January 29, 2015

Ultimately, There Was A Fever

Bloomberg reports on California. “As the key spring U.S. homeselling season approaches, buyers are finding deals on new houses as builders focus on boosting revenue. Dwayne Saunders purchased a house in Eastvale, California, in December, paying $450,000 after builder D.R. Horton Inc. cut the price by 4.5 percent, threw in a washer-dryer and covered his closing costs. This month, the house next door sold for $404,000. ‘It was bigger too,’ Saunders said. ‘I think D.R. Horton just wanted to finish this phase and move onto the next one.’”

From New York Magazine. “Today, in an economically transformed New York, speculators seek profit where others fear to venture. They are rushing toward the margins ahead of an economic upheaval that people in Brooklyn real estate call ‘the wave.’ East New York runs south from Atlantic Avenue to the saltwater of Jamaica Bay. ‘It’s the last frontier,’ a Corcoran broker said as he showed me an Ocean Hill brownstone, purchased for $600,000 in August and flipping for $900,000 in November. ‘Until the next frontier—Brownsville and East New York.’”

“Who are all these investors? In Bushwick and Bed-Stuy, there are a few high-profile players, like Dixon Advisory, an Australian retirement fund that has recently been buying up dozens of properties. But most investors are locally based and stealthy. Several told me off the record that firms like Dixon are latecomers. ‘There are not any deals in Bed-Stuy,’ said one. ‘I think suckers are buying at $1.2 million thinking they will get $2 million.’”

The Houston Chronicle in Texas. “In the last two years, the multifamily market in Houston has boomed with sky-high occupancy rates and rents, hordes of new people moving to the city and thousands of units under construction. But the forecast for 2015 - in light of tumbling oil prices - is far less rosy, industry leaders said Tuesday at separate events on the local real estate market. Rent growth will drop off and job growth will shrink even as construction crews bring more units online, panelists said at the annual meeting of the Houston Apartment Association.”

“Kirk Tate, CEO of apartment builder Orion, said Houston has been ‘red-lighted’ by lenders. Brandt Bowden with the Hanover Co. agreed that capital for new construction has dried up in Houston. He said the drop could be a positive, as things heated up very fast in the last few years and construction costs became inflated. ‘Ultimately, there was a fever in Houston,’ Bowden said. ‘The drop in oil broke that fever. We are getting cautious.’”

The Okotoks Western Wheel in Canada. “Despite plummeting oil prices, Alberta’s real estate market is expected to remain strong, with only a slight decrease in sales expected from last year’s record numbers. For any first time buyers hoping to find a great deal, the CREB report actually forecasts a slight 1.58 per cent increase in prices, something Okotoks realtor Brad Pond said is simply due to constant demand. Home buyers will have a definite advantage this year, as the pressure won’t be as intense as last year, he added. ‘Buyers are walking into a more balanced market now, so it’s not going to be as high pressure for buyers,’ he said. ‘It’s a major, major purchase and people were having to make a snap decision in 2014 they were having to make that decision in literally minutes.’”

“Pond said it was tough watching buyers have to jump on a purchase as large as a house, and is hopeful that 2015 will provide more opportunity for a fair deal. ‘It’s the biggest decision of your life I always feel awful for people after a boom, especially people moving to Okotoks, they’re making this decision in a day and some people are encouraged to write an offer in order to win the purchase,’ he said. ‘They’re encouraged to write without conditions of financing or a home inspection and I just don’t think that’s right for a purchaser.’”

“The business of bundling riskier U.S. mortgages into bonds without government backing is gearing up for a comeback. Just don’t call it subprime. Hedge fund Seer Capital Management, money manager Angel Oak Capital and Sydney-based bank Macquarie Group Ltd. are among firms buying up loans to borrowers who can’t qualify for conventional mortgages because of issues such as low credit scores, foreclosures or hard-to-document income. They each plan to pool the mortgages into securities of varying risk and sell some to investors this year.”

“Reopening this corner of the bond market may lower consumer costs and expand riskier lending, aiding the housing recovery. The most dangerous slices created from the securitization of loans are also the highest-yielding, offering companies from private-equity firms to real estate investment trusts a way to increase returns as global central banks suppress interest rates to foster economic growth. ‘I go to conferences and no less than a dozen investors are saying they want these assets,’ said Michael Kime, chief operating officer of W.J. Bradley Mortgage Capital, a lender that started making some of the loans last year.”

The Washington Post. “On a cold Sunday afternoon 10 years ago, Comfort and Kofi Boateng stood with Comfort’s mother and their three children before a quarter-acre parcel in a brand-new subdivision in the center of Prince George’s County. The place was called Fairwood. Today, they struggle under nearly $1 million in debt that they will never be able to repay on the 3,292-square-foot, six-bedroom, red-brick Colonial they bought for $617,055 in 2005. The Boatengs have not made a mortgage payment in 2,322 days — more than six years — according to their most recent mortgage statement.”

“They came from a Ghanaian culture where credit is scarce and people built their houses with cash and lived in them for generations. Deeply religious, they found their real estate agent and mortgage broker at their church in Laurel. When their money got tight, they borrowed more and refinanced to take on more debt. Caught up in the mind-set of the time, they said, they thought they would be able to continue to refinance.”

“This was more house than they were expecting to buy, but they believed it would be a good investment. They said they thought it would go up in value, like their Germantown house, and they could use that equity to finance their children’s college educations. ‘The purpose of getting the house was to get our kids through college,’ Comfort said. ‘It wasn’t that we didn’t manage our money. We know in America, everyone owes something. We couldn’t get things done the way we expected. It happens to everybody.’”

Bits Bucket for January 29, 2015

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