It Was Always Coming And We Wondered When
It’s Friday desk clearing time for this blogger. “Nearly a decade after the housing crisis, the mortgage market has evolved in unexpected ways, with nontraditional financiers increasingly backing ever more leveraged loans. And while nonbanks like Quicken and Nationsta underwrite to the same strict standards the banks do, their business model could put them at a disadvantage in a downturn. Nonbanks depend on being able to sell the mortgages they originate quickly. If they ever ran low on liquidity, they would have to turn to banks for funds. That kind of widespread need for credit in a financial crisis has never been tested.”
“‘Almost all of the credit risk, the risk of a loan going into default and there being losses, is being borne by Fannie Mae, Freddie Mac, FHA,’ Quicken Chief Economist Bob Walters told MarketWatch. In the new marketplace, FHA and the VA are ‘filling the vacuum for those buyers that have to stretch more to buy a home, filling the vacuum that was left by the exit of the subprime lenders,’ said Attom Vice President Daren Blomquist.”
“Simon Property Group has put construction of a 52-story Boston luxury tower on hold citing an oversupply of such units and high construction costs, the Boston Herald reported. Onlookers have said this could be the beginning of the end for Boston’s luxury residential market, which has several high-rises in various stages of completion.”
“A similar trend is occurring in Miami, where developers have put luxury developments on hold as high inventory drives sales prices down. Condo developer Related Group stalled a 298-unit development when only 15% of the units drew buyers during the pre-sales period. Construction on the Auberge Residences & Spa Miami was set to begin in 2017, but Related executive Carlos Rosso told The Miami Herald that taking a break ‘might be good for all of us.’”
“San Francisco real estate prices are still astronomical, but a new report shows glimmers of a market that’s returning to earth. An increasing number of sellers are slashing prices, according to Trulia. Brokers are noticing a shift, especially in the high-end market on properties valued over $3 million and on new condos. A sparkling new condo in Mission Bay and a luxurious Italianate mansion in Pacific Heights have been on the market for several weeks, and are likely to see price cuts before they sell. ‘Price reductions are occurring with slightly increased frequency as sellers acclimate to a mildly adjusted market,’ said Sotheby’s agent Rob Levy.”
“Increased competition and tough times in the oilpatch mean some Alberta contractors will likely go bankrupt over the next few months, the president of the Edmonton Construction Association says. The city should weather the downturn better than Calgary, with its 22-per-cent core office vacancy rate, but the completion of several major projects means the local construction industry faces a crunch, Dave Bentley says.”
“‘As a risk-management guy who looks at financial statements which show the healthiness, or not, of companies, we’re concerned,’ he said. He estimated two-thirds of the companies on the association’s board have reduced staff. ‘The cash burn is up for a lot of these heavy equipment contractors. We’re going to see some bankruptcies for sure … in the coming months, in Edmonton, in Calgary, Grande Prairie, Lloydminster.’”
“Builders are sounding alarm bells over a looming downturn in the state’s construction industry. Data from the Australian Bureau of Statistics showed building approvals across the state fell by 12 per cent in September. Approvals for detached houses rose 10 per cent but that was wiped out by a 28 per cent decline in the number of new apartments and units given the tick. Master Builders deputy CEO Paul Bidwell said the slump was the first concrete sign of a coming slowdown in unit developments after widespread speculation of a looming oversupply in Brisbane.”
“‘It was always coming and we wondered when,’ he said.’The big guys are looking around and asking where are we going next.’”
“Swire Properties has bucked the rising home price trend in Hong Kong by selling 12 houses on Lantau Island as much as 30 per cent cheaper than the previous launch six months ago. The developer, which builds luxury properties such as Opus Hong Kong in Mid-Levels, on Wednesday night uploaded the latest price list for the house development, Whitesands, in southern Lantau. Swire said buyers would get further discount and tax rebates if they made the purchase before December 16 and completed the deal in three months.”
“‘After all incentives, the maximum discount is as much as 30 per cent ,’ said a Swire spokesperson. Asking prices for homes range from HK$33.76 million to HK$60.67 million. ‘We hope the revised price list can attract more buyers,’she said.”
“The price decline in Singapore - the steepest since 2013 - has made it even more uncertain if earlier signs of a bottoming-out in prices can continue amid mounting concerns over the state of the economy and employment. SLP International executive director Nicholas Mak noted that accelerated price declines in Q3 were across different market segments as well as across different property types. With foreigners bearing the brunt of job losses, the softening employment market is hurting residential leasing, he said.”
“‘Worries over a weaker economy, news of job cuts and fears of a coming recession seem to have adverse impact on the property market,’ Mak said.”
“To curb the excessive rise of real estate prices, the South Korean government Thursday released a set of anti-speculation plans that include an extended ban on the transfer of home purchasing rights in affluent areas. ‘The government will limit the transfer of home purchasing rights and enhance monitoring when giving prior purchasing rights to new home buyers, as well as root out illegal activities to curb speculative demand,’ Finance Minister Yoo Il-ho said in an economy-related ministers’ meeting.”
“‘Some real estate markets, centering on reconstruction sites in Gangnam areas, are overheated,’ he said.”
“Most public company heads tend to be pretty circumspect in their statements to the press. Not Vornado’s Steven Roth, who is the ‘last in a line of brash hustlers running blue-chip real estate investment trusts,’ as we write in a profile of him in this issue. Roth isn’t afraid to call a competitor a ‘bald-headed chicken f-er,’ joke about the greed of other developers, or mention that he has to ’suck up’ to Chinese banks to get a loan.”
“Roth is also one of the few who hasn’t been afraid to talk about a weaker climate for retail, saying that landlords holding out for top-dollar rents may not get them. ‘We’re not in a hope business, we’re in the realistic business, and I believe rents have gotten to the point where they’re too high,’ he told investors on an earnings call recently.”
“And it’s not just the retail sector that’s at a significant inflection point. It’s the entire real estate market. On the residential side, clear signs of a buyers’ market have emerged, evidenced by falling prices and concessions, including paid attorneys’ fees, that are being offered as incentives to close deals. It’s becoming a situation where bold buyers who are not afraid to lowball might be rewarded.”
“The softer market is also putting pressure on the brokers who market new condos amid an oversupply of units on the high-end. We go inside their cutthroat world on page 70 and run down how they pitch developers to land new development marketing gigs. Other tactics to spur sales at new developments are less aboveboard.”
“In an investigative piece, reporter Konrad Putzier found that many projects that touted early sales (’50% sold in 72 hours’!) weren’t quite as successful as they indicated. Looking back at public records that were available only once the building was completed, we found that the sales numbers being offered up when a project first launched were often bogus. Many, for example, counted contracts that were merely sent out (but not signed) as ’sold’ units.”
