Displaying items by tag: property
A lot of calculations are being done to see which states will be most hard hit by the current coronavirus lockdown. Within those assessments it is becoming clear that specific housing markets will be hit hard too. The states that look likely to have their housing markets fall the most are New Jersey, Maryland, and various counties elsewhere in the mid-Atlantic. Specifically, Sussex County (NJ), Charles County (MD), Atlantic County (NJ), Passaic County (NJ), Rockland County (NY), Orange County (NY), and Sussex County (DE).
FINSUM: These are all the locations you’d expect. The percentage of income it takes to manage a mortgage and other ownership expensive is quite high in these areas, so there is going to be a surge in delinquency.
Hopes for the housing market had been rising strongly in the last couple of months. After nearly a year in the doldrums, existing homes sales rose for a pair of months in July and August, giving the market hope that falling mortgage rates had revived the market. However, in September, sales again fell sharply, with existing home sales dropping 2.2% from the previous month. Prices, however, are rising, as short supply is moving asking prices higher.
FINSUM: Prices are holding up okay, but there is not much buying and building occurring, which means housing will be contributing less to the economy overall.
Is New York a bellwether of US real estate performance or is it an isolated enclave with no real relevance to the majority of the country? Hard to know, but if the former, then there is a lot to worry about. NY home sales are plummeting and just showed their worst decline since the Financial Crisis. Median sales prices in Q3 dropped 12% from the previous year, the sharpest drop since 2009. Average home value fell below $1m for the first time in four years.
FINSUM: In our opinion, this is idiosyncratic to New York. The city is seeing a huge flux of newly built apartments that are boosting inventory, and at the same time there is a new progressive mansion tax hurting demand.
More data has been just released on the US real estate market, and more disappointment. While the market should be rebounding because of the big fall in mortgage rates, the opposite seems to be happening. New home construction fell by the most in five months in July. Housing starts fell 4% despite lower mortgage rates. The fall came despite expectations for growth, and June numbers were also revised downward. An economist at Zillow summarized the situation this way, saying “Scarce land and high labour costs have plagued builders for much of the year, factors that have been exacerbated by unrelenting uncertainty in the global markets … This week’s flare-up, with bond markets flashing recession warnings, does not provide fertile ground for new housing investment”.
FINSUM: The market seems to be perpetually slowing, but it has not reversed outright despite over a year of weak data. Time has proved that real estate seems a little disconnected from the rest of the economy right now; in other words, it does not seem to be an indicator of much.
There is an enormous asset bubble that has engulfed much of the US, yet you probably haven’t even heard of it. That bubble is threatening a meltdown that has not occurred since the 1980s. Where is the bubble? In debt linked to farm land values. Despite falling grain prices for years, Midwest farm land has held its value very well. This has led to debt levels that hve not been seen since the farm debt crisis of the 1980s. Farm income has fallen by half since its peak in 2013, yet farm equity has only dropped 5%. According to the FT, “Farmers remain creditworthy in the eyes of banks, even as their incomes fall, because the collateral value of land remains high”.
FINSUM: That last sentence is very dangerous because it sets the stage for a doom loop of dropping values and high rates, and foreclosures, leading to even worse values. Many big lenders have a lot of money tied up here, and there are likely implications for muni bonds as well.