November 25, 2020

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NYC Homebuyers Searching Everywhere But Manhattan, Spiking Prices and Causing False Sense of Economic Euphoria

Bloomberg reports "New York Homebuyers Are Searching Everywhere But Manhattan": Contracts to buy (demand) Manhattan co-op apartments declined 26% in August from a year earlier, while pending condo deals plummeted 38%, while new listings (supply) in the borough surged -- by 68% for co-ops and 30% for condos.

 I warned of this months ago. First of all, this is a real deal depression, not a mere recession...

This real estate crash is exacerbated by dense metro areas such as Manhattan, but it will be truly global in nature... 

And it will encompass much more than just residential real estate....

This will hit NYC particularly hard, and no, there will not be a material recovery near term - V-shaped or otherwise, and the malaise will be here past the invention or a COVID vaccine.

The unemployment problem is real, and persistent...

Which easily reveals the Anatomy of the Nastiest Real Estate Crash Ever...

The metrics behind this real estate crash are not only undeniable, they are truly unprecedented!

 If you don't believe me, simply look at the lengths the nation's largest bank has gone through to hide its true credit debacle, already!

 No, it's not just JP Morgan, either. Look at Bank of America, the nations largest mortgage lender....

Forensic Review of Bank of America's 2Q2020 Earnings - It's Ugly!


Figure 13: 30+ Day Delinquency Rate w/COVID Emergency Deferrals, As Adjusted by Veritaseum Research (in %)

Now, back to the Bloomberg story: 

The story was different outside Manhattan. Shoppers fanning out from the city’s business core, in search of more space for working and learning from home, pushed up demand pretty much everywhere else last month (except Manhattan).

  • Contracts to buy single-family houses in Greenwich, Connecticut, almost tripled from a year earlier to 136 deals. The greatest increase in demand was in the range of $1 million to $1.99 million, with 50 contracts, up from 13 in August 2019.
  • In Westchester, single-family contracts jumped 57% to 780. Even condos fared well, with deals climbing 24%.
  • In the Hamptons, there were 278 signed deals for single-family homes, more than double last August’s rate.
  • Brooklyn saw a near tripling of co-op deals, with 138. Most were for properties priced under $1 million. Condo contracts jumped 33% to 200.

Now, what's wrong with this story? That boom is short term and transient in nature. Those videos and articles I included above clearly make that evident, but there are two portions in particular that should really stand out. Unemployment is truly out of control...

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In 2007, housing prices started falling precipitously, and unemployment spiked as a result of financial markets crashing in sympathy, liquidity drying up and financial institutions locking up. Now, unemployment and unemployment claims have spiked 1.5x to 7x that of 2008, and it is employment that allows buyers to pay mortgages and put down payments in for housing, not to mention pay rents. 

The effects are already very evident. Look at Bank of America, when we rejigger their reported numbers for the economic truth.

 BOA's actual 30+ day consumer loans delinquency amount stood at USD31.2 billion in Q2 2020 compared to reported 30+ day delinquency amount of USD1.4 billion. More alarming is that BOA's allowance for loan losses in Q2 2020 is USD9.2 billion, which is only 30% of the actual delinquent amount. Figure 10: 30+ Day Delinquency Rate w/COVID Emergency Deferrals, As Adjusted by Veritaseum Research (in USD billions) Source: Veritaseum Research

 Source: Veritaseum Research


Look at JP Morgan, when we do the same.

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In both big bank cases, not only are the true credit metrics dramatically (I mean many multiples) worse than the banks are reporting, but they are dramatically and woefully under provisioning for these losses as well - dramatically and woefully. 

Do you think it is just Reggie Middleton et. al being pessimistic? Well, look at what Bank of America reported for their 30 day delinquencies, compared to what we calculated...

Figure 12: 90+ Days or More Delinquency Rate – As Reported (in USD millions)

Source: Bank of America Earnings Release, 2Q 2020

The above data is as reported in BofA’s earnings release. But if we delve in, we can see a completely different picture of the delinquency rates of credit cards. The actual, economic delinquency rates have a considerable difference than the reported one. On March 16th 2020, BOA enacted the Client Assistance Program where it offers assistance to 66 million consumers and small business clients in response to the unprecedented challenges of COVID-19, allowing the clients to defer payments. BOA has processed approximately 1.8 million total deferrals, and as of July 9th, the Bank still has 1.7 million deferrals. The deferrals represent USD29.8 billion of consumer balances. If we add back this deferral amount to the reported delinquency amount of credit cards a completely different, and in our professional opinion – a considerably more revealing, honest and informational, scenario in delinquency rates comes out. The actual 30+ days and delinquency rate is 37.1% compared to the reported 30+ days delinquency rate of 1.7%. That is a difference of nearly 2,200%! Misleading, to put it lightly. Figure 13: 30+ Day Delinquency Rate w/COVID

Emergency Deferrals, As Adjusted by Veritaseum Research (in %)

Source: Veritaseum Research

One of us are lying, no? If you had to guess which one, who would you choose? Here's and experiment. Let's look at the numbers of a not-for-profit entity that has no incentive to use prestidigitation to makes it's numbers look something other than they are and see who it agrees with. Bloomberg reports: FHA Mortgage Delinquencies Reach a Record, Led by New Jersey

Federal Housing Administrationmortgages -- the affordable path to homeownership for many first-time buyers, minorities and low-income Americans -- now have the highest delinquency rate in at least four decades. 

That's about how we see it as well.

The share of late FHA loans rose to almost 16% in the second quarter, up from about 9.7% in the previous three months and the highest level in records dating back to 1979, theMortgage Bankers Associationsaid Monday. The delinquency rate for conventional loans, by comparison, was 6.7%.

 Sounds about right. Actually, it's a but below the big banks numbers, but hey...

Millions of Americans stopped paying their mortgages after losing jobs in the coronavirus crisis. Those on the lower end of the income scale are most likely to have FHA loans, which allow borrowers with shaky credit to buy homes with small down payments.

For now, most of them are protected from foreclosure by the federal forbearance program, in which borrowers with pandemic-related hardships can delay payments for as much as a year without penalty. As of Aug. 9, about 3.6 million homeowners were in forbearance, representing 7.2% of loans, the MBA said in a separate report. The share has decreased for nine straight weeks.

Housing has held up better than expected in an otherwise shaky economy, with record-low mortgage rates fueling sales of both new and previously owned houses. With job losses mounting and Congress slow to act on a fresh stimulus package, that momentum could be threatened.

How long do you think that will last with unemployment STILL at a level unseen in the history of this country and a government that can't consistently agree on bailout packages, that will (if agreed upon) inflate the USD to unforeseen levels AND indebt this country to a level that even world wars haven't caused.

New Jersey had the highest FHA delinquency rate, at 20%. The state also had the biggest increase in the overall late-payment rate, jumping to 11% in the second quarter from 4.7%. Following were Nevada, New York, Florida and Hawaii -- all states with a high proportion of leisure and hospitality jobs that were especially hard-hit by the pandemic, the MBA said.


But the current spike in delinquencies is different from the Great Recession, thanks in part to years of home-price gains and equity accumulation, according to Marina Walsh, vice president of industry analysis for the bankers group.

But she represents the banking industry, hence she would say that wouldn't she? Just like the bank accounts said that they have <1% 30 day delinquency rates. It's called "the new truth", or was that "fake news"? I simply can't keep track anymore. Oh, and to put this localized NY thing into perspective: In 2017: New York State's GDP was over $1.5 trillion, 8 percent of the U.S. total.

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Last modified on Tuesday, 27 October 2020 05:47
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