U.S. housing market about to get SLAMMED

[Spekulatius]

I think the current situation can create short term disturbances. But my feel was that things had already begun softening and one of the most under appreciated aspects of that was the SALT deduction ban.

 

Yes, the SALT deduction changes definitely impacts RE values in high tax states - NY, NJ, CT and MA. NY probably the worst.

 

LOL. That's likely a reason a friend lost a bid on a house against 5 cash offers two weeks ago.

 

Not.

 

The housing appreciation in the states I mentioned (MA, NJ, CT, NY) is nothing like the appreciation that has occurred on the lower tax coast.

 

lower tax coast? What is that? CA?  ::)

 

Also, data?

 

My house in CA was taxed at 1.25% of purchase value plus an inflation adjustment. I paid about 4K in taxes for my house. I bought a house for a lower value in LI. Tax was 11k. It was considered low because the proper owner fought the taxes otherwise they would be 12.5k. My house  in MA is taxed 1.8% of fair market value (it cost a bit more) - 10k.

 

So yes, the RE taxes in CA are lower, especially if you are in the house for a long time, because of Proposition 13 and a lower tax rate. Of course adjusted for the enormous prices in the Bay are you may pay more in absolute $.

[Jurgis]

I think the current situation can create short term disturbances. But my feel was that things had already begun softening and one of the most under appreciated aspects of that was the SALT deduction ban.

 

Yes, the SALT deduction changes definitely impacts RE values in high tax states - NY, NJ, CT and MA. NY probably the worst.

 

LOL. That's likely a reason a friend lost a bid on a house against 5 cash offers two weeks ago.

 

Not.

 

The housing appreciation in the states I mentioned (MA, NJ, CT, NY) is nothing like the appreciation that has occurred on the lower tax coast.

 

lower tax coast? What is that? CA?  ::)

 

Also, data?

 

My house in CA was taxed at 1.25% of purchase value plus an inflation adjustment. I paid about 4K in taxes for my house. I bought a house for a lower value in LI. Tax was 11k. It was considered low because the proper owner fought the taxes otherwise they would be 12.5k. My house  in MA is taxed 1.8% of fair market value (it cost a bit more) - 10k.

 

So yes, the RE taxes in CA are lower, especially if you are in the house for a long time, because of Proposition 13 and a lower tax rate. Of course adjusted for the enormous prices in the Bay are you may pay more in absolute $.

 

I was not talking about RE taxes. If you talk SALT, you are talking all the state taxes.

 

Yeah, CA RE appreciation has been higher than (most) right coast.

 

But not because of SALT.

[gfp]

So I just got a letter in the mail from my commercial bank - not a national bank - that the next 3 loan payments are being deferred for everybody.  This is without discussing it with us first to see if we wanted to not pay for 3 months.  Seems strange to force it on all clients so I assume it was at the very least strongly suggested by the Feds.  Will have to ask around and do some research on why they did it this way.  The interest will be added to principal and they get to pretend all of their loans are performing in New Orleans right now - which sounds preferable to their reality.  Certainly leads to a bing swing in cash flow for the next 3 months.

 

Are other multifamily investors being told similar / same?

 

 

 

I think the current situation can create short term disturbances. But my feel was that things had already begun softening and one of the most under appreciated aspects of that was the SALT deduction ban.

 

Yes, the SALT deduction changes definitely impacts RE values in high tax states - NY, NJ, CT and MA. NY probably the worst.

 

LOL. That's likely a reason a friend lost a bid on a house against 5 cash offers two weeks ago.

 

Not.

 

My cousin is not backing away from 900k house in SF Bay Area suburbs. It will be her primary residence. She is not worry about a downturn and said she will buy more as investments if she see "deals."

 

RE investors better have DEEP pocket and good relationships with their banks.  I've been hearing from people about investors and flippers about to get caught with their shorts down in a big way soon.

[opihiman2]

It's happening.  I'm seeing a bunch of homes on Redfin fall out of escrow / contingency and back on the market.  Also 2% reductions in price are starting to happen. 

[thepupil]

Where?

[StubbleJumper]

So I just got a letter in the mail from my commercial bank - not a national bank - that the next 3 loan payments are being deferred for everybody.  This is without discussing it with us first to see if we wanted to not pay for 3 months.  Seems strange to force it on all clients so I assume it was at the very least strongly suggested by the Feds.  Will have to ask around and do some research on why they did it this way.  The interest will be added to principal and they get to pretend all of their loans are performing in New Orleans right now - which sounds preferable to their reality.  Certainly leads to a bing swing in cash flow for the next 3 months.

 

Are other multifamily investors being told similar / same?

 

 

 

So, if the bank automatically defers three months of loan payments, does that mean that it can pretend that everything is okay, and not crank up the provision for credit losses?  Whereas, if clients approach the bank individually and ask for a deferment, or if they just fail to pay without any previous conversation, that would require pumping up both the specific and general components of PCL?

 

Just trying to understand what game the bank is playing, and why.

 

 

SJ

[Spekulatius]

So I just got a letter in the mail from my commercial bank - not a national bank - that the next 3 loan payments are being deferred for everybody.  This is without discussing it with us first to see if we wanted to not pay for 3 months.  Seems strange to force it on all clients so I assume it was at the very least strongly suggested by the Feds.  Will have to ask around and do some research on why they did it this way.  The interest will be added to principal and they get to pretend all of their loans are performing in New Orleans right now - which sounds preferable to their reality.  Certainly leads to a bing swing in cash flow for the next 3 months.

 

Are other multifamily investors being told similar / same?

 

 

 

So, if the bank automatically defers three months of loan payments, does that mean that it can pretend that everything is okay, and not crank up the provision for credit losses?  Whereas, if clients approach the bank individually and ask for a deferment, or if they just fail to pay without any previous conversation, that would require pumping up both the specific and general components of PCL?

 

Just trying to understand what game the bank is playing, and why.

 

 

SJ

 

The game is called extend and pretend. Apparently government approved.

[BG2008]

Guys,

 

I get the cynicism on the extend and pretend.  I think the  AirBnb arbitragers will get bent over and treated properly.  The house flippers will likely get their due as well.  But if you have good hardworking tenants.  The 3 months deferral is a great solution and an unofficial way to put money in the hands of renters and landlords.  Frankly, is it anyone's fault that some virus forced hardworking cooks, waiters, and construction guys to have to sit at home and not work?  I don't think so.  The tenants didn't do anything wrong and neither did the landlord who chose their tenants the right way.  I have no idea how the banks treat this.  I'm sure the Fed is giving the A-OK for the bank to push back payments.  What would you prefer?  Let 90% of the homes go into foreclosure and feel righteous because you saved enough and have a nice nest egg?  Most of the US live paycheck-to-paycheck.  We are a disciplined bunch on CoB.  But we are like the 1% (in terms of discipline, curiosity, and likely smarts).  The rest of the country is not as lucky and/or well off.  This is a good solution.  But I do hope that the arbitrager with 15 Airbnb get punished.  If you want to rent out a spare apartment or room that you own, it's fine.  If you have 20 SFH on Airbnb that you lease from a landlord, you deserve to be taken to the woodsheds.  House flippers?  Let's them go broke.  But normal everyday tenants and homeowners, give them this pass. 

[LongHaul]

BG - you may be right 3 months may not mean a big deal.  Or it may be a huge deal - I don't know.

 

What concerns me is that the govt has turned communist in a sense and is implicating itself in the market.  There are secondary and tertiary effects here.  If lots of people don't pay their rent and mortgage then what - the knock on effects are the landlords and banks don't

1. get their cash

2. Forced to extend credit (probably to some very risky borrowers)

3. Lenders tighten even more.

4. The lenders can't foreclose.

 

When the lenders really tighten and tighten because of uncertainty, leverage, economy going to crap, and then they can't foreclose - which is a market fixing mechanism that protects their downside - then you can get an extreme tightening of credit like what happened in the great depression.  I would be tightening like hell if I was CEO of a bank with everything going up plus with what the govt is doing.

 

I personally think it is a huge mistake for the govt to turn communist and try to finagle in an economy that has worked really well for 200+ yrs.  If individuals and capitalists suffer because they have no margin of safety - then they suffer and learn a lesson that may not be able to be taught another way.  A person makes their bed and then the lie in it.

 

The main point is that they economic recession/depression could easily be worsened by this govt policy.  I think it might be nuts. 

And let's not forget  - Trump bankrupted how many businesses he owned?  I did not mean that as a political comment - but one of business judgement.

 

 

[BG2008]

BG - you may be right 3 months may not mean a big deal.  Or it may be a huge deal - I don't know.

 

What concerns me is that the govt has turned communist in a sense and is implicating itself in the market.  There are secondary and tertiary effects here.  If lots of people don't pay their rent and mortgage then what - the knock on effects are the landlords and banks don't

1. get their cash

2. Forced to extend credit (probably to some very risky borrowers)

3. Lenders tighten even more.

4. The lenders can't foreclose.

 

When the lenders really tighten and tighten because of uncertainty, leverage, economy going to crap, and then they can't foreclose - which is a market fixing mechanism that protects their downside - then you can get an extreme tightening of credit like what happened in the great depression.  I would be tightening like hell if I was CEO of a bank with everything going up plus with what the govt is doing.

 

I personally think it is a huge mistake for the govt to turn communist and try to finagle in an economy that has worked really well for 200+ yrs.  If individuals and capitalists suffer because they have no margin of safety - then they suffer and learn a lesson that may not be able to be taught another way.  A person makes their bed and then the lie in it.

 

The main point is that they economic recession/depression could easily be worsened by this govt policy.  I think it might be nuts. 

And let's not forget  - Trump bankrupted how many businesses he owned?  I did not mean that as a political comment - but one of business judgement.

 

I am all about the govt not getting involved.  I think that applies when you have idiot individuals who take too much risk.  They hand their keys back.  But a pandemic that forces restaurants and contractors to stop work.  That's nobody's fault (okay, maybe the govt as they could've acted sooner).  Tenants/Landlords/etc did not act recklessly and they don't deserve to be punished on a mass scale here.  If you are worried about communist policies in housing, welcome to New York City.  The rent control and stabilization laws here are so nuts.  The haves and have nots are not divided on economic earnings.  It's the people who got subsidized housing and subsided everything vs those who are free market.  Someone on VIC mentioned that if you make $600/week in unemployment, who's going to flip burgers.  That was a very valid question.  Disincentives are very powerful.  There were a few Republicans who wanted to limit unemployment benefits to people's previous earnings, not the auto $600/week.  I thought those guys are hero trying to stop excess waste.

 

 

[opihiman2]

Where?

 

Central Coast CA.

[matts]

So I just got a letter in the mail from my commercial bank - not a national bank - that the next 3 loan payments are being deferred for everybody.  This is without discussing it with us first to see if we wanted to not pay for 3 months.  Seems strange to force it on all clients so I assume it was at the very least strongly suggested by the Feds.  Will have to ask around and do some research on why they did it this way.  The interest will be added to principal and they get to pretend all of their loans are performing in New Orleans right now - which sounds preferable to their reality.  Certainly leads to a bing swing in cash flow for the next 3 months.

 

Are other multifamily investors being told similar / same?

 

I spoke with a RE investment banker in Canada. The commercial department of the bank has bank-wide approval to switch any RE loan to Interest Only without further specific case analysis.

 

Most of those loans are retail and office, but also some multi-family portfolios of their large clients. 

[rb]

BG - you may be right 3 months may not mean a big deal.  Or it may be a huge deal - I don't know.

 

What concerns me is that the govt has turned communist in a sense and is implicating itself in the market.  There are secondary and tertiary effects here.  If lots of people don't pay their rent and mortgage then what - the knock on effects are the landlords and banks don't

1. get their cash

2. Forced to extend credit (probably to some very risky borrowers)

3. Lenders tighten even more.

4. The lenders can't foreclose.

 

When the lenders really tighten and tighten because of uncertainty, leverage, economy going to crap, and then they can't foreclose - which is a market fixing mechanism that protects their downside - then you can get an extreme tightening of credit like what happened in the great depression.  I would be tightening like hell if I was CEO of a bank with everything going up plus with what the govt is doing.

 

I personally think it is a huge mistake for the govt to turn communist and try to finagle in an economy that has worked really well for 200+ yrs.  If individuals and capitalists suffer because they have no margin of safety - then they suffer and learn a lesson that may not be able to be taught another way.  A person makes their bed and then the lie in it.

 

The main point is that they economic recession/depression could easily be worsened by this govt policy.  I think it might be nuts. 

And let's not forget  - Trump bankrupted how many businesses he owned?  I did not mean that as a political comment - but one of business judgement.

 

I am all about the govt not getting involved.  I think that applies when you have idiot individuals who take too much risk.  They hand their keys back.  But a pandemic that forces restaurants and contractors to stop work.  That's nobody's fault (okay, maybe the govt as they could've acted sooner).  Tenants/Landlords/etc did not act recklessly and they don't deserve to be punished on a mass scale here.  If you are worried about communist policies in housing, welcome to New York City.  The rent control and stabilization laws here are so nuts.  The haves and have nots are not divided on economic earnings.  It's the people who got subsidized housing and subsided everything vs those who are free market.  Someone on VIC mentioned that if you make $600/week in unemployment, who's going to flip burgers.  That was a very valid question.  Disincentives are very powerful.  There were a few Republicans who wanted to limit unemployment benefits to people's previous earnings, not the auto $600/week.  I thought those guys are hero trying to stop excess waste.

Well what BG said. And it's not communist at all.

 

What's actually happening is the optimal market solution. As it was learned during GFC mass foreclosure is a really bad way to maximize profits. So after learning the hard way, banks stopped foreclosing en mass. After that there were tons of people that basically squated for a good amount of time. I know of a few cases that lived in multi-million dollar mansions for a few years without making a single payment. They couldn't. They were broke. They were also real estate investors previously. Still they got to squat.

 

So right now you have the same system going into place. There are obviously boneheads that didn't get it the first time around. So the government is adding the lubricant to get the process going fast. The Fed is providing the financing for the whole process by adding an ocean of liquidity. This takes stress off the system and prevents credit from tightening too much.

 

I also think that this way it's providing cover for weak banks. I mean Wells Fargo is gonna be ok. But does anyone really want to find out how Bank OZK would do?

[matjone]

BG - you may be right 3 months may not mean a big deal.  Or it may be a huge deal - I don't know.

 

What concerns me is that the govt has turned communist in a sense and is implicating itself in the market.  There are secondary and tertiary effects here.  If lots of people don't pay their rent and mortgage then what - the knock on effects are the landlords and banks don't

1. get their cash

2. Forced to extend credit (probably to some very risky borrowers)

3. Lenders tighten even more.

4. The lenders can't foreclose.

 

When the lenders really tighten and tighten because of uncertainty, leverage, economy going to crap, and then they can't foreclose - which is a market fixing mechanism that protects their downside - then you can get an extreme tightening of credit like what happened in the great depression.  I would be tightening like hell if I was CEO of a bank with everything going up plus with what the govt is doing.

 

I personally think it is a huge mistake for the govt to turn communist and try to finagle in an economy that has worked really well for 200+ yrs.  If individuals and capitalists suffer because they have no margin of safety - then they suffer and learn a lesson that may not be able to be taught another way.  A person makes their bed and then the lie in it.

 

The main point is that they economic recession/depression could easily be worsened by this govt policy.  I think it might be nuts. 

And let's not forget  - Trump bankrupted how many businesses he owned?  I did not mean that as a political comment - but one of business judgement.

 

I think what you say would be true in a country where the middle class actually makes enough to have a rainy day fund but that is not the case here anymore.  Everyone is scraping by.  What happens if you force millions of families out on the street at the same time?  Are you sure it's only the poor who will be learning hard lessons?

[StubbleJumper]

Guys,

 

I get the cynicism on the extend and pretend.  I think the  AirBnb arbitragers will get bent over and treated properly.  The house flippers will likely get their due as well.  But if you have good hardworking tenants.  The 3 months deferral is a great solution and an unofficial way to put money in the hands of renters and landlords.  Frankly, is it anyone's fault that some virus forced hardworking cooks, waiters, and construction guys to have to sit at home and not work?  I don't think so.  The tenants didn't do anything wrong and neither did the landlord who chose their tenants the right way.  I have no idea how the banks treat this.  I'm sure the Fed is giving the A-OK for the bank to push back payments.  What would you prefer?  Let 90% of the homes go into foreclosure and feel righteous because you saved enough and have a nice nest egg?  Most of the US live paycheck-to-paycheck.  We are a disciplined bunch on CoB.  But we are like the 1% (in terms of discipline, curiosity, and likely smarts).  The rest of the country is not as lucky and/or well off.  This is a good solution.  But I do hope that the arbitrager with 15 Airbnb get punished.  If you want to rent out a spare apartment or room that you own, it's fine.  If you have 20 SFH on Airbnb that you lease from a landlord, you deserve to be taken to the woodsheds.  House flippers?  Let's them go broke.  But normal everyday tenants and homeowners, give them this pass.

 

 

Oh, I'm not saying that the banks shouldn't offer flexibility, particularly for landlords and SFH owners who have a decent chunk of equity in their properties -- defer the payments and term them out, and everything will be happy on the other side.  That's in the bank's interest and it's in the property owners' interest.

 

My question is what is the bank planning to tell shareholders?  If you have a commercial client who doesn't make a payment without first discussing it, what is a bank supposed to do?  You throw him on the arrears list!  And then what is the bank supposed to do?  You are supposed to increase the provision for that particular loan.  And if you get a client who can't make a payment, but at least phones you up to ask for a deferment, what are you supposed to do?  Well, the bank can definitely make the deferment and term them out, but then what is it supposed to do?  If there are enough cases like that, the bank is supposed to increase its provision for that portfolio of debt because it knows full well that a client requesting a deferment is indicative of a higher risk of ultimately defaulting.

 

So, are you comfortable if a bank extends an automatic 3 month deferment to all of its commercial clients and then uses that as a reason to not take a large provision increase next quarter?  It's just a little white-lie to shareholders if it's ultimately in their interest right?

 

 

SJ

[Gregmal]

I dont have as grim an outlook on housing as some, but you can certainly call me skeptical if the plan is to let the average bloke go 3 months without paying and then expect them to get whole in a one shot lump sum payment; even if most of that lump sum is given to them by the government. I just dont have a lot of faith in the honorability or financial discipline of most average folks in America or Canada. The odds of many of these folks maintaining large balances in their bank accounts for extended periods of time is not something I'd bet on. Only thing going for the other side of the argument is that restaurants and travel arent spending options for them right now...

[BG2008]

Guys,

 

I get the cynicism on the extend and pretend.  I think the  AirBnb arbitragers will get bent over and treated properly.  The house flippers will likely get their due as well.  But if you have good hardworking tenants.  The 3 months deferral is a great solution and an unofficial way to put money in the hands of renters and landlords.  Frankly, is it anyone's fault that some virus forced hardworking cooks, waiters, and construction guys to have to sit at home and not work?  I don't think so.  The tenants didn't do anything wrong and neither did the landlord who chose their tenants the right way.  I have no idea how the banks treat this.  I'm sure the Fed is giving the A-OK for the bank to push back payments.  What would you prefer?  Let 90% of the homes go into foreclosure and feel righteous because you saved enough and have a nice nest egg?  Most of the US live paycheck-to-paycheck.  We are a disciplined bunch on CoB.  But we are like the 1% (in terms of discipline, curiosity, and likely smarts).  The rest of the country is not as lucky and/or well off.  This is a good solution.  But I do hope that the arbitrager with 15 Airbnb get punished.  If you want to rent out a spare apartment or room that you own, it's fine.  If you have 20 SFH on Airbnb that you lease from a landlord, you deserve to be taken to the woodsheds.  House flippers?  Let's them go broke.  But normal everyday tenants and homeowners, give them this pass.

 

 

Oh, I'm not saying that the banks shouldn't offer flexibility, particularly for landlords and SFH owners who have a decent chunk of equity in their properties -- defer the payments and term them out, and everything will be happy on the other side.  That's in the bank's interest and it's in the property owners' interest.

 

My question is what is the bank planning to tell shareholders?  If you have a commercial client who doesn't make a payment without first discussing it, what is a bank supposed to do?  You throw him on the arrears list!  And then what is the bank supposed to do?  You are supposed to increase the provision for that particular loan.  And if you get a client who can't make a payment, but at least phones you up to ask for a deferment, what are you supposed to do?  Well, the bank can definitely make the deferment and term them out, but then what is it supposed to do?  If there are enough cases like that, the bank is supposed to increase its provision for that portfolio of debt because it knows full well that a client requesting a deferment is indicative of a higher risk of ultimately defaulting.

 

So, are you comfortable if a bank extends an automatic 3 month deferment to all of its commercial clients and then uses that as a reason to not take a large provision increase next quarter?  It's just a little white-lie to shareholders if it's ultimately in their interest right?

 

 

SJ

 

What banks tell their shareholders is a whole different topic.  That's why I decided not to own any banks after the GFC.  I worked at one during 08/09 and no one knows what the heck is in the "black box".  It truly is a black box back then.  I generally don't like owning stuff where you have to constantly decide "is it time for me to get out? because if there's a recession, I'll get slammed."  This pretty much applies to all cyclicals, banks, auto, etc.  I own some RE that are cyclical.  But that's my area of expertise. 

[opihiman2]

Guys,

 

I get the cynicism on the extend and pretend.  I think the  AirBnb arbitragers will get bent over and treated properly.  The house flippers will likely get their due as well.  But if you have good hardworking tenants.  The 3 months deferral is a great solution and an unofficial way to put money in the hands of renters and landlords.  Frankly, is it anyone's fault that some virus forced hardworking cooks, waiters, and construction guys to have to sit at home and not work?  I don't think so.  The tenants didn't do anything wrong and neither did the landlord who chose their tenants the right way.  I have no idea how the banks treat this.  I'm sure the Fed is giving the A-OK for the bank to push back payments.  What would you prefer?  Let 90% of the homes go into foreclosure and feel righteous because you saved enough and have a nice nest egg?  Most of the US live paycheck-to-paycheck.  We are a disciplined bunch on CoB.  But we are like the 1% (in terms of discipline, curiosity, and likely smarts).  The rest of the country is not as lucky and/or well off.  This is a good solution.  But I do hope that the arbitrager with 15 Airbnb get punished.  If you want to rent out a spare apartment or room that you own, it's fine.  If you have 20 SFH on Airbnb that you lease from a landlord, you deserve to be taken to the woodsheds.  House flippers?  Let's them go broke.  But normal everyday tenants and homeowners, give them this pass.

 

 

Oh, I'm not saying that the banks shouldn't offer flexibility, particularly for landlords and SFH owners who have a decent chunk of equity in their properties -- defer the payments and term them out, and everything will be happy on the other side.  That's in the bank's interest and it's in the property owners' interest.

 

My question is what is the bank planning to tell shareholders?  If you have a commercial client who doesn't make a payment without first discussing it, what is a bank supposed to do?  You throw him on the arrears list!  And then what is the bank supposed to do?  You are supposed to increase the provision for that particular loan.  And if you get a client who can't make a payment, but at least phones you up to ask for a deferment, what are you supposed to do?  Well, the bank can definitely make the deferment and term them out, but then what is it supposed to do?  If there are enough cases like that, the bank is supposed to increase its provision for that portfolio of debt because it knows full well that a client requesting a deferment is indicative of a higher risk of ultimately defaulting.

 

So, are you comfortable if a bank extends an automatic 3 month deferment to all of its commercial clients and then uses that as a reason to not take a large provision increase next quarter?  It's just a little white-lie to shareholders if it's ultimately in their interest right?

 

 

SJ

 

What banks tell their shareholders is a whole different topic.  That's why I decided not to own any banks after the GFC.  I worked at one during 08/09 and no one knows what the heck is in the "black box".  It truly is a black box back then.  I generally don't like owning stuff where you have to constantly decide "is it time for me to get out? because if there's a recession, I'll get slammed."  This pretty much applies to all cyclicals, banks, auto, etc.  I own some RE that are cyclical.  But that's my area of expertise.

 

Very much true.  Some friends in the industry said they are not allowed to invest in banks.  I asked why?  They said it's the CIO's preference.  Banks are a black box.  I don't know why people even on here are always loving BAC and WFC.  Especially now that rates are 0% again, margins are going to get compressed.

 

[gfp]

The prime rate is still 3.25%

 

Still plenty of room to earn a spread

[BG2008]

Guys,

 

I get the cynicism on the extend and pretend.  I think the  AirBnb arbitragers will get bent over and treated properly.  The house flippers will likely get their due as well.  But if you have good hardworking tenants.  The 3 months deferral is a great solution and an unofficial way to put money in the hands of renters and landlords.  Frankly, is it anyone's fault that some virus forced hardworking cooks, waiters, and construction guys to have to sit at home and not work?  I don't think so.  The tenants didn't do anything wrong and neither did the landlord who chose their tenants the right way.  I have no idea how the banks treat this.  I'm sure the Fed is giving the A-OK for the bank to push back payments.  What would you prefer?  Let 90% of the homes go into foreclosure and feel righteous because you saved enough and have a nice nest egg?  Most of the US live paycheck-to-paycheck.  We are a disciplined bunch on CoB.  But we are like the 1% (in terms of discipline, curiosity, and likely smarts).  The rest of the country is not as lucky and/or well off.  This is a good solution.  But I do hope that the arbitrager with 15 Airbnb get punished.  If you want to rent out a spare apartment or room that you own, it's fine.  If you have 20 SFH on Airbnb that you lease from a landlord, you deserve to be taken to the woodsheds.  House flippers?  Let's them go broke.  But normal everyday tenants and homeowners, give them this pass.

 

 

Oh, I'm not saying that the banks shouldn't offer flexibility, particularly for landlords and SFH owners who have a decent chunk of equity in their properties -- defer the payments and term them out, and everything will be happy on the other side.  That's in the bank's interest and it's in the property owners' interest.

 

My question is what is the bank planning to tell shareholders?  If you have a commercial client who doesn't make a payment without first discussing it, what is a bank supposed to do?  You throw him on the arrears list!  And then what is the bank supposed to do?  You are supposed to increase the provision for that particular loan.  And if you get a client who can't make a payment, but at least phones you up to ask for a deferment, what are you supposed to do?  Well, the bank can definitely make the deferment and term them out, but then what is it supposed to do?  If there are enough cases like that, the bank is supposed to increase its provision for that portfolio of debt because it knows full well that a client requesting a deferment is indicative of a higher risk of ultimately defaulting.

 

So, are you comfortable if a bank extends an automatic 3 month deferment to all of its commercial clients and then uses that as a reason to not take a large provision increase next quarter?  It's just a little white-lie to shareholders if it's ultimately in their interest right?

 

 

SJ

 

What banks tell their shareholders is a whole different topic.  That's why I decided not to own any banks after the GFC.  I worked at one during 08/09 and no one knows what the heck is in the "black box".  It truly is a black box back then.  I generally don't like owning stuff where you have to constantly decide "is it time for me to get out? because if there's a recession, I'll get slammed."  This pretty much applies to all cyclicals, banks, auto, etc.  I own some RE that are cyclical.  But that's my area of expertise.

 

Very much true.  Some friends in the industry said they are not allowed to invest in banks.  I asked why?  They said it's the CIO's preference.  Banks are a black box.  I don't know why people even on here are always loving BAC and WFC.  Especially now that rates are 0% again, margins are going to get compressed.

 

To be fair, the TARP warrants were pretty interesting.  I always thought that if you buy banks, you need to buy an 20% OTM put the whole time for moments like this. 

[alpha]

 

On a side note does anyone know how this pandemic is affecting the real estate market in China? For years we have been hearing about bubbles there but the government has been able to keep it going. Could this cause a disruption too big for the government to cover?

[matts]

40% of N.Y. Tenants May Not Pay Rent This Month. What Happens Then?

 

https://www.nytimes.com/2020/03/31/nyregion/coronavirus-landlords-eviction-tenants.html

 

 

 

 

[thepupil]

40% of N.Y. Tenants May Not Pay Rent This Month. What Happens Then?

 

https://www.nytimes.com/2020/03/31/nyregion/coronavirus-landlords-eviction-tenants.html

 

buy CLPR at... $2 / share?

[opihiman2]

I'm not sure about China, but I wonder how this will affect the Canadian housing bubble.  China has already had strict capital controls since a year or so ago.  If that was partly fueling the Vancouver / Toronto housing market, that's definitely gonna be gone now.

 

As an aside, I just thought of something that could be the impetus for these tight lending standards by private investors.  It's almost comical when you think about the side effects of some of these policies coming down from D.C.  If you allow forbearance on mortgages for up to a year, why the hell would you want to lend money out for mortgages then as an investor?  You don't even have to prove hardship from Covid 19 to stop mortgage payments.  If I were investing in mortgage related securities, I would definitely not loan money to high risk groups.  And, if you believe prices are coming down, I would also be wary of lower risk groups.  People who were upside down their homes in post GFC were just letting the banks foreclose on the house and claiming bankruptcy on it. 

 

Finally, I'm seeing house price reductions start to ramp up.  Just saw another one relist 5% down.  I followed a couple listings price history, and incidentally, these houses sold at a peak during 2007.  Was resold for a huge loss in 2012.  Now, they're being re-listed higher than the peak in 2007.  Haha, wow.  Can't wait to see how low these prices get in a year or two.  We'll see.

 

[Morgan]

40% of N.Y. Tenants May Not Pay Rent This Month. What Happens Then?

 

https://www.nytimes.com/2020/03/31/nyregion/coronavirus-landlords-eviction-tenants.html

 

If the federal and state governments make everyone take a financial pause for 2-4 months until this passes, it’s fine (I guess). If evictions are banned and landlords must pay all of their bills then there will be serious problems for everyone eventually.

 

At a minimum tenants won’t pay now and they absolutely won’t pay a lump sum of 2-4 months rent at the end. They won’t have had a job to have saved up the money obviously. They won’t pay and then they’ll abandon their apartment for a new one as soon as they can be evicted. If everyone pauses it’ll be ok. If the landlords (or one part of the chain) have to bear the brunt of it it’ll be a problem.

 

Ironically, NYC still demands to be paid water, sewage and property taxes. What a bunch of dopes.