eXp Commercial is one of the fastest-growing national commercial real estate brokerage firms. The Chicago Multifamily Brokerage Division focuses on listing and selling multifamily properties throughout the Chicago Area and Suburbs.
eXp World Holdings Reports Record Second Quarter 2022 Revenue of $1.4 Billion
Q2 2022 Revenue Increased 42% Year over Year to $1.4 Billion With Agent Growth of 42%Company Declares Cash Dividend for Q3 2022 of $0.045 per Share of Common StockRepurchases $50 Million of Common Stock During the Second QuarterBELLINGHAM, Wash. — Aug. 3, 2022 — eXp World Holdings, Inc. (Nasdaq: EXPI), (or the “Company”), the holding company for eXp Realty®, Virbela and SUCCESS® Enterprises, today announced financial results for the second quarter ended June 30, 2022.
Second Quarter 2022 Financial Highlights as Compared to the Same Year-Ago Quarter:
Revenue increased 42% to $1.4 billion.
Gross profit increased 34% to $107.3 million.
Net income of $9.4 million, compared to net income of $37.0 million in the year-ago quarter. Year over year tax expense increased $22.3 million due to one-time VA allowance release in 2021 and reduction in excess stock-based compensation tax benefit. Earnings per diluted share of $0.06, compared to earnings per diluted share of $0.24 in the year-ago quarter.
Adjusted EBITDA (a non-GAAP financial measure) of $26.9 million.
As of June 30, 2022, cash and cash equivalents totaled $134.9 million, compared to $107.4 million as of June 30, 2021. The Company repurchased approximately $50 million of common stock during the second quarter of 2022.
The Company paid a cash dividend for the second quarter of 2022 of $0.04 per share of common stock on May 31, 2022. On July 29, 2022, the Company’s Board of Directors declared a cash dividend of $0.045 per share of common stock for the third quarter of 2022, a 13% increase, expected to be paid on Aug. 29, 2022, to shareholders of record on Aug. 12, 2022.
Management Commentary
“During the second quarter, eXp continued to increase its market share and revenue to record levels, reinforcing that our model was built for all market conditions and that our agent value proposition resonates around the world,” said Glenn Sanford, Founder, Chairman, and CEO of eXp World Holdings. “We are focused on strengthening our platform to provide even better support to our agents through technology, operations, training, coaching, and community. In the third quarter, we acquired Zoocasa, providing an exponential boost to Canadian agents that we expect to expand to a broader group of agents and real estate customers. We also further strengthened our management team with world-class hires focused on affiliated services and innovation of our proprietary technologies. We are leveraging our core strengths of agent satisfaction and innovation as we continue to redefine the real estate industry.”
“eXp delivered another record quarter with 42% revenue growth and solid profitability while returning a record $56 million to our shareholders through share repurchases and dividends,” said Jeff Whiteside, CFO and Chief Collaboration Officer of eXp World Holdings. “Looking ahead, we expect our agile model to result in ongoing market share gains as we navigate more challenging market conditions. We expect our focus on affiliated services and technology will further strengthen our agent and customer value proposition. Simultaneously, we will focus on increasing operating efficiencies for our business and our agents’ businesses. We remain confident in our ability to deliver profitable, sustainable growth over the long term.”
Second Quarter 2022 Operational Highlights as Compared to the Same Year-Ago Quarter:
eXp World Holdings and eXp Realty strengthened the leadership team with Shoeb Ansari, Chief Information Officer; Leo Pareja, President of Affiliated Services
Patrick O’Neill appointed Chief Operating Officer, eXp Realty beginning Aug. 4, 2022. Patrick brings more than 25 years of experience and a proven track record of building and optimizing high-growth technology businesses. More details to come.
Agents and brokers on the eXp Realty platform increased 42% to 82,856 as of June 30, 2022.
Real estate transactions closed increased 30% to 150,032.
Real estate transaction volume increased 44% to $57.9 billion.
eXp Realty expanded into New Zealand in the second quarter of 2022.
eXp Realty ended the second quarter of 2022 with a global Net Promoter Score of 68, a measure of agent satisfaction as part of the Company’s intense focus on improving the agent experience.
Second Quarter 2022 Results – Virtual Fireside Chat
The Company will hold a virtual fireside chat and investor Q&A on Wednesday, Aug. 3, 2022 at 8 a.m. PT / 11 a.m. ET with:
Glenn Sanford, Founder, Chairman, and CEO, eXp World Holdings
Jeff Whiteside, CFO, and Chief Collaboration Officer, eXp World Holdings
Shoeb Ansari, Chief Information Officer, eXp World Holdings
Leo Pareja, President of Affiliated Services, eXp Realty
The discussion will be moderated by Justin Ages, Equity Research Analyst at Berenberg Capital Markets.
The investor Q&A is open to investors, current shareholders, and anyone interested in learning more about eXp World Holdings and its companies.
Date: Wednesday, Aug. 3, 2022
Time: 8 a.m. PT / 11 a.m. ET
Location: EXPI Campus. Join at https://expworldholdings.com/contact/download/Livestream:expworldholdings.com/eventsAbout eXp World Holdings, Inc.
eXp World Holdings, Inc. (Nasdaq: EXPI) is the holding company for eXp Realty®, Virbela, and SUCCESS® Enterprises.
eXp Realty is the fastest-growing real estate company in the world with more than 83,000 agents in the United States, Canada, the United Kingdom, Australia, South Africa, India, Mexico, Portugal, France, Puerto Rico, Brazil, Italy, Hong Kong, Colombia, Spain, Israel, Panama, Germany, Dominican Republic, Greece and New Zealand and continues to scale internationally. As a publicly traded company, eXp World Holdings provides real estate professionals the unique opportunity to earn equity awards for production goals and contributions to overall company growth. eXp World Holdings and its businesses offer a full suite of brokerage and real estate tech solutions, including its innovative residential and commercial brokerage model, professional services, collaborative tools and personal development. The cloud-based brokerage is powered by Virbela, an immersive 3D platform that is deeply social and collaborative, enabling agents to be more connected and productive. SUCCESS® Enterprises, anchored by SUCCESS® magazine and its related media properties, was established in 1897 and is a leading personal and professional development brand and publication.
For more information, visit https://expworldholdings.com.
Use of Non-GAAP Financial Measures
To provide investors with additional information regarding our financial results, this press release includes references to Adjusted EBITDA, which is a non-U.S. GAAP financial measure and may be different than similarly titled measures used by other companies. It is presented to enhance investors’ overall understanding of the company’s financial performance and should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with U.S. GAAP.
The company’s Adjusted EBITDA provides useful information about financial performance, enhances the overall understanding of past performance and future prospects, and allows for greater transparency with respect to a key metric used by management for financial and operational decision-making. Adjusted EBITDA helps identify underlying trends in the business that otherwise could be masked by the effect of the expenses that are excluded in Adjusted EBITDA. In particular, the company believes the exclusion of stock and stock option expenses provides a useful supplemental measure in evaluating the performance of operations and provides better transparency into results of operations.
The company defines the non-U.S. GAAP financial measure of Adjusted EBITDA to mean net income (loss), excluding other income (expense), income tax benefit (expense), depreciation, amortization, impairment charges, stock-based compensation expense, and stock option expense. Adjusted EBITDA may assist investors in seeing financial performance through the eyes of management, and may provide an additional tool for investors to use in comparing core financial performance over multiple periods with other companies in the industry.
Adjusted EBITDA should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with U.S. GAAP. There are a number of limitations related to the use of Adjusted EBITDA compared to Net Income (Loss), the closest comparable U.S. GAAP measure. Some of these limitations are that:
Adjusted EBITDA excludes stock-based compensation expense and stock option expense, which have been, and will continue to be for the foreseeable future, significant recurring expenses in the business and an important part of the compensation strategy; and
Adjusted EBITDA excludes certain recurring, non-cash charges such as depreciation of fixed assets, amortization of acquired intangible assets, and impairment charges related to these long-lived assets, and, although these are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future.
Safe Harbor Statement
The statements contained herein may include statements of future expectations and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Such forward-looking statements speak only as of the date hereof, and the company undertakes no obligation to revise or update them. These statements include, but are not limited to, statements about the continued growth of our agent and broker base; expansion of our residential real estate brokerage business into foreign markets; and revenue growth and financial performance. Such statements are not guarantees of future performance. Important factors that may cause actual results to differ materially and adversely from those expressed in forward-looking statements include changes in business or other market conditions; the difficulty of keeping expense growth at modest levels while increasing revenues; and other risks detailed from time to time in the company’s Securities and Exchange Commission filings, including but not limited to the most recently filed Quarterly Report on Form 10-Q and Annual Report on Form 10-K.
Media Relations Contact:
eXp World Holdings, Inc.
[email protected]Investor Relations Contact:
Denise Garcia
Managing Partner, Hayflower Partners
[email protected]
Source: eXp World Holdings Reports Record Second Quarter 2022 Revenue of $1.4 Billionhttps://www.creconsult.net/market-trends/exp-world-holdings-reports-record-second-quarter-2022-revenue-of-1-4-billion/
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Debt yield hasn’t traditionally been a primary commercial real estate loan underwriting metric, but more lenders are incorporating it into their criteria. In the current real estate market, measuring debt yield ratios provides lenders with a stable assessment regardless of unusual or changing conditions.
What is Debt Yield?
Debt yield is a standardized way to measure net operating income (NOI) against total loan value. The ratio is simple to calculate, but it’s an accurate measure of risk that can be used to evaluate individual loans or compare different loans.
How to Calculate Debt Yield
The math required for a debt yield calculation is simple and easy. The debt yield formula is:
Debt Yield = Net Operating Income / Loan Amount
For example, consider the purchase of a property with $300,000 NOI and a loan of $3 million. In this example, the debt yield is 10 percent ($300,000 / $3,000,000 = 10%).
What Does Debt Yield Tell You?
Lenders use debt yield ratios to determine what their return would be if a buyer immediately defaulted on a commercial real estate loan. Loans with low debt yields are considered riskier, as the lender would receive a smaller return in the event of foreclosure. Higher debt yields are less risky because the lender would receive a larger return and could recoup their losses faster.
Once lenders know what annual return they’d receive, they can calculate how long it’d take to recoup the loss on a foreclosed property. This is done by dividing 100 percent by the debt yield ratio (annual return). The result is the number of years that it’d take to recoup all losses.
Recoup Time = 100 / Debt Yield
Assuming the above debt yield of 12 percent, the lender could recoup their investment in around 8.3 years (100% / 12% = 8.33 years).
Borrowers can alternatively use the ratio to calculate the maximum loan amount a property can qualify for. If the allowed debt yield and net operating income are known, then the loan amount is the NOI divided by the debt yield.
Maximum Loan Amount = Net Operating Income / Debt Yield
If a lender requires a minimum debt yield of 10 percent, the maximum amount that the above example could qualify for would be $1.2 million ($120,000 / 0.10 = $1,200.000).
(Of course, any maximum loan amount would also be subject to loan to value (LTV) and debt service coverage ratio (DSCR) requirements. If a lender considers all three of these ratios, whichever has the lowest permitted loan amount is the one that sets the maximum amount borrowed.)
How Debt Yield Applies to Commercial Real Estate
Lenders appreciate that debt yield ratio is insulated from variables that can skew loan to values, debt service coverages, and even cap rates. As extremely low-interest rates and spiking property values make accurate loan risk assessment more difficult, debt yield provides a consistent risk measurement when underwriting commercial real estate loans.
Debt Yield vs. Loan to Value
Loan-to-value ratios depend heavily on the value of a commercial property, and this ratio is susceptible to large swings in property values. Borrowers can potentially get much larger loans when property values increase drastically, and lenders can be underwriting an underwater loan if property values then drop drastically.
In contrast, debt yield ratios aren’t impacted by changes in property value. The loan itself is the underlying denominator, and not how much the property is worth. So long as net operating income doesn’t change, debt yield won’t change after a loan is underwritten.
Debt Yield vs. Debt Service Coverage
Debt service coverage is based on the annual debt payment, which is affected by interest rate and amortization schedule. Thus, DSCR can be skewed by extreme interest rates (currently extremely low) and/or long amortizations. The DSCR for variable-rate loans will also change as interest rates increase.
Debt yield is based on the loan amount, and thus won’t change with interest rates or amortization schedules. It is thus a more consistent measure in many situations, even though both measurements use net operating income.
Debt Yield vs. Cap Rate
Although cap rate also looks at net operating income, this is based on the value of a property. Cap rate is thus susceptible to some of the same issues as loan to value is, and which debt yield is insulated against.
What is an Acceptable Debt Yield?
The Comptroller’s Commercial Real Estate Lending booklet recommends a minimum debt yield of 10 percent, and most lenders that consider this metric follow that recommendation.
In certain situations, lenders may allow a 9 percent debt yield for desirable properties in major markets (e.g. New York City, Los Angeles). Ratios of 8 percent for truly exceptional properties are quite rare, although not altogether unheard of.
Notably, debt yield is based on current net operating income. Projected rent increases or NOI growth isn’t considered when calculating the ratio, so adjusting projections generally won’t have an impact on whether debt yield meets a lender’s minimum requirement.
Loan to value ratio is a standard metric that lenders use to assess default risk and qualify commercial real estate loans. While it’s far from the only data point lenders consider, it’s one of the most basic and often checked early on during the loan application process.
What is a Loan to Value Ratio?
Loan to value (LTV) ratio is a straightforward way to measure a commercial real estate loan’s size against the value of the financed property. The ratio is simple, yet considered one of the accurate ways to assess the risk that individual loans present.
Loan to Value Ratio = Loan Balance / Property Value
For example: a $400,000 loan on a $500,000 commercial property would have an LTV of 80% ($400,000 / $500,000 = 0.80).
What Does LTV Tell You?
Lenders use loan to value ratios as a measure of the risk that different loans present. Higher LTVs are considered riskier than lower LTVs for a couple of reasons.
First, borrowers have less equity in their commercial property when the associated loan has a high LTV. Should a property become unprofitable, borrowers who have less equity may be more apt to walk away and default on their loan.
Second, properties are more likely to become underwater when their associated loan has a high LTV. Should the local real estate market crash, properties with high LTV ratios will more quickly become underwater. This not only increases the risk of default, but also may force lenders to take a loss if they foreclose and auction off a property.
In order to ensure that loans fall within their risk parameters, lenders have maximum LTVs that they’ll allow.
If borrowers know a loan program’s maximum allowed ratio, the LTV formula can be inverted to determine the maximum property value allowed or down-payment required.
What is a Combined Loan to Value Ratio?
When borrowers secure financing through multiple loan programs, lenders often consider the combined loan to value ratio (CLTV) in addition to the loan to value ratio.
CLTV measures all of the outstanding balances on a commercial property’s loans against the property’s value. Whereas LTV considers only one loan against the property, CLTV considers all loans that are secured with the property.
Combined Loan to Value Ratio = Σ All Loan Balances / Property Value
The combined ratio provides a more comprehensive measure when multiple loans and/or lines of credit are being used. It’s unnecessary when using only one loan.
How LTV Applies to Commercial Real Estate
Lenders appreciate how loan to value measures what portion of an investment property is financed. No other calculation considers loan balance and property value in such direct relation to each other.
Loan to Value vs. Debt Yield
Debt yield measures net operating income against loan balance, and thus shows the annual return on the amount borrowed. The metric doesn’t directly capture any property value change that results from building improvements or general market trends.
Because loan to value includes a property’s value within its calculation, LTV will capture any changes in property value that result from improvements or market trends.
Loan to Value vs. Debt Service Coverage
Debt service coverage ratio (DSCR) focuses on interest rates and amortization schedules. This metric is almost entirely insulated from changes in property value.
Loan to value doesn’t assess the financials of a loan itself in the same way that DSCR does, but instead examines the loan’s amount as it relates to the property.
Loan to Value vs. Cap Rate
Cap rate measures a property’s net operating income against the property’s value. While this is needed to assess how profitable a property is, it doesn’t say anything about the property’s financing.
Loan to value uses the same property value data point, but examines the property’s financing rather than its income.
What is an Acceptable Loan to Value Ratio?
Most commercial real estate loan programs allow a maximum loan to value ratio of 75-80%, but some programs differ from this range. Special federal loan programs (e.g. HUD/FHA 223(f)) allow ratios of 83.3-90%. Some private loans will only permit 65-70%.
Additionally, a few specialized programs (e.g. Freddie Mac Green Advantage) may amend the maximum LTV slightly. Any such amendments are usually specifically so that investors can install environmentally friendly or similar improvements.
While qualified investors can take advantage of a program’s maximum allowed LTV, sometimes it’s advantageous to reduce the LTV in order to get a lower interest rate.
Certain programs minorly reduce the interest rate when a borrower has more equity in their property. Even if such reductions are minor, the cumulative savings can be substantial considering the time and duration of commercial real estate loans.
How to Calculate LTV
The borrowed amount and property value are needed to calculate the loan to value ratio. A property’s appraised value is most often used, which is one reason why lenders typically require a recent appraisal during underwriting.
The formula to calculate LTV is:
Loan to Value Ratio = Loan Balance / Property Value
As another example, consider a $1.2 million property that’s being financed with a $1 million loan. The LTV would be 83.3%, and a specialize loan program that allows 80+% LTVs would likely be needed (1,000,000 / 1,200,000 = 83.3%).
The formula can be inverted to determine the maximum permitted loan balance or property value:
Property Value = Loan Balance / LTV ratio
Consider a borrower who knows they can qualify for a $350,000 loan through a program that allows a maximum LTV ratio of 75%. The borrower would be able to purchase a property worth up to about $467,000 ($350,000 / 0.75% = $466,667).
How to Use LTV for Commercial Real Estate
Loan-to-value ratios must be met in order to qualify for commercial real estate loans. After checking a loan program’s maximum LTV, the formula can be used to determine:
Whether a loan application will be denied based on this criterion
What the maximum property value that an investor can purchase is
What down-payment will be required for the purchase of a property
The maximum allowed LTV should be checked early on in the loan application process, so the borrower can check other loan programs if necessary and can determine what their purchasing parameters are.
JLL adds that inflation is also showing signs of slowing.
Real estate has long enjoyed the reputation as an inflation hedge. According to data and analysis from JLL, even with the spikes in CPI the US has been experiencing, that statement remains true, at least for multifamily. And as pressure builds on the ability to increase rents and allow continued profitable expansion, there’s evidence that the inflation rate has begun to slow.
“The national average rent growth for Class A multi-housing properties has surpassed inflationary growth by 198 basis points from 2010 to the first quarter of 2022,” according to JLL. “In fact, in the first quarter of 2022, national multi-housing rents increased 15 percent year-over-year, as rising inflation translated to significantly higher rents.”
Multifamily housing does have an ability to mark rents to market, increasing them both on an annual basis at renewal time and when there is turnover in units. According to Yardi Matrix, multifamily asking rents hit an all-time high in April of $1,659, with rents up 8.8% in all but one of the top 30 metropolitan areas.
That pricing strength has also enabled growing property values and cap rate compression. Walker & Dunlop’s latest multifamily outlook stated that nearly $290 billion in transactions were logged in 2021, more than double the total from 2020. “Part of the rebound in the multifamily market reflected a return by many renters who had vacated their urban apartments during the height of the pandemic, but vacancy levels were also flattened by the lack of new multifamily completions,” the report noted.
However, JLL’s framing does suggest that there might be limitations. Class A housing may be able to command continued rent growth from consumers with higher incomes. Whether that might be true for Class B or C housing, where consumers are likely to have more constrained financial resources, is far from clear.
Even for Class A, though, there are eventually limits. “The convergence of several trends over the pandemic, namely home buyer affordability issues, rapidly rising wages, population migration trends and a supply and demand imbalance have resulted in a level of rent growth that is unsustainable,” the JLL release quoted Geraldine Guichardo, JLL head of Americas living research and global head of research, hotels, as saying.
And negative leverage has emerged in multifamily, with shrinking returns for buyers despite rent hikes.
JLL is predicting that both inflation and rental growth will start moderating this year and through 2024, with rates eventually dropping below 5%.
Slower than 2021, rent growth in 2022 still tops pre-pandemic years.
Rents continue their steady rise across the nation. According to the July 2022 Apartment List National Rent Report, the national index increased 1.3% during June. This consistent month-over-month (MoM) growth puts rent growth ahead by 14.1% year-over-year (YoY).
During the first half of 2022, rents are up 5.4%, yet that is considerably lower than the 8.8% increase during the first half of 2021. In the years leading up to the pandemic, rent growth during the first six months of the year averaged roughly 3.4%.
While the June increase this year was similar to last month’s growth, it is nearly half the increase seen in June 2021 but almost double what was typically seen in June prior to the pandemic.
Rents are also up in 97 of the 100 largest U.S. metros. During the past six months, San Jose, Calif., and Rochester, N.Y., have each seen 11% growth. Meanwhile, Miami, Orlando, Fla., Tucson, Ariz., Tampa, Fla., and San Diego have rent increases of at least 20% during the past year. Tampa, Rochester, and Tucson each have seen rent growth of at least 40% since March 2020.
Despite an 8% increase during the past 12 months, San Francisco is the only city with rent declines since March 2020. San Jose rents are up 3% since March 2020. Other slow-growing markets during the past six months include Phoenix, Las Vegas, and Sacramento, Calif.
Rising mortgage rates. Faltering home sales. Skyrocketing rents. Here’s how to make sense of a baffling real estate market.
After a two-year boom, the United States housing market finds itself at a pivotal moment — but pivoting to what, exactly?
This spring should have been a busy time for home sellers. Instead, the season was a dud, stalled by a dramatic spike in mortgage rates that stunned even industry experts with its chilling effect on the market.
The frenzied environment we had become accustomed to — with its eye-popping price increases and bidding wars that left buyers dejected and sellers giddy — suddenly seemed to be a thing of the past. While buyers stood on the sidelines, recalculating their much larger mortgage payments, sellers began to realize that offers of $100,000 or more over asking might not be forthcoming.
And over in the rental market, it’s “The Hunger Games,” as rents skyrocket and would-be renters in cities across the country compete with dozens of other applicants.
“Right now, we’re in this cauldron of uncertainty,” said Jonathan J. Miller, the president of Miller Samuel Real Estate Appraisers & Consultants. “Housing hates uncertainty. The biggest enemy of the housing market is uncertainty, and we have buckets full of uncertainty.”
We asked analysts, economists, and brokers to offer some clarity in this confusing time. Did they see this moment coming — and if so, what’s ahead for us in the near future? What would they do if they had to buy, sell or rent right now?
Jonathan J. Miller, the president of Miller Samuel Real Estate Appraisers & Consultants, said he is “thrilled” to see interest rates rise. “I’ve been saying for years that rates should be in the fives, because this is not sustainable,” he said.Credit...Jane Beiles for The New York Times
What’s Going on with Interest Rates?
Unless you’re paying in cash, buying a home just got a lot more expensive.
Since December, mortgage rates have nearly doubled — rising to around 6 percent, the highest they’ve been since 2008 — in response to moves by the Federal Reserve to control inflation. In January, a buyer would have paid around $2,100 a month in principal and interest for a $500,000 home loan. Today, that same loan would cost about $2,900 a month.
Many buyers simply cannot absorb that kind of increase, particularly when it’s combined with current home prices, which rose more than 20 percent from May 2021 to May 2022, according to Zillow.
“That’s a one-two punch that a lot of buyers can’t overcome,” said Rick Sharga, an executive vice president of market intelligence at ATTOM, a real estate data company.
Experts aren’t anticipating that rates will return to the elevated levels of the 1970s and 1980s — they peaked at 18.4 percent in 1981 — but until inflation recedes, they will keep rising.
“When inflation peaks, mortgage rates will have peaked, and that’s really the key ingredient,” said Greg McBride, the chief financial analyst at Bankrate.com. “If we get more inflation numbers as we did a couple of weeks ago, there is no telling how high mortgage rates could go.”
Buyers weren’t the only ones caught off-guard by the rapid change. Many industry experts have had to recalibrate their predictions for the months ahead.
“I don’t think anybody on the planet expected them to double in six months,” Mr. Miller said. “That’s thrown a monkey wrench, another calculation, into the mix.”
“We all had rose-colored glasses when the vaccine was rolling out and it seemed like everything was going to get better,” said Daryl Fairweather, the chief economist at Redfin. “It turns out it’s a bit of a rougher ride reopening the economy and getting things back to normal.”
Daryl Fairweather, the chief economist at Redfin, anticipates a bumpy road for the next two or three years. “I think a whole lot of buyers have been priced out of the market,” she said.Credit...Kevin Miyazaki for The New York Times
Can We Expect Home Prices to Fall?
Prices are unlikely to take a nosedive, but cracks are showing. In the four-week period ending June 26, the median asking price for newly listed homes was down 1.5 percent from its all-time high this spring, and, on average, 6.5 percent of listings dropped their prices each week, according to a Redfin report.
Demand is down, too. The same Redfin report found that fewer people were searching Google for homes and asking to tour properties. Mortgage applications were down 24 percent, and pending sales fell 13 percent from the same time a year earlier, the largest drop since May 2020, according to Redfin.
“The long-term outlook is still quite strong,” Dr. Fairweather said. “But in the short-term, because of all the volatility in the economy, home prices might fall between now and next spring.”
At least for now, however, the days of double-digit percentage price increases are likely over. Markets like Tampa and Phoenix, which saw some of the biggest price increases, may take a hit, dropping by margins of 5 to 10 percent. Others may stay flat or see modest increases, like the 6.6 percent Realtor.com is projecting for 2022.
But prices are unlikely to collapse — in part, because inventory is still low, and there are more people who want homes than there are homes to buy. Although the inventory of active listings increased by almost 19 percent in June from a year ago, it is still down by 53.2 percent from 2019, according to Realtor.com.
“People waiting for home prices to fall are probably going to be disappointed,” Mr. Sharga said. “This is not 2008 all over again — we’re not looking at a housing bubble.”
Leonard Steinberg, a corporate broker at Compass, hopes the market will soon be a saner one for buyers. “The last 24 months have been buyer torture,” he said.Credit...Jane Beiles for The New York Times
To Buy or Not to Buy?
It’s still a seller’s market, whether it feels that way or not.
In May, the median price of a home in the United States passed $400,000 for the first time, according to the National Association of Realtors. And bidding wars accounted for 55 percent of home sales in the four-week period ending June 19, up from 53 a year earlier, according to Redfin.
But with so many mixed signals, buyers may want to wait out the summer or even the spring of next year.
“Most likely, prices aren’t going to be going up between now and then, and there is a chance that they’ll fall,” said Dr. Fairweather, who described the current moment as a hibernation. “It’s not good for Redfin’s business, but that is what’s happening.”
But if you need a home now — and you can stomach the roller coaster — the world is looking a little brighter when you squint. Yes, your monthly payments will be higher than they would have been had you bought a few months ago. But the low rates of 2020 and 2021 weren’t entirely your friend: They fueled a runaway train of spiraling home prices, pushing the boundaries of affordability. Soon, buyers may be in a better position than they have been in a long time.
Mr. Miller, who said he was “thrilled” to see rates rise, pointed out that “5 percent mortgage rates are not a bad thing in terms of sustainable housing markets.”
And remember: Rates fluctuate. Unlike the price you pay for a home, which is permanent, the mortgage rate is not. Or, as Mr. Sharga put it, you “date the rate, but marry the home.”
Not surprisingly, real estate agents, who earn their income from home sales, are bullish about buying now, arguing that for the first time in a long time, buyers could get a deal.
“You have to be a little bit of a cowgirl,” said Bess Freedman, the chief executive of Brown Harris Stevens, which predicted in its second-quarter market report that Manhattan was shifting to a buyer’s market. While one buyer may be scared off by the volatility, another “may come in and say, ‘You know what, there’s a hell of an opportunity right now. I have the money, I’m going to go in, I’m going to negotiate, I’m going to get a great price.’”
As the market cools, it could return to one that resembles a prepandemic normal, with homes that take a few months to sell and prices that increase gradually. Buyers may be able to start making a few reasonable demands — for appraisals, inspections and mortgage contingencies. And as inventory increases, they may even be able to compare a few options before making a decision.
“I’m hopeful we’re in a point right now where we’re in a return to sanity,” said Leonard Steinberg, a corporate broker at Compass. “Getting things to a normal pace — or a more sane-paced balance — is good for everyone.”
“Only when mortgage rates stabilize will prices stabilize,” said Lawrence Yun, the chief economist for the National Association of Realtors.Credit...Jared Soares for The New York Times
If You’re Thinking of Selling …
The time has come for sellers to reset their expectations. List your house today, and it is unlikely that 24 hours from now you will get to pluck an all-cash bid that’s $150,000 over list price from a sea of contingency-free offers.
“Those days are over,” said Lawrence Yun, the chief economist for the National Association of Realtors. “Don’t expect multiple offers.”
Your home may sit on the market for a few weeks and, if priced well, sell for around the asking price — which will be more than you would have gotten a year ago.
Those planning to sell in the next year would be better off doing it sooner rather than later. But if you can wait until the market settles into a new rhythm, you may have a better sense of what to expect two or three years from now.
“If you can wait, keep waiting until the weirdness that’s happening in the economy goes away,” Dr. Fairweather said. “The long-term outlook is rosier than the short-term outlook.”
And there’s another reason to wait: If you sell now and plan to buy, you may be trading a low mortgage rate for a higher one, and shopping in an unpredictable environment.
“We’re not talking about selling a stock where there is a desire to pick the absolute top. This is the place you live,” Mr. McBride said. “Worthy of at least equal consideration is where are you going to go?”
Igor Popov, the chief economist for Apartment List, thinks the rental market will remain competitive. “Whether a restaurant has a waitlist of 10 people or 30 people, you’re still not getting in for dinner,” he said.Credit...Jason Henry for The New York Times
What if You Want to Rent?
Pick nearly any city across the country — Austin, Nashville, Seattle, New York — and the story is one of rents rising by double-digit percentages amid scant inventory.
Nationally, the vacancy rate is below 5 percent, with more than a dozen renters competing for any given vacant apartment, according to RentCafe. That translates to extraordinarily high rents. In Manhattan, the median rent reached a record $4,000 a month in May, according to data from Douglas Elliman. The same month, the typical U.S. asking rent passed $2,000 for the first time, according to Redfin.
The rental market has been on a wild ride since the spring of 2020, with no end in sight. Early in the pandemic, markets in cities like New York saw rents plunge, as residents left and vacancies soared. Concessions, including months of free rent, became the norm. But those discounts soon vanished, and rents in New York now eclipse 2019 levels. Other markets, like that in Miami, never experienced a sharp decline, as renters from other cities who were able to work remotely moved in.
“Everyone wanted more space, and a lot of people wanted their own space,” said Igor Popov, the chief economist for Apartment List. “Those renters all gobbled up the inventory at a time when it was really hard to build” and to buy.
As he put it, “It was this perfect storm of raging demand and tight inventory.”
With few good alternatives, renters who might have moved this year have decided to stay put: Almost 62 percent have renewed their leases, according to RentCafe. That means there is less available inventory in a market that has long suffered from a lack of new housing.
“A lot of renters feel like they’re on a very crowded subway car,” Mr. Popov said. “If you have a seat, you might be uncomfortable, but you’re not getting up.”
Joshua Clark, a senior economist at Zillow, said he is stunned by how fast rents have climbed: “There was a heating up, but the fact that we are at these numbers — I would have laughed at myself if I predicted that.”
The forecast does not look good for renters, in the short-term or the long-term. Rising mortgage rates will push some buyers out of the sales market, putting more pressure on the rental market. And as rents climb, even fewer people will move. With no relief in sight for the inventory shortage, renters have few options.
In New York City, Mr. Steinberg said, “I don’t see enough cranes. The best gauge for a city with rentals is: Are they building tall buildings with lots of apartments? I don’t see too many — it’s not enough.”
Economists predict that rents will continue climbing for the next two or three years, but not at the same clip. Push enough renters to the edge of affordability and they will double and triple up, or leave one market in search of a cheaper one.
“The breakneck pace that we were on in 2021 is just not sustainable,” Mr. Popov said. “We’re already starting to see renters respond to that in terms of more searches with roommates.”
So what should renters do? If you can renew your lease, even at a higher rent, the odds are that will be cheaper than moving. You could consider taking on roommates or looking at cheaper neighborhoods. But none of the options are pleasant, and no one has a crystal ball to predict what the future holds.
“The major X factor is going to be what is happening in the rest of the economy,” Mr. Popov said. “If we start to see major shifts in the economy, then all bets are off and we’re in a new world.”
