witch on tone won’t be known for five year$, when tran$cripts of the central bank’s Jan. 29-30 meeting are released.)

      In Thee FED$ ye Tru$t!

  13. A relative ready to buy a new house
    caution
    throwing numbers getting nowhere

    so describe the next downturn in housing
    no ammo.but big gov will try like hell to extend and pretend

      1. I remember having a conversation with my best friend about housing smart as a whip and attorney for DA in Nevada. His wife continually complained about “not being able to paint the walls” and clamored that she “was sick of renting.” He finally succumbed and bought an overpriced home in Las Vegas. He was not happy about the purchase, but his wife was pacified. I don’t bring it up because it’s not helpful at this point, but I seem to sense some smoldering resentment and being “Suzaned” into bad decision.

          1. “…I $eem to $en$e $ome $moldering re$entment…”

            Mi$directed $aving$ monie$ can bee quite divi$ive!

  14. You folks want some lunchtime entertainment, so a Twitter search for ‘mortgage deduction’. People are doing their taxes and are now realizing the MID basically means nothing. “I was counting on it when I bought my house”. FB tears all over the place!

    2. Speaking of taxes, I got a couple of negative surprises. It appears that kids are worth less and SALT even affected me as a non-homeowner but who has to file married-filing-separately. Bottom line, I’m paying a little rather than getting some back. I predict major heartburn for a lot of people in the next month or two.

      1. “paying a little rather than getting some back”
        Sounds like you are referring to tax refund versus pay. What changed about your ACTUAL tax bill for money earned?

        1. Sounds like you are referring to tax refund versus pay. What changed about your ACTUAL tax bill for money earned?

          For me every year the last few years has been difficult to compare to the previous year. Divorce, China, marriage, San Jose, Folsom, job changes. Through it all my W2 exemptions have been the same but every year the number of children claimed changes. 2 this year, hence the expectation for a significant refund compared to last year when I claimed 0 children. But instead it appears I will owe a little when I got some back last year. For some people that’s a huge change.

          1. But to be fair, you have to look at taxes paid, not just refund – IOW, if you claimed 2 dependents on your withholding form, you will have paid less taxes throughout the year. Also, the monthly amount withheld may have changed (in my case, went down a bit)

          2. Like I said, the exemptions claimed have been constant. And I did pay more in this year because I made more. But I think Trump’s new law did play some games with reduced witholding for a given number of exemptions to put more money in people’s pockets all year. Now it’s time to pay the piper.

      2. Silly…..only the 1% benefited from the GOP tax cuts and deficit spending increases. Someone has to pay for these wars.

        1. I wouldn’t say that is exactly true. The increase in the standard deduction will be beneficial for many. It is not just the 1% that benefited from the tax cuts, but it would be accurate to say that the vast majority of the benefits accrued to the extremely wealthy.

          1. Lets be honest. The new tax laws is designed to punish high taxes places like CA, NY, MA, etc. I live in Silicon Valley and am very nervous about doing my taxes this year!

    1. Nothing wrong with a wealth tax, but it’s not going to solve the problem. What we need is:

      Kick out the illegals and start cutting bennies so that Americans are forced to do the jobs they supposedly don’t do. And so that our schools aren’t flooded.
      Jobs to come back from China/India, if possible, especially white-collar stuff done over the internet.
      More work@home options so people can avail themselves of cheap housing in flyover if they want.
      Health insurance de-coupled from employers, so that rafts of 55-60 year -olds with a good 401K can retire and open their jobs to a GenX.
      Housing prices to fall (or see work@home options) where one spouse can stay home with kids, decreasing the labor pool.
      Pull the military out of the Middle East and set them down in the war zones of Destroit and Chicago and Skid Row and other crappy areas to build schools and hospitals, just like they did in Afghanistan. They will be greeted as liberators.
      Nationwide tax on wheat and sugar. Sorry, but we’re on the fast track to a very expensive obesity-driven diabetes/cancer crisis.
      Raise national minimum wage to $12/hr with options for states to raise more.
      Academic-based college scholarships for tuition only, only for in-demand majors.
      Anything else?

      1. Health insurance de-coupled from employers, so that rafts of 55-60 year -olds with a good 401K can retire and open their jobs to a GenX.

        So medicare for all or allow the public to buy-in? Also, why tax wheat? Nothing wrong with whole grain wheat unless you go down the rabbit hole with non-scientifically supported quackery like “Wheat Belly.” Added sugar though and corn syrup is a real problem though.

  16. Here’s a good video …

    Watch “IT WAS A CULT! How Elizabeth Holmes fooled the world with her $900 million scam!” on YouTube
    https://youtu.be/9I9z1eiyhNI

    Even the rich and well connected can be quite stupid. Especially the rich and well connected can be quite stupid.

    2. People [wanted] alabaster Elizabeth Holmes and Theranos to be real just like a fairy tale or religious story. Heck, she even conned the guy whose pony she was riding out of $20-million!

      1. Alabaster is a good term. Fair-skinned woman with blonde hair? Oh sure. “I believe her.” Racism is alive and well.

        1. Naw, but eye read this Wired article:

          but they come to slightly different conclusion$ about who to blame for the epic me$$. The Greatest Party focuses on Billy McFarland, the ma$termind who dreamt up the whole thing with his busine$$ partner, rapper Ja Rule, while Frye Fraud extends its $crutiny to everyone who helped promote$ it.

          There’s a good case to be made for pointing the finger at each camp. McFarland is presented in both documentaries as pushing for ever-expanding glitz and glam, all while running out of money and time. Meanwhile, those who promoted the festival—largely a group of social media influencers—marketed the unknown, untested event on their Instagram feeds. But ultimately, both films conclude that the true villain is FOMO, or “fear of missing out”—the internet-fueled p$ychological phenomenon that defines the existence of the phone-clutching, In$tagram-obse$$ed masses.

          JASON PARHAM
          The Year of the $cammer: It’s Not Just Con Artist$ Anymore

          DAVIS RICHARDSON
          Blame the Fyre Fe$tival Fia$co on the Plague of Celebrity Influencer

    3. “IT WAS A CULT! ” … = “Corpooration$” = “Indemified” … & Thee beat goe$ on, & Thee beat goe$ on …

      (What happen$ when ya have x1 cop per 2,000+ $erious criminal$ in a city? …)

  18. Interesting blog from Canadian agent. Purchaser motivation for end user in Vancover condos went from 89% in 2010-2012 to 33% in 2016-2018. So in the last 3 years 67% of condos sold were for investment purposes

    https://vancitycondoguide.com/shades-of-miami-2007/

    Also: Unfortunately sales have slumped and buyers are shying away from pre-sale assignment contracts. There are still over 40,000 units under construction and an additional 25,000 housing starts underway.

  19. Chinese new year and whoops we can’t get our PCB designs done in time. And who will manufacture them because in the USA its way too slow and expensive because they focus on ITAR (military)

    My manager was freaking out about this this am. Sorry I don’t get paid enough to stress out anymore.

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