September 25, 2016

Now There Is A Slowdown On Everything

A report from the Financial Post in Canada. “Your home may have climbed in value as much as 35 per cent in the past year, so why wouldn’t you want to own another one? Increasing numbers of homeowners keen to take advantage of a booming market for low-rise detached homes are ‘doubling up’ on their investment by holding on to their existing homes, even as they move into larger ones. In essence, their old principal residence becomes an investment property — one they hope will deliver some income but more importantly will lead to massive capital appreciation — especially in two of Canada’s hottest cities for real estate.”

“The phenomenon, though not widespread, has been present in the Vancouver market as it heated up and is beginning to work its way into Toronto transactions. Calum Ross, a Toronto mortgage broker and wealth planner, said if you’re not cash-flow positive, even after factoring in a jump in interest rates, you are playing with fire when it comes to an investment property. And that includes your former principal residence.”

“‘My concern is some people are keeping their home not because it’s part of a sound financial plan; it’s the greed,’ said Ross. ‘You have to be mindful, you don’t want to be overweight in real estate.’”

“For the wary, it is worth considering what is happening in Vancouver. Simon Coutts, an agent with Macdonald Realty, said a lot of people who were holding onto their principal residence with hopes of flipping in the near future may have tough time now realizing a gain. ‘Now there is a slowdown on everything. Deals are in the can that are collapsing,’ Coutts said, adding some of those Vancouver owners are getting nervous. ‘Last month there were lineups of people to buy everything. Those lineups are gone.’”

The Metro News. “The B.C. government’s newly-introduced foreign buyer tax led to a steep drop in both total home sales across Metro Vancouver and the dollar value of residential home sales in the month of August. In Metro Vancouver, there were 1974 home sales involving foreign nationals in the period from June 10 to August 1. That fell to just 60 from August 2 to August 31. Total dollar value of home sales in Metro Vancouver fell from $14 billion to $6.5 billion.”

“B.C.’s Ministry of Finance released data that compared two periods of different duration: 53 days between June 10 and August 1, and 30 days between August 2 and 31. Home sales to foreign buyers dropped 94% between the two periods, when the number of deals in the first period is averaged over a 30-day period. ‘I hope all the people who said (foreign buyers) were just 3 to 5 per cent of the market are hanging their heads,’ said David Eby, MLA for Vancouver-Point Grey and the Opposition NDP’s critic for housing.”

“On July 29, just before the tax took effect, more than $850 million in transactions involving foreign buyers were registered at the B.C. Land Titles office, ‘equal to more than 55 per cent of all transactions registered in Metro Vancouver on that day, and almost 40 per cent of the total foreign investment in Metro Vancouver residential real estate for the entire period after data collection began and before the additional tax took effect (June 10-Aug. 1, 2016),’ according to a government press release.”

“Eby said the numbers are likely much higher because of techniques like assigning properties to permanent residents or Canadian citizens to avoid paying the tax. ‘This is just a small portion of what’s happening,’ he said. ‘We know that in the Trump Tower building, the developer was helping people assign their properties to permanent residents and citizens to avoid the tax.’”

The Global News. “The U.S. Department of Treasury has named a a relatively unknown Vancouver company with offices downtown as a ’significant transnational criminal organization,’ which has helped to defraud Americans of hundreds of millions of dollars. The allegations against PacNet Services Ltd., which have not be proven in court, came during a press conference with U.S. Attorney General Loretta Lynch.”

“The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) said PacNet is an ‘international payments processor and money services business’ with a long history of money laundering by ‘knowingly processing payments on behalf of a wide range of mail fraud schemes’ that targets victims across North America and the world.”

“Vancouver anti-money laundering lawyer Christine Duhaime says the news is ‘unfortunate for Canada.’ ‘We are getting a bit of a reputation for money laundering,’ she told Global News.”

“Peter Ferlow, the husband of Ruth Ferlow who is listed as the director, manager, or company secretary of several PacNet-linked companies, told Global News he was not aware of any evidence proving these allegations are true. According to Ferlow, the company has roughly 100 employees in Vancouver who were surprised to find the competition bureau and Vancouver Police at their office after the news broke.”

“‘The company and all the principles and higher managers in the company are now listed on the U.S. Treasury site with personal home addresses and nobody’s guilty here. Like, what is going on? It’s kind of wrong,’ he added. ‘Everybody is out of work, and they’re just regular people there. From one week to the next you can’t make your mortgage payment.’”

Stagnant Inventory At Unrealistic Prices

A report from the Culpeper Star Exponent in Virginia. “The latest news in the long-stalled Clevenger’s Corner mega-development and other housing projects topped the Friday morning agenda of the Culpeper County Board of Supervisors retreat meeting. Culpeper County Planning & Community Development Department Director Sam McLearen told the board that Centex Homes recently withdrew its 2013 proffer amendment to build 762 single family homes on quarter-acre lots in the planned neighborhood, Clevenger’s Corne. ‘That’s one of the biggest things that has happened in the last couple of weeks,’ he said, describing the grandly imagined development as a ‘dormant project.’”

“Withdrawal of the 2013 proffer amendment that removed apartments, duplexes and the large commercial component means the project reverts back to its original, closely contested 2005 rezoning that included those features. But the development appears permanently stalled.”

From WFTS in Florida. “They’re called ‘Zombie’ homes: in foreclosure and abandoned. Despite several years since the housing crash, many of these ‘Zombie’ properties that were bought at peak value, and later foreclosed upon, still sit empty in the Tampa Bay Area. That includes a boarded-up home with an over-grown grassy yard on East 26th Ave in Tampa, which sits just around the corner from Rosetta Jacobs. ‘There were renters there, but not legal renters there,’ explains Jacobs’s daughter Lida Williams. ‘Now there’s nobody there and it’s been vacant for months.’”

“According to RealtyTrac , about 7.4% of the foreclosed homes in the Tampa Bay Area are ‘Zombies’ or abandoned. The Bradenton-Sarasota Area has the same percentage. And that percentage not only leads the entire state of Florida, but is among the highest rates in the entire country. What’s the problem? Florida was among the hardest-hit by the housing crash, and some small banks that made bad loans have been unwilling to sell the abandoned properties for less than the original purchase.”

“‘So rather than make the sale at fair market value they hold on to the stagnant inventory at unrealistic prices,’ explains Vincent Arcuri, a longtime Tampa Bay Area realtor. ‘The homes are over-priced. If you see a home that’s been on the market for a year, clearly it’s an over-priced property or there’s something wrong with it. A big problem for the bank is the longer it sits there,’ explains Arcuri, ‘the roof is leaking, there’s mold issues, then it becomes even less desirable for even an investor.’”

The News Tribune in Washington. “In May 2015, I took a car ride with city of Tacoma code inspection supervisor Dan McConaughy. It was a tour of a handful of derelict homes — 13 of what he described at the time as ‘the worst’ Tacoma had to offer. Back then, there were 308 unoccupied derelict homes on the books in Tacoma, with many of them — about 60 percent, by McConaughy’s estimation — wallowing in what he described as ‘the black hole of foreclosure.’”

“That’s a colorful way of depicting homes that sit in a state of unfortunate financial limbo — where homeowners, who’ve received a foreclosure notice, have moved on, but the bank holding the mortgage has yet to finalize the foreclosure process. So the home sits empty, sometimes for years, with the bank presumably waiting for just the right time to initiate the trustee sale to unload the property.”

“Recently, I decided to check in again with McConaughy — who was nice enough to give me an updated tour of the 13 homes he showed me last year. With the real estate market in Tacoma and throughout the region humming — thanks, Seattle! — I couldn’t help but wonder if the situation with derelict homes stuck in McConaughy’s ‘black hole of foreclosure’ had changed”

“I was surprised to hear the answer. ‘Right now the market’s hot, so you would think of (the banks) selling more. But, no, I don’t see that,’ McConaughy told me. ‘I don’t think the inspectors see that. I’m very disappointed in the banks,’ McConaughy reiterated.”

“How consistent has the problem of derelict homes in Tacoma remained since the last time I wrote about it? Of the 13 derelict and abandoned homes he showed me last time out, seven of these cases have been closed. They’re ‘wins,’ as McConaughy calls them. The trouble? ‘Half of them have been taken care of,’ McConaughy says. ‘But there’s a new 13. That’s for sure.’”

“As of Sept. 6, there were a total of 390 unoccupied derelict homes throughout Tacoma. That’s 82 more than the last time I jumped in the passenger seat of McConaughy’s city-issued Prius. While it’s important to note that not all derelict homes represent foreclosures, McConaughy and Lisa Wojtanowicz, the division manager with Tacoma’s Neighborhood and Community Services Department, confirm that many of them are.”

“While anecdotal, McConaughy sticks by his 60 percent estimate for the number of these homes stuck in the foreclosure purgatory.”

The Alaska Journal of Commerce. “‘There was cautious optimism in the first six months of the year,’ said First National Bank Alaska Senior Vice President Michelle Schuh. ‘Now I think people are just being cautious.’ Schuh clarified that the second quarter of 2016 was steady for her bank, and likely for the rest of the state, but the lack of legislative solutions to the state’s $4 billion budget deficit is starting to affect the business community’s outlook, if not the numbers.”

“Schuh said state budget cuts are the beginning of a trend she hopes doesn’t materialize, with declining home values at the end. Though none of the banks have noticed home values dropping in the state, Schuh said the lack of a state budget solution could produce such a decline.”

“‘If we don’t address the budget, we know we’re going to have state layoffs,’ she said. ‘If you’re seeing lower state employment, and you’re already seeing private sector layoffs happen, your housing concerns are going to be next. That’s where we’re going to see a softening in the real estate market.’”

“Like Schuh, Northrim Chief Financial Officer Latosha Frye said the bank’s balance sheet is still healthy, but the gloom of the state’s fiscal situation is setting in. ‘General sentiment is people are waiting for what’s going to happen next, and every day there’s a barrage of information about all the action the state isn’t taking with fiscal issues,’ she said. ‘It’s just unavoidable. At some point that becomes a downer. The psyche impact takes that to another level, I think.’”

“For credit unions, which have higher rates of consumer loan portfolios than that of banks, number are looking even less optimistic. Alaska’s credit unions, unlike the banks, posted an overall decrease in quarterly net income of 22 percent year over year. Each of the three largest credit unions posted rises in the rate of delinquent loans. Alaska USA’s delinquent loan rate rose a negligible 0.1 percent, but the delinquent loan rate for Credit Union 1 and Denali Alaskan rose by 54 percent and 77 percent respectively.”