Note, my piece below on one of the stiffest headwinds to hit hot, momo, mid-to-high end housing markets since the loss of exotic loans in 2007/08 — published for clients last week — is timely, as the month of July formally ends today and I am getting reports from sources in mid-to-high end regions all over the nation that after a strong June, July sales were down between 15% and 50% with Pendings down as much as 60% from a year ago. One large West Coast brokers with whom I talk said they are recommending to clients with mid-to-high end properties on the market over 30-days with no offers to cut list prices aggressively in order to get in front of the market versus the process of small, frequent price cuts that look bad optically and keep sellers constantly behind the market.
This market fully supports my 2016 macro housing thesis that a confluence of mortgage rate and other transitory tailwinds has led to a “pulled forward season” mistaken by analysts as yet another “durable recovery with escape velocity“, the third such call in the past 5-years, the previous two which ended in flames. I am not sure how weak the back-half will be yet. But, I am confident it will be weak enough to erase the meager ~ 5% to 6% total US home sales gains through June ytd and take 2016 year-end totals red compared to 2015.
I don’t believe this factored into housing and related stocks yet, at least based on the fact that everybody is positive and long the sector and in need of demand acceleration in the back half in order for consensus demand estimates to come in. Nor, has an air-pocket under present prices even been contemplated by the Street.
7-27 Hanson…Mid-to-High End Housing…Big Trouble Dead-Ahead
Talk about a headwind. Numerous Real Estate segments and a dozen names that come to mind immediately are in the wrong place at the wrong time.
Beware, CA, FL, NY and TX; where high-end real estate supply is surging, languishing on the market, and list prices are being slashed in order to hit what few bids exist.
Be scared; everywhere else to which developers have been chasing “hot capital”, because this “program” is targeting you, too.
Now, the past several quarters of my prop data showing supply surging at an historical pace (not hyperbole) and demand going in the opposite direction in these high-end regions makes a lot more sense.
This news, coupled with the continued bad news from heavy-weight, high-end apartment REITs and statements such as “high-salary technology jobs in San Francisco peaked in the first quarter, while in New York, the biggest employment gains this year were in hospitality, leisure and health care, which are “mid-level compensation” industries” is almost too much stimuli for this structural bear (but opportunistic bull) to handle all at once.
This one is almost too obvious…it makes me kinda nervous. Then again, exactly 9-years ago when the “big-one” was at maximum bubble girth just awaiting a catalyst, it was pretty obvious too. Speaking of then, what’s really the difference between in 2007, when jumbo exotic loans that incremental speculators used went away, and this .gov “program” taking them away now?
I have been pounding the table over “unorthodox capital and liquidity driving unfundamental, incremental housing demand and prices” for years. Now, a chunk of that is being permanently sidelined.
Clearly, not all high-end transactions are from foreign and tech money launderers. But, in the real estate sector — where the value of every house is only worth what the last few sold for (or, put another way, where a few incremental buyers and sellers can keep a market rising or falling in perpetuity) you don’t need many to perpetuate or pop a bubble. Especially, with overall demand so weak and prices above bubble 1.0 peak levels. Also, in real estate, crap floats downstream.
The “Feds” Target High-End Real Estate Buyers in CA, FL, NY and TX
Yesterday, the Treasury’s FinCEN department announced it would expand a program it kicked-off in Jan designed to track all-cash buyers of Miami and New York real estate who hide behind shell corps. Not coincidentally, in these two markets, high-end real estate is literally toppling.
Because the “program” was so successful, I suppose, they grew the list of regions and lowered the sales price targets that require disclosure. I have been watching for news or data on this program for months. I never imagined they would expand it.
Heck, where I live in the Bay Area, $2mm is not a helluva lot. In the cities listed below, quarter acre dirt lots can cost a lot more than that. As such, this is sweeping oversight that many are simply not going to want to have any part of.
• New York: Manhattan with a threshold at $3 million; Brooklyn, Queens, Bronx, and Staten Island at $1.5 million.
• Florida: Miami-Dade County, Broward County, and Palm Beach County, all at $1 million.
• California South: San Diego County and Los Angeles County, at $2 million;
• California North: San Francisco, San Mateo County, and Santa Clara County, all at $2 million.
• Texas: Bexar County (San Antonio area) with a threshold of $500,000.
Stay Ahead of This
My proprietary data can pick up all micro and macro changes in the most important high-end markets in the nation allowing clients to watch new trends being made in near real-time.
FOR IMMEDIATE RELEASE
July 27, 2016 CONTACT: Steve Hudak
FinCEN Expands Reach of Real Estate “Geographic Targeting Orders” Beyond Manhattan and Miami
U.S. Title Insurers Required to Identify High-End Cash Buyers in Six Major Metropolitan Areas
WASHINGTON—The Financial Crimes Enforcement Network (FinCEN) today announced Geographic Targeting Orders (GTO) that will temporarily require U.S. title insurance companies to identify the natural persons behind shell companies used to pay “all cash” for high-end residential real estate in six major metropolitan areas. FinCEN remains concerned that all-cash purchases (i.e., those without bank financing) may be conducted by individuals attempting to hide their assets and identity by purchasing residential properties through limited liability companies or other opaque structures. To better understand this vulnerability, FinCEN issued similar GTOs earlier this year covering transactions in Manhattan and Miami-Dade County, Florida. The GTOs announced today will expand upon the valuable information received from the initial GTOs.
The initial GTOs are helping law enforcement identify possible illicit activity and informing future regulatory approaches. In particular, a significant portion of covered transactions have indicated possible criminal activity associated with the individuals reported to be the beneficial owners behind shell company purchasers. This corroborates FinCEN’s concerns that the transactions covered by the GTOs (i.e., all-cash luxury purchases of residential property by a legal entity) are highly vulnerable to abuse for money laundering. Federal and state law enforcement agencies have also informed FinCEN that information generated by the GTOs has provided greater insight on potential assets held by persons of investigative interest and, in some cases, has helped generate leads and identify previously unknown subjects.
“The information we have obtained from our initial GTOs suggests that we are on the right track,” said FinCEN Acting Director Jamal El-Hindi. “By expanding the GTOs to other major cities, we will learn even more about the money laundering risks in the national real estate markets, helping us determine our future regulatory course.”
To build on the useful data generated thus far, the GTOs announced today include the following major U.S. geographic areas: (1) all boroughs of New York City; (2) Miami-Dade County and the two counties immediately north (Broward and Palm Beach); (3) Los Angeles County, California; (4) three counties comprising part of the San Francisco area (San Francisco, San Mateo, and Santa Clara counties); (5) San Diego County, California; and (6) the county that includes San Antonio, Texas (Bexar County). The monetary thresholds for each geographic area can be found in this table. A sample GTO, which becomes effective for 180 days beginning on August 28, 2016, is available here.
FinCEN is covering title insurance companies because title insurance is a common feature in the vast majority of real estate transactions. Title insurance companies thus play a central role that can provide FinCEN with valuable information about real estate transactions of concern. The GTOs do not imply any derogatory finding by FinCEN with respect to the covered companies. To the contrary, FinCEN appreciates the continued assistance and cooperation of the title insurance companies and the American Land Title Association in protecting the real estate markets from abuse by illicit actors.
Any questions about the Orders should be directed to the FinCEN Resource Center at 800-767-2825. ###
FinCEN’s mission is to enhance U.S. national security, deter and detect criminal activity, and safeguard financial systems from abuse by promoting transparency in the U.S. and international financial systems.