Regardless of the arbitrage opportunities available to "all cash" buyers, who would be happy to park some cash in real estate, the fact that ultraluxury foreclosures are soaring also means that even the "1%" is starting to succumb to reality and beginning to feel the pressure of a financial reality in which only the "too biggest" can never fail. So what are the properties in question? The photo gallery below, courtesy of RealtyTrac, shows just where any given $5 million + property stopped making its mortgage payments.
We had wondered what would happen once private equity players decided enough was enough and foreign oligarchs finished their real estate money laundering transactions. Well, we might be about to find out. According to RealtyTrac, foreclosures for homes worth $5 million or more are up 61% this year despite the fact that overall foreclosures are down 23%. The question is, does this merely represent holdouts from the prior housing bubble, or is it a sign of things to come? Only time will tell.
Concluding the trifecta of today's housing data, we present perhaps the most authoritative report on what is actually going on in the market, that by RealtyTrac. What RealtyTrac has to say is in direct contradiction with both the Permits and Case-Shiller data, both of which are now openly reliant on yield-starved institutional investors dumping cash into current or future rental properties. In fact it's worse, because if RealtyTrac is accurate, the great institutional scramble for any housing is now over - to wit: "Cash Sales Pull Back From Previous Month, Still Represent 44 Percent of Total Sales Institutional Investor Purchases Plummet Nationwide... Institutional investor purchases represented 6.8 percent of all sales in October, a sharp drop from a revised 12.1 percent in September and down from 9.7 percent a year ago. Markets with the highest percentage of institutional investor purchases included Memphis (25.4 percent), Atlanta (23.0 percent), Jacksonville, Fla., (22.2 percent), Charlotte (14.5 percent), and Milwaukee (12.0 percent)." And plunging.
Ordinary Americans Priced Out Of Housing: Institutional Purchases Hit Record, Half Of All Deals Are "All-Cash"Submitted by Tyler Durden on 10/24/2013 07:13 -0500
If there was any doubt that the US housing "recovery" is anything but the latest speculative play by deep-pocketed (namely those who already have access to cheap funding) investors, who are now engaged in rotating cash gains out of capital markets and into real estate, on their way hoping to flip newly-acquired properties to other wealthy investors, then the most recent, September, RealtyTrac report will put that to rest. To wit: Institutional investors (purchasing 10 or more properties in the last 12 months) accounted for 14 percent of all sales in September, up from 9 percent in August and also 9 percent in September 2012. September had the highest percentage of institutional investor purchases of any month since RealtyTrac began tracking in January 2011....All-cash purchases nationwide represented 49 percent of all residential sales in September, up from a revised 40 percent in August and up from 30 percent in September 2012. In other words, institutional purchases are now at all time highs, with all-cash accounting for half of all transactions!
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As RealtyTrac observes in its latest flipping report, while home-flipping among high-end homes, or those reserved exclusively for the New Normal aristocracy which buys and sells with reckless abandon almost exclusively on an all cash basis, is up 34% over the prior year with flipping on houses priced between $2 and $5 million was up a ridiculous 350%, overall flipping activity is finally starting to subside and in the third quarter was down by a third from Q3 and over 10% down from the the prior year. Not surprisingly, the bulk of the ultra-luxury flips were limited to New York and the four core California bubble markets. "More than three-fourths of all high-end flips were in five markets: the New York metro area and four coastal California markets — Los Angeles, San Francisco, San Jose and San Diego. Flips on homes priced between $1 million and $2 million increased 42 percent year over year, while flips on homes priced between $2 million and $5 million increased 350 percent year over year."
Meet The Monster Of The Housing Market: Presenting "Vampire REOs" Where Half Of Americans Live Mortgage-FreeSubmitted by Tyler Durden on 10/03/2013 08:44 -0500
Over a year ago, in addition to the money-laundering aspect (confirmed previously) and the REO-To-Rent scramble by PE firms and hedge funds (which is now over as PE become active sellers of apartment rental properties), we highlighted the third implicit subsidy to the housing non-recovery: Foreclosure stuffing. We explained this scheme by banks to limit the amount of available for sale inventory as follows: "since the properties not entering the foreclosure pipeline are effectively kept out of inventory, even shadow inventory, and thus the distressed end market, the monthly drop in foreclosures has acted as a form of subsidy to the housing market, as month after month less inventory than otherwise should, enters the market.... What this has resulted in is a logical increase in prices of the properties that are on the market." Today, the mainstream has finally caught on, and courtesy of RealtyTrac has come up with its own name for this subsidy: Vampire REOs.
Jitters from Syria still abound, as confirmed by reports from the Israeli army that two shells had hit the Southern Golan region. Despite the reports that the shelling appeared to be errant, WTI remains near session highs as markets remain sensitive ahead of the meeting between US Secretary of State Kerry and Russian Foreign Minister Lavrov in Geneva over the next two days. Buying of the 10Y is also prevalent and the yield on the benchmark bond was has dropped below 2.90%, or at 2.88% at last check. Today's key economic news in the US session will be the weekly claims report, the Fed buying 10 Year bonds at 11 am followed by the Treasury selling 30 Year bonds at 1 pm (this follows the Fed buying 30 Year bond yesterday: yes ironic).
Flipping Frenzy Full Frontal: Bought In December for $1.5 Million, For Sale At $3.3 Million Eight Months LaterSubmitted by Tyler Durden on 08/12/2013 10:09 -0500
We have discussed the flipping frenzy that has gripped the country in 2006 2013 on several occasions previously (most recently here, here and here) so there is little we can add, but this anecdote from Reuters just has to be read to be believed. Presenting Jan Brzeski who stands in a sun-filled, beautifully refurbished living room high in the Hollywood Hills, looking out at a swimming pool and miles below, stunning views of Los Angeles. Brzeski is a private money lender running an investment firm in Los Angeles that provides loans to house flippers - investors who buy a home, refurbish it, and sell it at a profit. Many flippers turn to money lenders because they cannot get banks to provide such short-term, quick financing. Standing with Brzeski is Scott Ryan, the realtor who bought this four-bedroom, five-bathroom house in December 2012 for $1.5 million - with money lent by Brzeski - and has transformed it with another $600,000. This week the property will go on the market at $3.295 million.
The grotesque days of the first housing bubble are now being flatly trounced by the surreal second coming of the housing bubble, where courtesy of RealtyTrac we find that the old gross maximum profit potential of 63% realized in Orlando, FL house flipping, has two short months been eclipsed by flipping a house in Daytona Beach, generating a mindblowing 82% "flip that house" return! In brief: in the first half of 2013 there were 136,184 single family home flips — where a home is purchased and subsequently sold again within six months — in the first half of 2013, up 19 percent from a year ago and up 74 percent from the first half of 2011. Real estate investors made an average gross profit of $18,391 on single family home flips in the first half of the year, a 9 percent gross return on the initial purchase price. That was up 246 percent from an average gross return of $5,321 in the first half of 2012 and an average loss of -$13,206 in the first half of 2011.
Repossessions! Home repossessions in the USA increased by 11% in May. Foreclosure filings (default notices and scheduled auctions as well as repossessions) were also up by 2.3% (148, 054) according to a report just published today by RealtyTrac.
Those who recall about the implicit housing subsidy we discussed when we coined the term "foreclosure stuffing" which is merely the well-planned systemic bottleneck to clearing foreclosed properties already in the system, and thus artificially reduce housing supply will be happy to learn that according to RealtyTrac the average time for a foreclosed property to sell just hit a record at nearly 400 days across the entire nation.
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- Fed's Rosengren: 'Modest' QE3 cut may make sense in a few months (Reuters)
- Who’s who of Obama lobbyists pushes Keystone pipeline (FT)
- China to Study Joining U.S.-Led Trade Accord After Japan Added (BBG)
The good old days are back, those of the last housing bubble when money grew on trees.
Read 'Em and Weep