June 28, 2017

What The Lenders Are Thinking Makes No Sense

A report from the Atlanta Journal Constitution in Georgia. “Just as home prices are rising, demand is outpacing supply and experts are starting to wonder if there’s a housing bubble, lenders are looking to make it easier to buy. Lenders say they plan to ease standards to make it easier for buyers to quality for mortgage loans, according to a survey released Tuesday by Fannie Mae. The huge housing boom that led to a collapse in the housing market — nationally in 2006, in Atlanta a year later — was to a large extent fueled by easy money. The system — that is, the lenders and their investors and the financial interests that bet on them — were desperate to keep demand for homes growing.”

“Given what happened a decade ago, it might seem the wrong, or just an unnecessary time to make it easier to borrow. After all, demand now already outpaces supply of homes for sale. The imbalance and the increase in prices is enough to make at least some experts use the ‘B’ word that described the pre-2006 market.”

“‘As home prices continue rising faster than inflation, two questions are being asked: why? And, could this be a bubble?’ says David Blitzer, chairman of the Index Committee at S&P Dow Jones Indices, which includes the Case-Shiller housing index. ‘Since demand is exceeding supply and financing is available, there is nothing right now to keep prices from going up.’”

From Dow Jones Newswire on California. “San Francisco, once the hottest housing market in the U.S., is now one of the coolest, in a reversal that could presage a broader slowdown if more buyers decide it isn’t worth chasing rapidly rising prices. San Francisco’s apartment market also is sluggish. Economists said the weakening is being caused by a confluence of factors: slowing job growth, less demand from new buyers put off by high prices and, on the rental side, an increase in new apartment supply as developers try to cash in on a multiyear boom.”

“‘Tech is growing more slowly than the rest of the economy and tech has been the thing that has been driving the economy forward the last decade,’ said Ted Egan, chief economist for the city of San Francisco. ‘We are in the middle of a notable slowdown.’”

The Victoria Advocate in Texas. “Victoria has one of the worst housing markets in the U.S., according to a national study. Insurance company Nationwide’s health of housing market report puts Victoria at the very bottom of 400 metropolitan areas for its metropolitan statistical area rating, which is based on employment, demographics, mortgage market and house prices. Four other Texas areas are in the bottom 10 with Victoria, including Texarkana, Longview, Dallas-Plano-Irving and Sherman-Denison. The majority of the bottom 10 are located in energy-dependent states, including North Dakota, Texas, Louisiana and Alaska.”

“The market for houses priced above $400,000 is soft, and a large number of the homes in the area fall in that range. “What’s selling is below $200,000, which is causing the median price and the average price of existing home sales to decline,’ said Lee Swearingen, Coldwell Banker The Ron Brown Company president.”

The Real Deal on New York. “In hindsight, the unpaid common charges were a red flag. In December, the condo board at One57, the ultra-luxury skyscraper on Billionaires’ Row, slapped the owner of a $50.9 million unit with a $64,331 bill for unpaid building fees. Six months later, the owner, Nigerian oil magnate Kola Aluko, was under investigation for alleged money laundering. In a rare move for a Manhattan condo, his lender moved to foreclose on the property.”

“Coupled with a series of unprofitable resales, the impending foreclosure — the second at One57 in as many months — has cast a shadow over the onetime poster child of the luxury residential boom. And it raises further questions about the health of Billionaires’ Row at a time when the tower’s developer, Gary Barnett, is planning an even more ambitious undertaking.”

“‘It’s an isolated incident, but symptomatic of a bigger story,’ said Leonard Steinberg, president of Compass. ‘Foreclosures used to be the domain of people who were barely scraping by. This shows it can apply as equally to the very wealthy. On the very high end of the market, where pricing has been knocked up again and again to the extreme, certain people will break.’”

“‘You have a nearby development from the same developer with a similar price point that’s got twice the number of units,’ said Jonathan Miller, CEO of appraisal firm Miller Samuel. ‘The first building has a lot of units to sell and Billionaires’ Row is very quiet right now. Maybe that will change. But the scale of this and the fact that it took so long to shore up financing, it’s confusing to me what the lenders are thinking. It makes no sense.’”

“As the market began to soften, One57 became one of its most glaring casualties. Some buyers looking for a quick profit instead took a beating. One investor paid $32 million, or north of $7,000 a foot, for a 32nd-floor pad, and right after closing on the unit relisted it for nearly $10 million more. After numerous price cuts and over a year on the market, it finally sold for $21.4 million, or less than $5,000 a foot.”

“Both Aluko and the owner of the other unit facing foreclosure, Sheri Izadpanah, had heavily leveraged their purchases. ‘It’s like getting an awful stain on a gorgeous wedding dress,’ Tyler Whitman, an agent at Triplemint, said of the situation with Aluko’s apartment. ‘Foreclosures happen — people fall on hard times and things go south. But for it to happen in a building like this is surprising. It’s become abundantly clear than One57 did not turn out to be the investment everyone wanted it to be.’”

“‘We’re all surprised that there’s so much construction going on when the market has changed,’ said Douglas Elliman’s Richard Steinberg. ‘It’s not a reflection on the developer, but it doesn’t bode well for the Billionaires’ Row marketplace to have foreclosures,’ said Douglas Elliman’s Frances Katzen. ‘It freaks people out and sends a message that there’s a bit less liquidity out there than everyone imagines.’”