May 10, 2017

Suddenly All The Money Was Taken Away

A report from the Arizona Republic. “The Valley’s luxury housing market has picked up after too many high-priced listings hit the market and overshot demand from deep-pocketed buyers. Seven-figure home sales in the Phoenix area were up more than 30 percent in March from the previous year. Almost 330 Valley homes sold for more than $1 million during the first three months of this year, according to the Arizona Regional Multiple Listing Service. In March, there were about 2,000 houses with prices at $1 million or more for sale in metro Phoenix. About 360 of those had price tags above $3 million. But sellers of Valley mansions still aren’t smiling that much about prices.”

“The price-per-foot of luxury homes in metro Phoenix inched up only about 0.08 percent during the first three months of this year, less than the annual rate of inflation, said Phoenix housing expert Mike Orr. ‘That confirms that despite the healthy increase in volume, there is little pricing power among sellers of luxury homes, thanks to the abundant inventory of active listings,’ he said.”

“Unfortunately, summer isn’t the most popular time for million-dollar home sales in metro Phoenix. So Valley mansion owners trying to sell will have to keep paying their multi-thousand dollar A/C bills to cool their houses for showings until fall.”

From Reuters on New York. “Among the sprawling colonial homes and well-tended lawns on the north shore of New York’s Long Island, there are signs that Chinese policies crafted 11,000 kilometers away are taking a toll. In the past year, there has been a slowdown in the stream of affluent Chinese looking for luxury homes in the area, property brokers said. Over the past eight months, the Chinese authorities have introduced a series of measures to make it more difficult for Chinese to move capital out of the country as they seek to keep the Chinese currency, the yuan, from falling.”

“On and close to Long Island’s so-called ‘Gold Coast’ the drop off in interest is apparent to some in the industry. ‘The money suddenly dried up last year,’ said Lois Kirschenbaum, a broker specializing in luxury homes on Long Island’s north shore, an area favored by Chinese partly because of its reputation for having good schools. ‘We used to get vans of Chinese buyers each month one or two years ago during the buying season in Spring. We haven’t seen any vans this year.’”

“Kirschenbaum, who estimates half of her buyers are Chinese, said prices of homes in the neighborhood costing more than $2 million have fallen about 10 percent in the past year. Jason Friedman, a real estate broker who also specializes in luxury housing on the north shore, said a building boom that began a couple of years ago in the area in response to the surge in Chinese buying interest is starting to weigh on the market now. ‘There were no restraints at the beginning, and then…they turned off the faucet. There was a very short period when you had all the money and then suddenly it was taken away,’ Friedman said.”

The Houston Chronicle in Texas. “Texas’ economy is growing at a moderate rate, post-oil bust, but home prices continue to zoom ever higher in markets like Austin and Dallas. So, is that a bubble? Not yet, says Anil Kumar, an economist with the Federal Reserve Bank of Dallas who tracks the state’s housing market. But prices are getting bubbly. ‘In the near term we don’t see a correction,’ he says. ‘All we can say is, given strong house price appreciation the last few years, that house prices are overvalued.’”

“A bubble itself is kind of a fuzzy concept. The most important element is speculation, meaning investors buying and selling houses in order to profit from a rising market. If you’ll remember, the housing bubble that precipitated the last recession was fueled by a perception that housing prices always rise. Perceptions are usually the kind of thing that economists have to detect through surveys, rather than hard data. Currently, no such survey exists in Texas, which could make it difficult to detect speculative activity.”

“‘That’s exactly the reason why I’m saying there’s a lot of uncertainty,’ Kumar says.”

From Multi-Housing News. “Speaking at a recent NYU Stern School of Business conference, Boston Fed President Eric Rosengren pointed to some currently favorable trends for multifamily, but stressed the importance of evaluating how a potential recession could affect the financial system. Rosengren further noted that the GSEs have significant holdings or guarantees of multifamily loans outstanding. If future reform proposals required the GSEs to reduce their holdings of multifamily loans, ‘a potential and significant shock to this sector of the commercial real estate market could occur.’”

“Rosengren concluded by explaining that leveraged institutions and GSEs have significant exposures to CRE. In the event of a bad scenario such as a recession, these exposures could ‘pose significant risks to these institutions.’”

From Bloomberg. “U.S. securities regulators are investigating whether bonds backed by single-family rental homes and sold by Wall Street’s biggest residential landlords used overvalued property assessments. Radian Group Inc.’s Green River Capital unit is among companies that received a request for information from the Securities and Exchange Commission in March about broker price opinions, or BPOs, Radian said in a regulatory filing late Friday. Green River provides BPOs that are used to value real estate in bonds backed by properties.”

“The agency has been looking at whether BPOs were wrongly inflated, and similar letters were sent to other companies, potentially serving as a starting point for an industrywide probe, said a person with knowledge of the matter. The SEC is scrutinizing how BPO providers compete for business and whether their customers shop for providers willing to put the highest value on their properties, said the person, who asked not to be identified discussing private matters.”

“The biggest private-equity landlords, led by Blackstone Group LP’s Invitation Homes, have sold more than $15 billion in bonds since 2013 backed by some 120,000 rental homes, according to data from Morningstar Credit Ratings, and many of those deals were valued using BPOs. One recent bond deal tied to Invitation Homes was backed by guarantees from U.S. taxpayers. In one April securities offering of about $944.5 million, Green River submitted BPOs that relied on ‘drive-by’ evaluations, according to a deal prospectus issued by Fannie Mae.”

“When private equity landlords first began using BPOs instead of appraisals in their securitizations, some investors expressed skepticism and bond graders applied discounts to the BPOs. Moody’s Investors Service, for example, applied a 15 percent haircut to BPO valuations when grading a transaction last August, citing inherent risks of using BPOs on residential properties instead of an appraisal.”