April 16, 2018

Local Flippers Competing Against Wall Street Flippers

A report from MarketWatch. “The National Association of Home Builders’ monthly confidence gauge ticked down one point to a reading of 69 in April, the group said Monday. The closely-watched sentiment tracker from the home builder lobby group hit its highest point since 1999 in December, and has fallen every month since then. The 69 reading is still quite strong. In the go-go days of the housing bubble, between 2004 and 2005, sentiment averaged 68. Still, the fact that confidence is declining so steadily is notable. When NAHB’s index started to fall in late 2005, it was one of the signals that foreshadowed the coming housing bust.”

From Inside NOVA. “The housing inventory is low nationwide, with a three-month supply that’s half what’s considered the equilibrium rate. Permits to build single-family homes have been down ever since the recession of the late 2000s, said Ken Wingert, senior legislative representative for the National Association of Realtors. People also are staying in their homes an average of 10 years, double the tenure that occurred in 1980, he said.”

“Retiring Baby Boomers trying to downsize their living quarters are competing for the same smaller housing units with Millennials just entering the real estate market, Wingert said. In addition, huge student-loan burdens have led young people to delay purchasing homes by about five years, he said. Perhaps most ominous was this statistic: Average incomes rose 15 percent between 2011 and 2017, but housing prices increased 48 percent during that period, Wingert said.”

“‘There has got to be a tipping point,’ he said. ‘This is not sustainable.’”

From CNN Money. “Zillow is the site you go to when you want to know how much more the house you bought a few years ago is now worth. But the real estate information company is planning to get into the business of buying and selling houses too. The company announced it was looking to potentially flip homes in the Phoenix and Las Vegas areas, saying in a press release that ‘when Zillow buys a home, it will make necessary repairs and updates and list the home as quickly as possible.’”

“The practice of flipping a home — buying it, fixing it fast and then selling it — can be very lucrative. But it is also risky. That seems to be the reason why shares of Zillow plunged 8% Friday. It didn’t help matters that the company also warned it would lose money in the first quarter — even though it boosted its sales forecasts. Zillow CEO Spencer Rascoff defended the shift in strategy though, arguing that it makes complete sense for Zillow to be involved in buying and selling homes. ‘The days of pushing a button and generating an email to a real estate agent is no longer as magical as it was in 2005,’ Rascoff said.”

From the Tennesseean. “Multi-billion-dollar real estate investment firms own nearly 1 percent of single-family homes in the greater Nashville area and have converted 3,060 houses into rental properties, according to a new study. But, since entering the Nashville market in 2015, their business model has shifted, said Tennessee State University associate professor Ken Chilton. The firms are buying spacious homes near good schools in suburban communities that attract well-educated families with incomes of roughly $75,000. They’ve shifted from buying homes at the lowest-end of the market to snatching up houses for $300,000 and more, Chilton said.”

“The increasing popularity of rental housing is mirrored in the growth of short-term rental companies such as Airbnb. ‘Some people are waking up to find out that 10 homes on their street have been bought out by rental companies in the last five years,’ Chilton said. ‘This is no longer our parents’ or grandparents’ housing market, where a Realtor puts a sign in the yard. Now we’re fighting against the Airbnb people who are competing against the local flippers and the Wall Street flippers.’”

From Bloomberg. “The biggest buyers of leveraged loans are weakening safeguards that limit how much risk they can take, amping up the potential pain for investors when the economy slows. The buyers, known as collateralized loan obligations, are beginning to erode protections in their funds that, for example, prevent them from purchasing too many smaller loans that can be hard to sell later on, according to market participants. The CLOs are dialing down these limitations to boost profits for the money managers that put the complicated structures together.”

“The shifts mean that investments designed to be relatively safe, namely highly-rated bonds sold by CLOs and backed by loans, could end up being riskier than they appear. That has some echoes with structured securities sold during last decade’s housing bubble, which often ended up being stuffed with mortgages that were weaker than investors had expected, even if CLOs are still seen as being far safer than last decade’s collateralized debt obligations.”

“Another relatively new change is the notion of ‘deemed consent,’ according to S&P CLO analyst Sean Malone. To make changes to CLO documents, the manager usually has to track down enough bondholders who agree to the shift. Under the deemed consent principle, if bondholders don’t respond to a manager notice of a change, they are deemed to have agreed. While this provision makes sense in some cases where the burden of getting 100 percent approval is too high, the language opens the door for misuse, according to Vaibhav Kumar of Silverpeak Credit Partners.”

“‘As the CLO documentation went to majority consent, the language was too loose and could be abused down the line by bad actors,’ Kumar said.”

From The Real Deal. “Manhattan isn’t the only part of the U.S. with a slowing luxury real estate market. High-end homes across the country are taking longer to sell, according to a new report by Concierge Auctions. A whopping 72 percent of luxury homes in the U.S. spent more than 180 days on the market in 2017, up from 59 percent in 2015.”

“Westchester County’s market is particularly sluggish. Homes that spend more than 180 days on the market sell for 62 percent of the asking price on average, compared to 71 percent countrywide. Luxury properties in Westchester spend 798 days on the market on average, according to the report, a total only surpassed by Nashville, Cape Cod and Atlanta.”

“Miami homes take 608 days to sell on average, while properties in San Francisco take a paltry 55 days. Beverly Hills luxury homes averaged 347 days on the market while luxury properties in Belair typically stay on the market for 251 days, according to the research. Luxury homes in Palm Beach, Florida averaged 476 days on market.

“In Manhattan, luxury homes priced at $4 million and up spend an average of 359 days on the market, according to Olshan Realty.”

From the Milwaukee Biz Times in Wisconsin. “Milwaukee was one of 53 metropolitan areas that posted a year-over-year increase in foreclosures in the first quarter with a 21 percent increase over the first quarter of 2017. Indianapolis, Indiana led the pack, up 148 percent in foreclosures during the first quarter, followed by Minneapolis-St. Paul, which was up 64 percent; Louisville, Kentucky up 36 percent; Austin, Texas, up 30 percent, and Oklahoma City, up 23 percent.”

“Nearly half, 45 percent, of all properties in foreclosure as of the end of the first quarter were tied to loans originated between 2004 and 2008, according to the report. ‘Less than half of all active foreclosures are now tied to loans originated during the last housing bubble,’ said Daren Blomquist, senior vice president at ATTOM Data Solutions. ‘Meanwhile we are beginning to see early signs that some post-recession loan vintages are defaulting at a slightly elevated rate, a sign that some loosening of lending standards has occurred in recent years.’”

From the Alton Daily News in Illinois. “More than a decade after the national housing crisis, four Illinois communities still have some of the worst foreclosure rates in the nation. Attom Data Solutions’ quarterly foreclosure report shows that Rockford, Peoria, Cook County and the Quad Cities are all in the top 20 metropolitan areas in terms of foreclosures per total homes in the first quarter of 2018. Vice President Daren Blomquist said the housing crisis is so far gone that Illinois’ foreclosure woes can longer be blamed on that.”

“‘[Illinois] loans originated in the last seven years since the end of the Great Recession are performing not as well as the rest of the country and falling into default at higher rates,’ he said.”‘

“At one foreclosure for every 335 homes, the Rockford metropolitan area has the seventh-highest foreclosure rate in the nation. Illinois had the fourth-highest percentage of foreclosed homes in the nation, behind New Jersey, Delaware and Maryland.”

“Bob Nieman, a veteran Rockford real estate agent, said his area’s lagging economy and high property taxes are the biggest reasons for so many bank-owned homes. ‘Add high taxes with high crime and you’ve got an exodus from the state of Illinois and the Rockford area,’ he said, adding that banks are extraordinarily hesitant to list homes that they’re sitting on.”