Displaying items by tag: Mortgages

(New York)

The US real estate market has seen a string of bad news over the last few months, but many were hoping July housing starts would see a rebound. New data out shows that such a boost did not materialize, with housing starts underperforming expectations. The previous month’s reading was also downgraded by 13%. “Housing is the sole weak spot in the economy right now, and that’s probably not going to change”, according to one economist.

FINSUM: There is no near-term recovery in sight. We wonder if housing might be a leading indicator of a looming recession.

(New York)

Boom looks ready to turn to bust in the real estate market. While those paying attention will already know that commercial real estate looks past its peak, and residential real estate has just started to show signs of weakness, what US investors may not realize is that the phenomenon is global, and that fact is more important than ever. Because of the rise of the global wealthy and their transient lifestyles, global real estate markets have become more correlated, and that means additional bad news for US home prices. All across the world, from London, to Sydney, to Beijing, to New York, urban home prices are weakening as inventories rise and the sector switches from a seller’s to a buyer’s market.

FINSUM: The real estate market used to be less correlated, but the huge boom in urban real estate over the last decade means that all areas will probably come down together too. To recap, US home purchases have been falling at the same time as inventories have finally begun rising. It seems like a rough period is coming.

(New York)

The US commercial and residential real estate markets have been headed in opposite directions for a little while now, with the former looking weak and the latter looking strong. However, new data suggests that US residential real estate now looks headed for its worst downturn in years. The market is suffering from heavy prices and rising rates, which are constraining buyers. Those realities are now starting to play out in the data, as the latest US market info shows that existing home sales dropped in June (for the third straight month), new home purchases are at their slowest pace in eight months, and inventory is finally starting to increase. Annual price gains in May were also their slowest in almost a year and a half.

FINSUM: It is still early days to predict a big downturn, but these three data points are a big warning sign. We are especially paying attention to rising inventory, as really tight supply has been the hallmark of the market for at least five years.

(Atlanta)

All of the worries in the real estate market have been focused on commercial property. While commercial real estate is supposed to be overvalued and over-supplied (a dangerous combo), US residential real estate is supposed to be healthy, with manageable price rises and tight supply. However, the residential market has just gotten some bleak news. US Housing starts plunged by over 12% in June, and new building permits dropped over 2%. The reasons cited for the drop are a lack of skilled workers to build and a higher cost for materials.

FINSUM: The question is whether this is a demand-led problem (new buyers pulling away) or a supply-led one (meaning the supply of everything is too tight). The first would indicate falling prices, the second the opposite.

(New York)

When big US banks are worried about lending to the commercial property market, one knows things must be getting bad. Big bank executives say they are unwilling to sign off on a number of deals in commercial real estate as the sector looks overheated. For instance, the CFO of JP Morgan Chase said spreads, a proxy for returns, were “under a lot of pressure”. Big banks like JPM and Wells Fargo have been shrinking their exposure to the sector for some time. Market participants say competition in the space is so high that deals no longer provide good risk-return metrics.

FINSUM: It sounds like commercial real estate is maybe just past its peak and headed for a downturn. All of which appears in direct contrast to the residential property market.