September 12, 2018

The Whirlwind Of A Credit Squeeze In A Falling Market

A report from the Georgia Straight in Canada. “The latest numbers from the Real Estate Board of Greater Vancouver show that in August, the benchmark sale price for a single-family home in Point Grey was down 14.6 percent from a year ago. For detached properties in MacKenzie Heights, the annual drop was 14.4 percent. Elsewhere on the West Side, Kerrisdale was off 14 percent, Kitsilano was down 11.8 percent, and Quilchena declined by 9.3 percent for detached properties.”

From Better Dwelling in Canada. “Vancouver real estate is seeing the worst sales in years, and detached homes were no exception. Real Estate Board of Greater Vancouver (REBGV) numbers show detached sales continued to grind lower in August. The decline in detached sales, combined with a rise in inventory, helped to push prices tens of thousands of dollars lower.”

“The price of a detached home continues to get cheaper across Greater Vancouver. REBGV reported a detached benchmark of $1,561,000 in August, dropping a massive $27,400 from the month before. Greater Vancouver detached sales are coming in much lower than last year. REBGV reported 567 sales in August, down 11.9% from the month before. On an annual basis, sales are 37.1% lower than the same month last year. The monthly decline is seasonal and should be expected – the annual decline is not.”

“The sales to active listings ratio (SNLR) remained in ‘buyers market’ territory. The SNLR reached 9.2% in August, over 43% lower than the same month last year. When this indicator remains below 12%, prices are expected to fall further.”

From on Austrlia. “The latest property figures show the residential property market is falling or, at best, stagnant in the better performing capital cities. With the Spring selling season now underway, it is a vastly different environment than a year ago. It has definitely turned into a buyers’ market while recent homeowners need to be careful these falling market values don’t put them on their financier’s watchlist.”

“Not only has the property market changed substantially but so has the lending market - as we touched on a couple of weeks ago. The last thing anyone needs is to be caught in the whirlwind of a credit squeeze coupled with a falling market. This softening market looks as though it is going to intensify with a flood of new listings coming on for spring.”

“According to SQM Research national residential listings rose 5.9 per cent in August to 332,678, with rises in all capital. Property listings rose 10.9 per cent in Sydney, to be up a whopping 30.4 per cent higher from a year ago. They are now at the highest level recorded since February 2009, surpassing the peak in listings recorded during the last housing downturn in 2010-12.”

“Values are generally falling and the supply of property coming on the market is rising significantly. Yes, it could start to look ugly over the next six months. Now add the financing layer to the equation. Regulators are forcing financiers to tighten their lending criteria who are, in turn, also putting up their home loan rates to cover rising interest costs from money sourced from overseas. Yep, ugly it could get.”

“At most risk are property owners who stretched themselves to make a purchase in the last two years. Say you were a buyer who took advantage of the various State Government funded First Homeowners Grants and bought a property worth $400,000 with a 5 per cent deposit when the banks were aggressively chasing home loan customers. If the value of that place falls by 10 per cent then your deposit has effectively been snuffed out. Instead of having $20,000 equity in the house, you now have none.”

“In fact, you’re in ‘negative equity’ where the value of the loan is higher than the value of the property. Your lender then starts to get very nervous. You are at risk of them demanding you pay down a big chunk of the loan to get back into positive equity, forcing a sale of the property or getting you to arrange finance with another lender. Believe us it will be a lot harder to refinance now than a year or two ago.”

“Mortgage Choice CEO Susan Mitchell has put out a warning about how banks have drastically changed their approach to lending, ‘our data reveals that home loans are taking longer to progress from application through to settlement, as lenders’ qualification criteria becomes more onerous in order to comply with responsible lending standards. We have found that lenders are conducting a more thorough analysis of home loan applicants’ monthly living expenses, requesting forensic detail on as many as 15 expense categories including clothing, entertainment, medical, transport, education, childcare and more.’”

“‘Lenders will ask to see a minimum of three months’ worth of spending which allows them to determine an applicant’s ability to service a loan. Some home loan applicants are having to justify their expenses in certain categories and are being told that they need to change their spending behaviour to increase their chances of getting a home loan.’”

The Australian Financial Review. “Chinese-backed developer Poly Australia expects to limit apartment settlement failures to 2 per cent in its 501-unit project in northern Sydney’s Epping. Title registration occurred at the end of July and with 95 per cent of the apartments in Poly Horizon now settled, the developer had a shortfall of about 30 apartments it was planning to lease out in the medium term, rather than sell at a discount, sales director Jay Carter said on Wednesday.”

“The downturn in the Sydney residential market that pushed housing values down 5.6 per cent in the year to August has put pressure on apartment buyers where values of off-the-plan units have fallen and also prompted developers to take steps to work with buyers to help them settle.”

“The wave of settlements of newly completed apartments is forcing tough decisions about unsold stock. Developers are reluctant to discount to clear unsold properties as this creates a devaluation risk for the whole project that could, in turn, create other problems, but that’s a luxury only available to larger players with deeper pockets. Smaller ones may not be able to.”

“In May, Sydney developer Ceerose said it was renting out 100 unsold apartments across Sydney’s inner west, north shore and the CBD. Poly, with projects such as a 100-dwelling development in Melbourne’s eastern suburb of Doncaster and a 67-unit, four-storey Tilia project in northern Sydney’s Lindfield, now has a pipeline of about 1200 dwellings nationally, across the land subdivision, townhouses, apartments and boutique developments, Mr Carter said.”

Consumed By People Who Are Not Here

A report from Next City on Massachusetts. “A large percentage of Boston’s luxury condos are going to LLCs and trusts rather than owner-occupants according to a new study, which claims that the city’s high-end building boom isn’t doing much to address the local housing shortage. Researchers from the Institute for Policy Studies (IPS) examined property records for roughly 1,800 condos in 12 newer luxury buildings throughout the city, the Boston Globe reports. The condos generally sell for over $3 million apiece.”

“They found that over 35 percent of the units were owned by LLCs or trusts that obscured the real owners and beneficiaries. What’s more, 64 percent of the owners didn’t claim the residential exemption offered by the city, which may indicate that Boston isn’t their primary residence.”

“‘I wouldn’t even call these buildings a housing market,’ study author Chuck Collins recently told the Globe. ‘It’s just another asset class for a segment of investors looking for an alternative to the stock market. It’s not a home. It’s a wealth-storage unit.’”

From Curbed Boston. “In some buildings, the shares of LLCs and those units not claiming the residential exemption are particularly high, according to the study. For instance, 56 percent of the 51 units in the Mandarin Oriental at the Prudential Center ‘are owned by trusts, LLCs, and shell corporations, and fewer than 18 percent claim a residential exemption.’ At Downtown Crossing’s Millennium Tower, 35 percent of its 443 units ‘are owned by shell corporations and trusts, and almost 80 percent of the units do not claim the residential exemption.’”

From WBUR News. “Opponents of Boston’s luxury housing boom are warning of another prospective danger beyond raising rents and forcing out longtime residents — tax evasion and money laundering under the cover of the multimillion-dollar condos sprouting through the sky. The reports co-author, Boston-based Chuck Collins, says the shell game could be providing cover to crimes like tax evasion — and warns the city should be vigilant.”

“‘When you see a Delaware LLC buying a $6 million condo with cash and you can’t trace the owner, then you have to ask: ‘Why is this property being purchased? Is it money laundering?’ Collins said.”

“‘We spot-checked some of those buildings and found there were large numbers of cash purchases by shell corporations, which is sort of a red flag for possible use of illicit funds,’ Collins said. ‘They have very high percentage of non-resident ownership, they have a very high percentage of shell corporations. … If we were in Miami or New York those are the buildings that the Treasury Department crime division would be investigating.’”

“The study points out that Boston is not among the cities monitored for illicit real estate dealings by the Financial Crimes Enforcement Network, or FinCEN, a Treasury Department program designed to combat money laundering.”

“For City Councilor Lydia Edwards, however, more needs to be done for middle-class and low-income housing, especially in light of the new report. ‘Boston is being consumed by people who are not here,’ Edwards said. ‘That’s I think where there’s a disconnect, where we are building really more pieces of stock then we are actually housing.’”

“Sam Tyler, president of the Boston Metropolitan Research Bureau, says Boston depends heavily on the tax revenue that comes from new development. And the luxury housing market, with many of the developments cited in the report permitted under Mayor Tom Menino, is not something the city is in a position to change.”

“The city ‘is not necessarily encouraging luxury condominiums and the construction of those, it’s just that that’s the kind of housing that can be built downtown,’ said Tyler.”

From WGBH News. “WGBH All Things Considered anchor Barbara Howard: Boston, as we all know, is undergoing a real housing crisis in terms of the average homeowner looking to buy. These are luxury properties, so how would that impact your average Joe looking for a house?”

“Chuck Collins - lead author of the report: Here’s what I would say: if you look at what’s happening right now, we have a luxury real estate boom, and we have thousands of more luxury units coming. They’ve been approved in the Seaport and in the Fenway and the Back Bay. Ten years from now, we’re going to look back and say the city, the skyline, and the demographics of the city have been fundamentally altered.”

A Hit To Their Bank Account

A report from the New York Times. “If not for the financial crisis, it’s entirely possible that American TV viewers would never have heard of shiplap or considered Waco, Tex., a cool place to visit. Chip and Joanna Gaines, the hosts of HGTV’s hit show ‘Fixer Upper,’ popularized farmhouse chic as they went about their inexpensive but stylish home renovations. The Gaineses pulled the plug on ‘Fixer Upper’ last year. The couple wanted ‘to catch our breath a bit,’ Mrs. Gaines said.”

“Their exit at the peak of their popularity was a shock to their fans. Especially since they had achieved their larger goal. The housing market in Waco is ‘booming,’ and there’s even a bus tour of ‘Fixer Upper’ homes. Perhaps, like savvy investors, the couple sensed another bubble about to burst.”

The Burlington Free Press in Vermont. “In February 2015, Michael and Denise Metz put their property at 6 Turtle Moon Road in Charlotte on the market for $2.1 million. Nearly three years later, on Jan. 3, 2018, the house finally closed for a price of $1.13 million, nearly $1 million less than the original asking price. And that tells you a lot of what you need to know about lakefront property in Chittenden and surrounding counties. The market remains relatively soft.”

“‘It’s not a high-end market around here, in Vermont,’ said Jay Strausser of Four Seasons Sotheby’s International Realty in Burlington. ‘We are highly taxed in this state. There are still more wealthy people moving out of this state than are sitting put. I don’t see the state addressing that issue.’”

The News Press in Florida. “A Cape Coral mansion at 5832 Armada Court has sold for $4.125 million, marking the highest-priced residential home sold since 2013, when the same home sold for $5.3 million. Ted Stout, Realmark Realty broker and son of Will Stout, the home’s original owner and builder, brokered the deal, which officially went for $3.9 million but inflated to $4.125 when counting furniture and a third lot adjacent to the property.”

“Originally listed at $5.9 million, the price drop about matched the amount of work that will go into fixing it up, Stout said. ‘It is a substantial sale, and that’s important for that Cape Coral market,’ said Michael Polly, president of Royal Shell Real Estate, which is listing the house next door, 5845 Armada Court, for $2.7 million. ‘They see the value of the property. It’s really four lots in that sale. Those lots usually go for $2 million apiece. There are 13 air conditioners in that property. That gives you an idea of the magnitude of that house.’”

From Curbed Hamptons in New York. “A 3-acre estate in the south-of-the-highway Georgica section of East Hampton has just taken more than $2 million off its original $16.9 million asking price. Located at 253 Cove Hollow Road, the shingled home is now asking $14,495,000. This is the first price cut that the property has seen since it was listed for sale in October of 2017.”

From Mansion Global on New York. “One wealthy resident of Manhattan’s One57, the blue-hued glass building on Midtown’s grandiosely named Billionaires’ Row, took a hit to their bank account on Monday when their penthouse sold for $42 million—almost $6 million less than they paid for it. The seller, listed in property records under the shell company Unit 58A Acquisition Corp., paid $47.78 million in cash in 2015 for the full-floor apartment, after entering into contract on the condo in 2012, two years before the building opened its doors to residents, according to property records.”

“In early 2017, the four-bedroom apartment hit the market for $52 million, but the price was later reduced. It was most recently asking $44 million, property records show.”