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Record Drop in Foreigners Buying U.S. Homes
Foreign purchases of U.S. homes had their biggest drop ever, bringing relief to waves of American house hunters who have struggled to compete in affluent neighborhoods with wealthy buyers from abroad, The Wall Street Journal reported. Purchases by international buyers totaled $121 billion in the fiscal year ended in March, down from $153 billion the previous year, according to a survey released Thursday. That 21 percent decline was the largest on record. The drop in foreign interest helps well-heeled buyers in places like Manhattan, Seattle, San Francisco, Miami, and Orange County, Calif. While foreigners make up a small share of the overall U.S. housing market, they are concentrated near the high end of the market and are more likely to pay in cash and bid above the asking price, which has challenged local buyers to come up with larger down payments and pay more. The sharp decline in purchases reflected higher home prices, a strengthening dollar and intensifying political tensions between the U.S. and other parts of the world, economists say. The pullback creates an additional challenge for many sellers, who have welcomed foreign interest and the ease of all-cash deals. The housing market is already slowing, especially for developers of higher-end condos, some of whom heavily marketed their units to foreign investors.
Housing Market Is Showing Signs of Cracking: 'Anything-Goes List-Price Strategy Is No Longer Working'
Sales of both existing and newly built homes fell in June, the latter to the lowest level since last year, CNBC reported. Prices continue to rise, but the gains are slowing. Mortgage applications to purchase both new and existing homes have been falling steadily, and mortgage rates are rising again. Single-family home construction also fell and was lower than June 2017. In one of the nation's hottest metropolitan markets, Denver, home sales fell 5.5 percent annually in June, even as prices hit an all-time high. Realtors there blame it squarely on a lack of homes for sale. "Year-over-year prices have been climbing for more than two years now, which is great news for homeowners and sellers," said RE/MAX CEO Adam Contos. "The slower sales figures we're seeing are tied to inventory more than anything else." But the slowdown is also tied to overheated prices. Even in the hottest markets, there is a limit to affordability, and that limit is clearly now being hit. In Southern California, sales of both new and existing homes fell sharply in June compared with a year ago. Demand is still quite strong, and while prices continue to gain, more listings are showing price reductions.
Southern California Home Sales Crash, a Warning Sign to the Nation
Southern California home sales hit the brakes in June, falling to the lowest reading for the month in four years, CNBC reported. Sales of both new and existing houses and condominiums dropped 11.8 percent year over year, as prices shot up to record highs, according to CoreLogic. The report covers Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties. Sales fell 1.1 percent compared with May, but the average change from May to June, going back to 1988, is a 6 percent gain. The weakness was especially apparent in sales of newly built homes, which were 47 percent below the June average. Part of the reason is that builders are putting up fewer homes, so there is simply less to sell. In the past, California, one of the largest housing markets in the nation, has been a predictor for the rest of the country. Home prices have been rising everywhere amid a critical housing shortage. Prices usually lag sales by several months, and sales are beginning to crumble, even as more inventory comes on the market. The supply of homes for sale increased annually in June for the first time in three years, according to the National Association of Realtors, but sales fell for a third straight month.
Chinese Reversing Big U.S. Real Estate Buying Spree that Had Helped Boost Prices
Chinese real-estate investors, facing pressure from Beijing, are reversing a yearslong buying spree in the U.S. where they often paid record prices for marquee properties, The Wall Street Journal reported. Chinese insurers, conglomerates and other investors have turned net sellers of U.S. commercial real estate for the first time in a decade. They have spent tens of billions of dollars to acquire hotels, office buildings, and vast swaths of empty land to build residential towers, but Chinese investors sold $1.29 billion worth of U.S. commercial real estate in the second quarter while purchasing only $126.2 million of property. This marked the first time that these investors were net sellers for a quarter since 2008. The more than $1 billion in net sales reflects how much the Chinese government’s attitude toward investing overseas has changed in recent months. Chinese investors began scooping up U.S. real estate a few years ago after Beijing officials loosened restrictions on foreign investment. They quickly made their mark in U.S. cities like Los Angeles, San Francisco and Chicago with high-profile acquisitions, including the $1.95 billion purchase of the Waldorf Astoria in New York, the highest price ever paid for a U.S. hotel. Now, the Chinese government has changed course again, cracking down on certain types of outbound investment that include real estate in part to help stabilize the currency. Chinese companies are unloading prize properties to repay debt and to comply with regulatory and market pressures from home. Analysts say that increasing tensions over trade and national security between China and the U.S. also have contributed to the pullback. The retreat by Chinese investors could slow growth further in the U.S. commercial real estate market. Property values have plateaued on average in the last 18 months after rising sharply in the early years of the post-2008 financial crisis recovery.
States Sue U.S. to Void State and Local Tax Deduction Cap
our U.S. states sued the federal government on Tuesday to void the new $10,000 cap on federal deductions for state and local taxes included in President Donald Trump’s 2017 tax overhaul, Reuters reported. The lawsuit by New York, Connecticut, Maryland and New Jersey came seven months after Trump signed the $1.5 trillion overhaul passed by the Republican-led Congress, which cut taxes for wealthy Americans and slashed the corporate tax rate. Critics have said the cap would disproportionately harm “blue” states that tilt Democratic. Yesterday’s lawsuit adds to the many legal battles between such states, including several with high taxes, and the Trump administration, which was accused of unconstitutionally intruding on state sovereignty by imposing the cap.
Foreclosures Restart in Puerto Rico
The foreclosure machine that ground to a halt in Puerto Rico after the devastation caused by Hurricane Maria in September is slowly cranking up again, the New York Times reported. Island residents who fell behind on their payments are facing creditors ranging from Wall Street to the federal government. Over the last four months, nearly 300 new foreclosure actions were filed in federal court in San Juan and in local courts across the island. Among the firms filing cases are an investment firm controlled by Credit Suisse, one in which the private equity firm TPG Capital is an investor and banks like Citigroup and Santander. Even the United States Department of Agriculture, which has underwritten more than 3,000 mortgages in mainly rural areas of Puerto Rico, has begun to foreclose on delinquent borrowers. The filings are some of the first in Puerto Rico since several federal agencies — including the U.S.D.A. — imposed moratoriums on new foreclosures and legal actions in existing cases after the hurricane devastated the island’s electrical grid. But the moratoriums have begun to expire, setting the stage for what housing advocates have feared could be a wave of home foreclosures in the United States territory of 3.4 million people.
A Decade on, Pre-Crisis Mortgages Linger for Big Banks, Homeowners
A decade on big U.S. banks are still running down and selling off crisis-era mortgages, a process executives point to as weighing on loan growth, Reuters reported. Eager to see a turning point in loan books, analysts count these portfolios as one factor, along with home equity loan runoff and new mortgage demand, to watch for when deciphering the true loan growth picture as U.S. second-quarter bank earnings start today. Wells Fargo & Co and Bank of America Corp executives have flagged portfolios from prior to the 2008-09 crisis era where banks are no longer originating similar new products when they are asked to predict a turning point in consumer loans. “These are portfolios of a bygone era that were very, very painful for the banks,” said Gerard Cassidy, bank analyst with RBC Capital Markets. “They are not plain vanilla portfolios, which means they are more costly to manage. It may just not be worth the headache.” Analysts have said higher loan growth is critical to driving bank’s stock prices, but they anticipate only a modest acceleration year over year, driven primarily by commercial and industrial loans, not residential. Bank of America at the end of 2017 had nearly $11 billion in credit-impaired mortgages left from buying Countrywide Financial, less than one-third of what it held at the end of 2009. JPMorgan Chase & Co still owns roughly $30.5 billion-worth of the $89 billion in bad loans took on from Washington Mutual in 2008.
Woodbridge Group to Start Paying Investors By End of 2018
Woodbridge Group is going to take two to three years to sell off its portfolio of valuable real estate holdings under bankruptcy protection, but it is determined to begin paying off investors this year, WSJ Pro Bankruptcy reported. The first payoff from Woodbridge won’t be much, said Richard Pachulski, lawyer for the official committee representing creditors of the California company. Investors might see 10 cents on the dollar on the hundreds of millions of dollars worth of debt, Pachulski said at a hearing in the U.S. Bankruptcy Court in Wilmington, Del. Less than two weeks after the company filed for chapter 11 bankruptcy in December 2017, the Securities and Exchange Commission filed a civil fraud action against Woodbridge, accusing it of operating as a Ponzi scheme.
