In an extraordinary analysis piece, Keith Jurow of Barrons opened up this week’s investor news with a topic that may be unfamiliar to some—mortgage modifications. This refers to the ability to alter an existing mortgage to help avoid default through longer amortization, reducing principal, and adding delinquent interest to the principal. Jurow reported this week that U.S. Office of the Comptroller of the Currency (OCC) data shows that 21% of modified loans in 2019 Q1 have already re-defaulted.
Further, according to Jurow, JPMorgan Chase and Bank of America reported that 43% and 41% of their modified loans, respectively, had re-defaulted. As home prices plateau in most markets and drop in many others, this is a growing issue worth noting.
Adding to this discussion is Damian Paletta of The Bulletin, reporting this week that Fannie Mae, Freddie Mac, and the Federal Housing Administration (FHA) now guarantee $7 trillion in mortgage-related debt—33% more than before 2008. This is a huge taxpayer exposure, one that may be exacerbated by Jurow’s above analysis.
Paletta further reports in The Washington Post that debt-to-income is at its highest levels since 2000. “FHA had found that roughly 25 percent of all new mortgages it backed, equivalent to more than $50 billion in loans, had debt-to-income levels above 50 percent, the highest level since 2000.”
Compliment this with an excellent report from the Brookings Institute this week authored by Peter Conti-Brown titled How do you solve a problem like Fannie and Freddie? Not by creating more of them.
Sales and price reductions in major markets
We are seeing home price drops in major metros across the U.S., and major media is taking notice. Starting in the Bay area, with Scott Budman of NBC Bay Area reporting that “According to Zillow, 16% of listings in the South Bay and 12% in San Francisco dropped the price in the last 12 months.” The era of crazy prices, overbidding, and multiple offers in this market may be over.
Jennifer Huffman of the Napa Valley Register reports that home sales were down 2.3% month-over-month in the Bay area, and down 5.7% year-over-year. This is the lowest sales volume since August 2010.
In the similarly-pricey area of New York, we are seeing a familiar story. Robert Frank of CNBC reported this week that Manhatten home prices fell 14% in Q3, the largest decline since 2010. According to Frank, “some of the decline is due to the timing of a new tax on high-priced Manhattan real estate that took effect on July 1 and may have shifted the timing of some deals.”
In Denver, Aldo Svaldi of The Denver Post reports that the pace of home sales in that city dropped 20% since August, and that home prices saw a modest 1% month-over-month decline.
That said, there are some differences of opinions about which way the market will head into 2020. For instance, Kathleen Howley of Housingwire has some positive news for national real estate watchers: 2020 will be a good year for home prices on average. Citing CoreLogic data, Howley reports that CoreLogic Chief Economist Frank Nothaft noted that home prices are projected to “increase 5.8% in the 12 months through August 2020…That’s a faster pace than the 3.6% growth seen in August 2019 from a year earlier.”
A big week for #PropTech watchers, and none of it had to do with WeWork or failed IPOs!
For starters, CoStar Group—a leading provider of commercial real estate information—announced the acquisition of STR—a hospitality analytics company—for $450 million.
In a press release, SmartRent—a provider of smart home automation for property managers and renters—announced it has received a strategic investment from the Amazon Alexa Fund. “The funding will pave the way for SmartRent to work more closely with teams across Amazon and Ring, and to develop software and hardware that turns multifamily housing environments into connected communities.”
The Canada-based YC alumni #PropTech startup Naborly—tenant screening and management platform—announced a massive seed round of $7.5 million. “The new funding will be put toward product development, specifically its product NaborlyShield, a digital service created to guarantee rental income and lease terms for landlords and tenants.”
For all you out there in Sacramento, Zillow announced this week that their Offers feature is now live in your area. And for those in Las Vegas, Redfin has rolled out their cash offer feature—RedfinNow—to sellers in that area.