Posts Tagged ‘real estate’

Rufo On Rogan: Democrats Destroying Democracy To Save It

Saturday, March 16th, 2024

I haven’t reported much on the farce of Democrats tearing through the thicket of law to get at their great devil Donald Trump, mainly because it is such a farce, but here’s Christopher Rufo on Joe Rogan discussing how dangerous and anti-democratic their blood vengeance crusade is.

  • Joe Rogan: “How disturbed are you by what seems to be this acceptance that people have for prosecuting political opponents?”
  • JR: “Because to me, it’s, regardless of what you think about Donald Trump as a human being and the polarizing figure that he is, setting the precedent of trying your political opponents to somehow or another, either put them in jail, or make them seem like complete total criminals in a way that would, for the casual, for the person who’s not reading deep into the headlines.”
  • JR: “The casual Democrat that sees this Trump real estate thing that just happened, where he got fined $365 million. I’ve seen people argue ‘fraud is fraud and this is that and he’s a fraud,’ and then I saw Kevin O’Leary from Shark Tank explain this is what every real estate developer does.”
  • JR: “They say ‘My building’s worth $400 million,’ and then someone comes along from the bank, and they say ‘No, it’s worth $300 million. We’ll give you a loan on $300 million’ or whatever.”
  • Christoper Rufo: “It’s negotiation.”
  • JR: “People overvalue their property all the time. [Someone] has a house and it’s worth $700,000, they decide to list it as $900,000.”
  • Plus the lunacy of a leftist judge saying Mar-a-Lago is worth only $18 million, when a more realistic valuation is well over $1 billion.
  • CR: “We have a democratic system that favors Trump, in the sense that he won in 2016, he’s winning the primary right now for republicans in 2024.”
  • CR: “But you have a bureaucracy that is dead set against him. And the rhetoric amounts to a very odd claim. They essentially say: ‘We want to keep him off the ballot, we want to put him in prison, we want to bankrupt him so he can’t become the president, even if the people support him. We want to deprive the people of making the decision.'”
  • CR: “So you want to take it out of the realm of politics and into the realm of administrative justice or the criminal justice system, and adjudicate it in that way on bogus pretexts.”
  • CR: “Who actually rules in this country? Is it the American people who get to decide by their vote who represents them in the government? Or is it the permanent bureaucracy that has accumulated so much power?”
  • CR: “I’m of the mind that the people should decide, not the bureaucracy. And this is a contest where Democrats are saying essentially we have to destroy democracy in order to save democracy.”

    • Evidently there’s no undemocratic Rubicon Democrats won’t cross, no bridge they won’t burn, to destroy democracy in the name of saving it from Orange Man Bad.

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    Posted in Democrats, Economics, Elections, Social Justice Warriors | 9 Comments »

    Zeihan on Evergrande: 1.5 BILLION Unsold Condos?

    Tuesday, February 6th, 2024

    I haven’t been updating every twist and turn of the Evergrande collapse, but we’re going to look at it again because this Peter Zeihan video has a fairly staggering statistic. He asserts that there are 1.5 BILLION (with a B) unoccupied housing units in China. Even though we already knew about the ghost cities, that’s like an entire ghost nation for a China that was already headed down the economic crapper.

  • “A Hong Kong court has ruled that China’s largest property development group, Evergrande, is bankrupt and needs to be broken up. This is something that the Chinese government has spent a lot of effort on the last two years not happening.”
  • “There’s two big things that dominate the Chinese economy. The first is something I call hyperfinancialization: The idea that the government both de facto confiscates the savings of the citizen population so it can only go into projects funded by Chinese State Banks, as well as massively expanding the money supply to a tune of like almost triple what we have here in the United States.”
  • “It’s a public stability political control approach to finance. It’s not about profit, it’s about throughput, because throughput requires a lot of bodies.”
  • “Number one, you get companies like Evergrande, who gorge on all this bottomless supply of debt to build build, build, build, build, even if there’s no demand.”
  • “Second, you get a population who knows that their private savings is almost worthless, because the Chinese government is forcing them to keep it in the state banks, and they want to put it into a hard asset that preferably the state can’t control. And if they can’t get their money out of the country, then the next best thing is a hard asset in the country, which typically is property.”
  • “You have somewhere probably in the vicinity of 1.5 billion units in the country that have never been lived in, never will be lived in. So you’re talking about 100% overbuild, conservatively. Some estimates say it’s as high as three billion, which is just so far beyond stupid.”

    • This is such a huge number that I’m having trouble believing it. After all, 1.5 billion is more than at least once current estimate for the current total number of houses in Asia. Is there supporting evidence? Well, I found this.

    “How many vacant homes are there now? Each expert gives a very different number, with the most extreme believing the current number of vacant homes are enough for 3 billion people,” said He Keng, 81, a former deputy head of the statistics bureau.

    “That estimate might be a bit much, but 1.4 billion people probably can’t fill them,” He said at a forum in the southern Chinese city Dongguan, according to a video released by the official media China News Service.

    That’s people, not homes. Still, even if you cut it in half, to 750 million vacant condos, that’s a huge number. That’s the equivalent of 30 empty Shanghais.

    Back to Zeihan:

  • “Evergrande going down means that their debts aren’t going to be serviced anymore, and the physical assets they have are going to be parceled up and foreign investors are going to be coming in seeing what bits that they can get.” Any foreigners investing in Chinese real estate need their heads examined.
  • “These things are things that the Chinese Communist Party would not normally allow to happen, so there’s a couple ways that this can go, none of them are good.”
  • “Option number one is we follow a western style bankruptcy and restitution program where this system is broken up and a lot of their assets are sold at pennies, maybe dimes, on a dollar.”
  • “You can count on private citizens being up in arms. I mean, the best estimate I’ve seen out of China is at 70% of total private savings is wrapped up in real estate, and most of these assets are worth no more than 10 cents on the dollar.”
  • “You have a fire sale of the single largest player which controls one sixth of the market, holy shit, things are going to get real very, very, very quickly.”
  • “Option number two is that the Chinese step in and abrogate the Hong Kong ruling. Now legally this cannot happen, but the Chinese Communist party is not really big on legal details when it comes to Hong Kong in particular.”
  • “Then Evergrande goes on some sort of state drip and everything with the system just kind of limps on, with the understanding now that Hong Kong has no legal authority over its own holdings, which will start an exodus of what few international firms are still there.”
  • “Regardless how this goes, don’t expect anything in the market to get better.”
  • “Evergrande may be the biggest player in this market, but it is by far not the only one who’s been doing stupid things like this, building condos that have no demand or running it like a Ponzi scheme. Every development company in the country basically operates this this way, and the second and third largest players in the industry are state-owned.”
  • “Even if all of a sudden this place were run by a bunch of Austrian economists, it’s too late.” Because of the one-child policy, there simply aren’t enough people of home-buying age.”
  • “I don’t want to say anything overly dramatic as ‘This is where it all starts to fall apart,’ because we’ve had a lot of things like that go down in the last 18 months. But this cuts to the core of what enables the average [Chinese] citizen to actually support the government, and there’s no way we move forward from this without a lot of side damage.”

    • The Chinese economy is already sucking. If the housing oversupply is really as bad as Zeihan makes out, China is in for an economic upheaval that makes 1929 look like a mild case of the hiccups.

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    Posted in video | 32 Comments »

    Then: Commercial Investors Are Sucking Up All American Housing! Now: They’re Losing Their Shirts!

    Thursday, September 8th, 2022

    If you can remember all the way back to pre-Flu Manchu 2020, housing prices were soaring and there were a raft of articles decrying how commercial investors were snapping up housing as fast as they possibly could, pricing ordinary Americans out of the market.

    Now, some two years later, it’s evident that a lot of those commercial investors kept buying right up through the peak of the market, and are now proceeding to lose their shirts on those deals thanks to the Biden Recession.

    Take, for example, OpenDoor, the company that sends out those endless “We want to buy your home” letters. They promised investors they were going to use the Internet to revolutionize home-buying by flipping homes at scale and cut out the middle man. How well did they succeed?

    Now that they’ve had a while to run their system, the answer is: Not so well.

    Takeaways:

  • One thing I was unaware of: Commercial investors in residential real estate fund their purchases through variable interest rate debt.
  • OpenDoor’s outstanding debt balance “has ballooned from $271 million to $6.1 billion.”
  • Every point rise in interest rates costs OpenDoor $40 million more in interest rate payments.
  • “OpenDoor is truly a modern day house of cards. The company’s revenue grew from $1.8 billion in 2018 to over $8 billion in 2021. To grow they scaled, going from 18 markets to 44 markets in the U.S. In those four years, the company went from flipping 7,000 homes a year back in 2018 to now flipping 21, 000 homes most recently in 2021.”
  • “Despite OpenDoor’s top-line growth, the company has incurred loss after loss after loss, each bigger than the last, even in a strong rebound year in 2021. Where the company sold a record number of homes, OpenDoor incurred a record loss of over $600 million.”
  • Some math snipped. “OpenDoor would need to sell roughly sixty thousand homes a year just to break even with how much it costs the company to exist in its current burn rate. Every time the interest rate goes up a single point, OpenDoor needs to sell an additional 2,000 homes in order to offset that additional $40 million.”

    • The end of the video touches on how Zillow lost $881 million by trusting an algorithm that had them paying above-marker prices. We covered that briefly here some nine months ago. Here’s a video with more details:

    But it’s not just OpenDoor and Zillow. Here’s a video that explains why all the large-scale commercial buyers of residential real estate (including those buying to rent it out rather than flip) are screwed by rising interest rates:

    Takeaways:

  • The Fed “is now committing to not only continue increasing interest rates, they’re committing to keeping interest rates elevated for the foreseeable future.”
  • “These real estate investors are going to be losing money in the housing market on their investments, and that they are going to have to fire sale their portfolio as a result.”
  • “Over the last year, the investor profit or the cap rate in America is about 4.5%, which was pretty good in 2021, when interest rates were zero, but now that interest rates are projected to go to 3.8%, we can see that investors who buy real estate in America are basically getting very little premium over buying a short-term government bond.”
  • “As this investor demand continues to go down, home prices are also going to continue to go down in America, because in many markets investors were quarter of the demand, a third of the demand for homes over the last of couple years, and in some neighborhoods investors were 50—60% of the demand.”
  • “A lot of people think [commercial buyers pay] cash, but folks, it’s never cash, it’s always a bank in the background giving these hedge funds and private equity funds money to buy single-family homes.”
  • “They’ll give these hedge funds maybe 70—75% percent of the money to go do it, like a normal loan. The thing is, the loans that these Wall Street investors use to buy homes are often adjustable rate loans, where every time the fed hikes interest rates, the Wall Street investor has to pay more in debt service and interest on their existing portfolio.”
  • “We’re gonna get to a point soon over the next six months where these Wall Street investors are having to pay more to their bank and their warehouse lender than they’re going to receive in income and rent from their tenant. Like, literally, these Wall Street investors not only are going to see the value of their property going to go down, they’re going to begin losing money in terms of cash flow.”
  • So not only will investors have to sell, but frequently they won’t have any choice.

    Because their lender, their bank, is going to do something called a margin call. At a certain point, they’re gonna say “Hey Wall Street buyer who I’m giving money to, the value of the homes has gone down and now you can barely afford to pay interest. You’re gonna have to now just pay us off, or pay us down,” and when the bank does that margin call, these investors are then going to be forced to sell off their portfolio, because they’re going to need the cash, causing a massive, widespread dump of inventory onto the U.S. housing market.

  • He doesn’t mention Austin by name in this video, but he does in another pegging it as the #5 market most likely to see price drops. “This is a market in absolute freefall.” “In the span of just five months, the number of homes for sale in Austin has increased from 1460 and February to nearly 8 000 in July.” He thinks home prices could down by 40%. Naturally, as an Austin-area home-owner, I think that’s way too much, but I do expect significant retreats from the highs reached early this year.
  • He also thinks inflation is going to get worse (which is probably a good bet).

    • (In another video covering some of the same ground, he mentions BlackRock, one of the biggest boogeymen in public perceptions of buying residential real estate. Guess what? “BlackRock is not a big player in terms of owning, managing and buying real estate in the U.S.”)

    Like the fear of Japan buying everything in the late 1980s, fear that institutional investors will make owning a home impossible for ordinary Americans turned out to suffer from the same recency bias, assuming that what is going on right this minute will continue for the foreseeable future.

    Like assuming that the giant ants are unstoppable, or that Hispanics will always vote for Democrats, assuming that housing prices will always go up and that credit will always be cheap are categorical mistakes that the market will eventually punish you for making, and the companies that made it are now bleeding red ink.

    People who sold during the bubble made out like bandits, and people who bought during it got screwed, but what can’t go up forever won’t. Bubbles pop. Absent government distortions of the market*, supply and demand have a way of adjusting.

    Anyway, if you need to buy a house, nine months from now is probably going to be a great buyer’s market…

    *And yes, lots of cities and states try their damnedest to prevent new housing from being built. I’m looking at you, California.

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    Posted in Austin, Economics, Texas, video | 11 Comments »