It’s Like A Little Snowball Rolling Down The Hill
A report from the Washington Post. “Cash-out refinancings, which were wildly popular during the housing boom years and which contributed to the severity of the crash, are on the rise again. National mortgage investor Freddie Mac reports that 45 percent of all home-loan refinancings in the final three months of last year involved cash-outs. That was the highest percentage since the end of 2008. Black Knight Financial Services, a mortgage technology and analytics firm, says homeowners pulled $31 billion from their equity holdings in the fourth quarter of 2016 — a jump of 50 percent over the same period the year before.”
“But when cash-out refis begin to soar, is that a positive or negative indicator for the housing market’s health? Critics such as Connecticut-based real estate analyst Keith Jurow say the trend today is reminiscent of the tail end of the boom years. ‘I consider this to be 2007′ — near the end of a multiyear string of housing price increases, Jurow told me in an interview. ‘The euphoria is similar’ — people assume that prices can only keep going up.’”
From Flagler Live in Florida. “It’s not often that a mass of ordinary people hundreds of miles from the state capital can sound like wonks down to the minutiae of legislative bill numbers. But that’s what the vacation-rental issue has made of Hammock residents. Vacation-rental companies who could cash in on the exploding popularity of using single-family homes as short-term vacation rentals, and homeowners who mortgaged themselves too much during the housing boom, overspent, overbuilt, and found their property deep underwater, so that turning them into vacation rentals was one way to avoid foreclosure or lose the properties.”
“In any case, for residents who turned out, the only allegations of water in question were the cold sort they threw on what they said was a myth: ‘There’s really absolutely no truth in the fact that these are struggling people trying to keep their house. These are investors who are preying on us, ruining our community,’ one homeowner said to applause.”
The San Mateo Daily Journal in California. “Those seeking entry to the traditionally tight and expensive Peninsula home rental market may enjoy some temporary relief according to experts who claim a cheaper home may be easier to find now than years past. Marilyn Andrews, a property manager and real estate broker with Boardwalk Investments in San Bruno, echoed a similar sentiment. ‘Rents came down somewhat I believe because the overbuilding in San Francisco,’ she said, claiming those who previously would have sought a room in San Mateo County due to proximity to the city may be choosing instead one of the new apartments in San Francisco.”
The Real Deal on New York. “It’s tough to pin down exact numbers for how many projects are paralyzed. The city’s Department of Buildings no longer keeps count. Walk most Manhattan neighborhoods and you’ll see many. One of the reasons for big delays on sites, sources said, is the market boom of 2014 and 2015. Developers eager to command the returns seen in those years launched a large number of projects, all competing for a finite number of contractors and subcontractors, and the attention of a DOB mired down in red tape.”
“Other sources said the problem in today’s market is not excess construction, but construction financing – or rather, the lack of it. Owners who received land loans or predevelopment loans 12 to 18 months ago are finding that lenders are far less open to the prospect of doling out more money for construction. ‘It’s like someone pulled out a magic wand and hit freeze on the condo market,’ said Adi Chugh, CEO of debt brokerage Maverick Capital Partners.”
“The financial toll for a delayed project can be heavy — particularly if construction is already underway. ‘A construction loan is a negative cash flow loan. You’re only spending money,’ said David Heiden, managing partner of bridge lender W Financial Fund LP. ‘Every month that the job goes over cost, you have longer until the project generates cash flow. It’s like a little snowball rolling down the hill.’”
“‘Loans are usually two to three years, and so if you’re stalled for six months and it’s supposed to be 18 months of construction, there goes your cushion. You’re screwed,’ said one developer active in the city.”
From the Southington Record Journal in Connecticut. “A review of the Multiple Listing Service shows nine bank-owned houses on the market in town. That’s fairly high, said Joshua Brown a foreclosure expert and agent with Keller Williams, but given the number of homes in the highly developed town of 43,000, not entirely surprising. ‘There is a high inventory in town and it’s a little bit pricey,’ Brown said. ‘The higher you go, the greater the risk.’”
“Brown currently has two bank-owned properties on the market. Houses can appear for months, then are taken off and reintroduced at a later time. ‘There is a shadow inventory that is inventory that hasn’t been listed,’ Brown said. If the bank has a lot of inventory, or asset portfolios get sold back and forth between banks, the properties come and go off the market. ‘Too much inventory would drive the prices down.’”
“A property at 400 Rockwood Drive is an example of the shadow inventory that emerges and disappears off the market. The property was purchased in 1999 for $100,000, developed and listed at $618,900 in April 2012. Four months later it was reduced to $514,999 and is currently off the market. ‘That’s a great one,’ Brown said. ‘It’s kind of in bank limbo. I get a lot of calls on that.’”
