patrick.net

People maxing out on their credit cards is one of the first things you should see before a housing crash:

https://www.bloomberg.com/news/articles/2023-02-15/starwood-single-family-rental-firm-stung-by-housing-market-slump

Starwood Single-Family Rental Firm Stung by Housing Market Slump

Retired baseball star Alex Rodriguez took to LinkedIn in late 2021 to ask for help: He’d invested alongside Starwood Capital Group in a single-family rental company that was buying 1,000 homes a month and needed to hire as many as 500 people to keep up.

“The right time to get on board is now,” he wrote in a post.

More than a year later, the company, Tiber Capital Group, is pulling back, the victim of a sudden housing slowdown that caught many sophisticated players by surprise. The Capitol Heights, Maryland-based firm has sharply curtailed real estate purchases and fired hundreds of workers, according to people familiar with the business, who asked not to be named because the matter is private.

The rapid growth of companies such as Tiber has been one of the defining features of the US housing landscape in recent years, adding to a homebuying frenzy that peaked with the largest single-family landlords buying more than 10,000 homes a month. Now, Tiber and its peers have become symbols of a dizzying retrenchment — cutting jobs and slamming the brakes on buying while they wait for the market to improve.

Tiber, which had begun acquiring homes for Starwood by 2019, positioned itself for rapid growth as the pandemic supercharged the market and eventually attracted Rodriguez, whose real estate bets have stretched from Manhattan to Florida. Representatives for Rodriguez and Tiber didn’t respond to requests for comment. Starwood declined to comment.

The slowdown in buying has persisted. The 20 largest single-family rental firms, which bought more than 10,000 homes in September 2021, acquired about 850 properties in December 2022, according to data firm SFR Analytics.

Many landlords are still bullish on rental homes. They generally aim to hold onto properties for a longer length of time than other buyers, which can help insulate them from the price corrections that started to slam the market last year. But firms that earn fees for deploying capital are getting squeezed, and a dearth of deals has pushed many to cut staff.
Read more about the housing slump that has pummeled Wall Street and tech-backed buyers.

The job cuts have spread throughout the single-family rental space. Amherst, among the largest single-family landlords, laid off about 20% of its staff across two rounds of cuts, in November and January, people familiar with the matter said. A representative for Amherst said the layoffs didn’t affect the firm’s property-management capabilities, and that the company expects the industry to increase purchase activity this year.

It remains unclear when single-family rental companies will ramp up acquisitions. In the current environment, holding off from purchasing more homes makes sense, according to Jeff Langbaum, who covers publicly listed single-family landlords as an analyst at Bloomberg Intelligence.

Another company, Roofstock, laid off 20% of its staff late last year. Chief Executive Officer Gary Beasley said in an email that the layoffs were necessary to align costs with market activity. But the industry shakeout and recent price declines may create opportunities for investors who don’t rely on debt.

“Acquisition activity is indeed way down, driven principally by the run-up in borrowing costs,” said Beasley, Roofstock’s CEO. “There is a good opportunity emerging for unlevered buyers to come into the market and take advantage of a much less frothy environment.”

https://finance.yahoo.com/news/mortgage-rates-jump-higher-after-nearing-6-170015728.html

U.S. MORTGAGE RATES RISE FURTHER FROM 6%

zzyzzx says

U.S. MORTGAGE RATES RISE FURTHER FROM 6%

Duh! never believe fake gov inflation numbers. They are always busy printing stuff.

https://www.reddit.com/r/FirstTimeHomeBuyer/comments/113sx2c/just_a_rant_wish_we_never_bought_a_house_and_just/

Just a rant — wish we never bought a house and just continued renting forever.

The story above illustrates how much depends on a good inspection.
That sounds like an expensive nightmare to me.

clambo says

The story above illustrates how much depends on a good inspection.
That sounds like an expensive nightmare to me.

And the homeonwer is a moron who doesn't know how to fix anything, or when a contractor is lying to them,

zzyzzx says

https://www.reddit.com/r/FirstTimeHomeBuyer/comments/113sx2c/just_a_rant_wish_we_never_bought_a_house_and_just/

Just a rant — wish we never bought a house and just continued renting forever.

Should've bought a full-house warranty for a year. They are surprisingly affordable.

PS. We got one courtesy of the seller when we bought our shack. But that was in a verrrrrrry slooooooow market between two booms.

zzyzzx says

https://www.reddit.com/r/FirstTimeHomeBuyer/comments/113sx2c/just_a_rant_wish_we_never_bought_a_house_and_just/

Just a rant — wish we never bought a house and just continued renting forever.

Sounds like everyone got their pound of flesh off of this home buyer. In my opinion, if it makes financial sense, home buyers should just stop paying their mortgages and do what is in their best interests.

zzyzzx says

https://www.reddit.com/r/FirstTimeHomeBuyer/comments/113sx2c/just_a_rant_wish_we_never_bought_a_house_and_just/

Just a rant — wish we never bought a house and just continued renting forever.

This story sounds like a troll. It has obvious "continuity" errors. For example, the guy living in it for 10 years before selling never took a shower? Why wasn't the 40 gallon hot water tank just replaced with tankless rather than moving it and building a garage drain? How did a home inspection not catch any of this?

Wolf wrote this for his blog this morning:

There better be a halfway decent spring selling season, which is supposed to already have started in San Francisco and Silicon Valley, because this is getting pretty bad, pretty fast. But it’s hard to imagine just how good the spring selling season can be amid countless reports of layoffs, working from home somewhere else, with big numbers being thrown around about how many people have left Silicon Valley and San Francisco. The City of San Francisco alone lost about 56,000 residents, or about 6.3% of its population, in the period of 2020 through 2022, according to Census data, even as about 12,000 new housing units were completed over the same period.

The median price in the nine-county Bay Area plunged by another 8% in January from December, by 17% year-over-year, and by 35%, or by $540,000, in 10 months from the crazy peak in March 2022, from $1.54 million to $1.00 million, according to the California Association of Realtors.

https://wolfstreet.com/2023/02/17/san-francisco-bay-area-housing-market-crashes-prices-plunge-35-from-crazy-peak-where-is-demand-supposed-to-come-from/

Party On, Hipsters.

The Bay area is down 35%?

https://www.reddit.com/r/realestateinvesting/comments/1148yx8/im_in_the_red_every_month_in_a_hcol_city_do_i_sell/

I’m in the red every month in a HCOL city. Do I sell?

https://www.reddit.com/r/REBubble/comments/1143yr7/the_builder_i_offended_with_a_low_ball_offer_last/

The builder I offended with a "low ball" offer last month reached out today

cisTits says

If SFBA is your market, sorry. Most of the country is completely fine. A 10-30% drop in the midwest is maybe $60-80k on solid loans. Not $500k on $1.5M loans. Most are under 5% interest. People will just stay, so inventory doesn't rise, so the floor on prices is much higher than CA. 10-20% doesn't move the needle here. We don't care. I'm sorry people lost 10, 20, 30% on a $2M property, we simply don't give a shit. Wa wa.

Sick of CA being essentially the dictator of the country. It is NOT how the rest of the country works. I hope everyone loses 50% out there. Might be the awakening you all need.

cisTits says

Just falling back to get in-line with historical appreciation rates…

WookieMan says

I'm sorry people lost 10, 20, 30% on a $2M property, we simply don't give a shit. Wa wa

One reason the prices were too high is because inventory was too low. Said differently, very few, a miniscule portion, of homeowners in the region, "lost" anything more than "vapor equity".

The drop is not bad news for the region. More affordability is good for everyone, even ®ealtors. Hopefully we're just getting started on the trend Wolf wrote about.

WookieMan says

Sick of CA being essentially the dictator of the country. It is NOT how the rest of the country works.

Ahem, Patrick is a long-time resident of the SF Bay Area, his blog has a focus on his back yard. Wolf Richter, the author of the piece, is a resident of SF who sometimes writes about housing in the region. How does this make California dictator of the country? If you're sick of it maybe you will feel better if you don't read a Bay Arean's blog that has a linked article by a different Bay Arean.

cisTits says

WookieMan says

If SFBA is your market, sorry. Most of the country is completely fine.

Cut the 'Housing Expert' crap.

Nope. I know more than pretty much anyone here beside probably Eman. You know zilch about the market I KNOW. I don't give a shit about CA. It's fucked. The rest of the country outside of cities and hipster spots is totally fine if not appreciating. YOU don't know what you're talking about. CA is NOT the rest of the country. There are NO houses for sale in flyover country. What don't you get about inventory?

If one person has 2 AA batteries and 10 people need 2 AA batteries WTF happens to the price? CA is not the rest of the country. We don't give a fuck. No one want to move there anymore domestically. California dreaming is over. And so is their real estate. Other places, nope. Give me stats outside of CA. Otherwise you're just talking shit.

B.A.C.A.H. says

Ahem, Patrick is a long-time resident of the SF Bay Area, his blog has a focus on his back yard. Wolf Richter, the author of the piece, is a resident of SF who sometimes writes about housing in the region. How does this make California dictator of the country? If you're sick of it maybe you will feel better if you don't read a Bay Arean's blog that has a linked article by a different Bay Arean.

Got people form all over the country on this forum. Patrick is also from my region originally. Yes it's a CA centric site, won't disagree. We have users from Virgina, Maryland, multiple from Florida, Tennessee, Georgia, Idaho, Nevada, New York, etc.

It's not about the article. CA has the most House representatives in the country. They try to run the country. How has that worked out for you guys? Sure some have made bank, but it ain't looking good right now. Rest of the country in most places is stable and fine. I agree with you lower housing prices is the only thing that will pull CA out of a potential death spiral. CA is really the only state it's happening in.

NY is stabilized. So has IL. CA is in for a rough go of it. Which could be a good thing on the back end. I'm not certain though with the climate. Until y'all get rid of the homeless, people will have minimal interest in living there. City and large suburbs are going the way of the horse and carriage.

Al_Sharpton_for_President says

You can buy them through your broker. You can also buy them direct from the gubberment. (https://www.treasurydirect.gov). I've only purchased through a broker, like Schwab, so I have no experience with buying direct.

I've done both. The https://www.treasurydirect.gov/ is kind of annoying to use, but works well enough.

I am slightly worried about a US default though. Could happen. All Treasury holders could get a "haircut" as they say.

Patrick says

I am slightly worried about a US default though. Could happen. All Treasury holders could get a "haircut" as they say.

I do not know if default has ever happened before in the USA. I don't think it will happen in the present form of conditions and government, unless there is a "fundamental change" with our government and society.

They'll inflate themselves out of the crisis first, if not they may make small cuts like to entitlements and also small tax increases.

.

Closing the gold window was a default.

WookieMan says

Rest of the country in most places is stable and fine.

Good that no state other than CA has passed ponzy scheme 1978 Prop 13 to deal with its ill effects.

GNL says

Closing the gold window was a default.

When FDR revalued gold from $20.67 per ounce to $35 per ounce, that was a default as well.

The inflation from 1974 through 1982 should've been classified as a default too.

Then there is the Biden default of 2022.

That's when the Fed went from having a balance sheet of about $8.5 trillion to having a marked to market balance of about a negative $3 trillion.

Nobody in the mainstream media talks about this. You ain't supposed to know.

Shhhhhhhhh, Patrick.net users only please.

https://www.wxyz.com/news/us-foreclosure-filings-are-up-36-michigan-is-in-the-top-3

Patrick says

I am slightly worried about a US default though. Could happen. All Treasury holders could get a "haircut" as they say.

I've thought about this. Candidate Trump, a Serial Bankrupcty Filer, suggested haircuts as a remedy for the federal debt in 2016. So where before it was an un-mentionable concept, like Valdemort in the Harry Potter stories, he let the cat out of the bag.

I followed the goings on during the Financial Crises in Europe. Small depositors were made whole. There were some withdrawal limits like 50 Euro per day in Greece or whatever, but nobody's deposits were taken or cancelled or wiped out, not even the accrued interest. Haircuts for sovereign debt and large depositors (like Russian oligarch deposits in Cypriot banks) were fair game. I think authorities feared the pitchforks more than anything else. Remember, the military, police departments, private security goons, etc are mostly in the pitchfork crowd.

Applying those observations to our situation, I made a political calculation (not a financial calculation), that insured (FDIC) deposits for small depositors are safer than Treasury Debt, for parking cash. Yes, snarksters, I know: the FDIC could go insolvent. In that case, because of the fear of pitchforks, the Treasury will print the money to cover it. (Yes, yes, I know: debt monetization and inflation).

gabbar says

https://www.wxyz.com/news/us-foreclosure-filings-are-up-36-michigan-is-in-the-top-3

And that's not including all the auto loans that are so upside down they defy gravity. As long as some people can afford the payment, it doesn't matter if the loan extends into the next millennium.

From the Redfin article:

“Investor home purchases in the fourth quarter of 2021 were near their record high, which is another reason the year-over-year decline in 2022 was so dramatic.

The typical home investors purchased cost $425,926, little changed from one year earlier but down 5.8% from one quarter earlier.

U.S. home prices are up less than 1% year over year—compared with 15% growth one year ago—and have fallen 11% from their spring 2022 peak.”



I’m shocked that investors bought 18% of the real estate inventory in the current market environment. It made sense when they couldn’t earn much yield in treasury and had to settle for real estate at 4-5 cap with borrowing cost around 3%. Given today’s borrowing cost and the cap rates, it’s negative leverage. 🤔

Eman says

I’m shocked that investors bought 18% of the real estate inventory in the current market environment. It made sense when they couldn’t earn much yield in treasury and had to settle for real estate at 4-5 cap with borrowing cost around 3%. Given today’s borrowing cost and the cap rates, it’s negative leverage. 🤔

If you have cash flow, can earn income on a property you want to buy, there's not much out there. Result, prices go higher.

High interest rates are meant to make people NOT want to sell to control inflation. So they don't. Most are locked in at low interest rates outside of the last 18 months, but with qualified and solid underwriting. I can piss in a 360º circle in my backyard and get a $50k+ a year job. Coastal cities are going to drag it down as the exodus continues. Move from the $1M condo to the rural/suburban home on 1/2 acre for $500k. Median price nationally will drop. Doesn't mean it's bad. Just means people are getting smart.

WookieMan says

Eman says

I’m shocked that investors bought 18% of the real estate inventory in the current market environment. It made sense when they couldn’t earn much yield in treasury and had to settle for real estate at 4-5 cap with borrowing cost around 3%. Given today’s borrowing cost and the cap rates, it’s negative leverage. 🤔

If you have cash flow, can earn income on a property you want to buy, there's not much out there. Result, prices go higher.

High interest rates are meant to make people NOT want to sell to control inflation. So they don't. Most are locked in at low interest rates outside of the last 18 months, but with qualified and solid underwriting. I can piss in a 360º circle in my backyard and get a $50k+ a year job. Coastal cities are going to drag it down as the exodus continues. Move from the $1M condo to the rural/suburban home on 1/2 acre for $500k. Median ...

Interestingly, markets experiencing the most drawdown in investors activity are the cheaper markets where people likely moved to after the pandemic due to work from home.

Wookie says

Interestingly, markets experiencing the most drawdown in investors activity are the cheaper markets w

Yeah, Phoenix and Las Vegas are going to crash hard like they did in 2008-2013 (est.). Some of the run up in prices were work from home refugees leaving California and buying in Phoenix, Boise, etc..

Been reading the major tech companies are requiring their workers to return to the office, at least 3 days a week.

,

Wolf Street website is reporting a 13.2% drop from peak in median home sales price of $408,000.

Its now at $360,000.

Late 2019 the price level was around $290,000.

Figure about 20% inflation since late 2019, and the total real gain of housing is no more than 3%.

https://twitter.com/charliebilello/status/1628055670074314754?t=VyMuqFoevyG1wyzTRdCh4g&ref_src=patrick.net

As I mentioned, the mortgage rates right after the pandemic really distorted real estate prices up to spring 2022. Let’s see how this will unwind itself in the coming years.

Eman says

Let’s see how this will unwind itself in the coming years.

And if will take years,!

Many large companies are mandating a return to the workplace. But, there have been tens of thousands of layoffs. Hard to figure out what this is doing to the housing market, except driving up big city rental prices.