Don't expect home prices to come crashing down soon

What's happening: Home prices were up 18% in June compared to a year ago, with Tampa, Miami, and Dallas reporting the highest annual gains, according to the

S&P CoreLogic Case-Shiller Indices

.

That was a slower pace than in May when they rose 19.9% annually. But the bottom line is that prices are still going up a lot, even as home sales have declined from their peaks.

So are we in a housing bubble?

Economists at the Federal Reserve Bank of Dallas examined this very question earlier this year, noting in a blog post that home prices were rising faster than market forces would indicate they should, and were becoming "unhinged from fundamentals."

That isn't just a big deal for buyers and sellers. The housing market is an important economic indicator and a reflection of how interest rate hikes by the Federal Reserve are playing out.

Watch this space: The market is changing as the Fed's efforts to cap inflation take effect. Climbing mortgage rates are making it more expensive to buy a home. In theory, that should cool demand and prices over time.

And to the extent we are in a bubble, economists think it will slowly deflate rather than suddenly pop. The team at Goldman Sachs predicts that home price growth will slow sharply in the next couple of quarters and eventually flatten out.

"We expect home price growth to stall completely, averaging 0% in 2023," Jan Hatzius, Goldman's chief economist, wrote in a recent research note. "While outright declines in national home prices are possible and appear quite likely for some regions, large declines seem unlikely."

That said: There's a reason prices have shown more resilience. Supply is still constrained.

Pandemic-era shortages have limited the pace of new home building. In the past, downturns in housing have been accompanied by economy-wide recessions, leading to a flood of existing home inventory. Recession leads to unemployment, and cash-strapped homeowners are forced to sell.

Today's labor market is robust, and that influx of housing seems unlikely to happen in this cycle — further prolonging the lack of inventory.

On the radar: Unfortunately, Goldman reports that the slowdown in home price appreciation isn't likely to impact shelter costs, which are a crucial component of the Consumer Price Index tracking inflation.

That's because as higher mortgage rates increase the cost of buying a new home, more people will be inclined to rent, boosting prices in that market.

What job openings data could mean for Fed rate hikes

Companies are hiring, but Americans aren't biting. The latest: The number of open positions in the United States ticked up in July, surprising economists. There were close to two jobs available per job seeker in July, up from 1.8 in June, according to the latest Job Openings and Labor Turnover Survey, or JOLTS, data.

That's not what the Federal Reserve was hoping for. The Fed is worried that

near-record job openings

are helping to drive wage increases, which in turn can prop up inflation, reports my CNN Business colleague Alicia Wallace.

"The Fed will not be happy with this report," Mark Zandi, senior economist for Moody's Analytics, told CNN Business. "It is critical that the job market cools off, and this report suggests that it remained very strong in July." The takeaway: A strong labor market is likely to encourage Federal Reserve officials to continue aggressive interest rate hikes in an attempt to cool the economy. Fed Chair Jerome Powell reiterated his resolve to bring down inflation and to "keep at it until the job is done," last week, even though that plan — which involves a series of hefty interest rate hikes — will bring "some pain to households and businesses."

It's all about oil

US markets tumbled to their third straight day of losses on Tuesday. And while it might be easy to blame Wall Street's bad mood on Fed Chair Jerome Powell, reports my

CNN Business colleague Paul R. La Monica, the most likely culprit is actually falling oil prices. US crude dropped 5.5% to settle at $91.64 a barrel, marking its worst day in five weeks.

The drop is good news for consumers. It could mean that prices at the pump keep falling and that a key measure of inflation — energy prices — continues to recede.

On the radar: The national average for a gallon of regular gasoline hit $3.84 on Wednesday, according to AAA. That's down from $4.22 one month ago.

But what's good for consumers isn't always good for markets. The drop in oil prices led to a big sell-off in energy stocks. Shares of Chevron (CVX) fell more than 2%. The S&P 500 (INX) was down 1.1%, and oil stocks were the biggest losers. The S&P Energy Select Sector SPDR Fund slid 3.4%.

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Source: Don’t expect home prices to come crashing down soon

https://www.creconsult.net/market-trends/dont-expect-home-prices-to-come-crashing-down-soon/

Housing Market Outlook: Builders Could Stop Construction Due to Expense Falling Demand

 

• Despite falling demand from homebuyers, experts have maintained that the US real estate market is healthy.
• But recent data on homebuilding highlights a dark storyline brewing.
• Builders are feeling the pain of tanking demand and are slowing down new construction, fueling a vicious cycle.

For months economists and housing experts have maintained that the US housing market is in relatively good standing despite a decline in affordability and buyer demand.

While it's not the foreclosure crisis of 2008, today's real estate market also has a dark side.

It all stems from the fact that fewer and fewer Americans can afford to buy the limited homes available, especially as interest rates rise. Homebuilders are feeling the pain of tanking demand and are slowing down housing construction — contributing to the housing crisis vicious cycle.

Peter Schiff, the chief economist at investment company Euro Pacific, told his more than 800,000 Twitter followers that soon "new home construction will almost completely shut down."

"That's because it will be too expensive to build new homes that most buyers can actually afford," he said in a tweet. "The housing market will consist almost exclusively of existing homes that will sell for less than the cost to replace them." Although dramatic, Schiff's pessimistic tweet may foreshadow what's to come in the real estate market.

In July, residential housing construction plummeted 9.6% to an annualized rate of 1.4 million units, according to the Census Bureau. The decline marked the slowest rate of home construction since February 2021 and highlights how rising costs are leading to less affordable housing options for Americans.

"Affordability is the greatest challenge facing the housing market," Robert Dietz, the chief economist at the National Association of Homebuilders said in a housing report. "Significant segments of the home buying population are priced out of the market."

Indeed, higher housing costs have dampened affordability for many Americans. Data from the US Census Bureau shows that an increasing number of people are falling behind on their rents.

Americans have a volatile economy to blame for surging housing prices. Inflation and interest rate hikes have increased the costs of everything from construction to mortgage lending. It has made it harder for builders to construct more low-cost homes and as a result, buyers' ability to afford home purchases. This has led to increased rental demand and ultimately higher rents across the nation — it has also created a downturn in the US real estate market.

With fewer people competing for homes, the real estate market is losing steam. In July, nationwide new home sales fell to a six-year low, declining to just 511,000 units. During the month, existing home sales — a measure of sales volume and prices of existing housing inventory — declined for the sixth consecutive month, falling to a two-year low as only 4.81 million units were sold.

In August, Diane Yentel, the president and CEO of the National Low Income Housing Coalition, testified in front of the US Senate Banking committee that the nation's housing ecosystem has taken a turn for the worse.

"Pre-pandemic millions of extremely low-income households — disproportionately people of color — struggled to remain housed and more than half a million people experienced homelessness," she said. "Now as resources are depleted and protections expire, low-income renters are faced with rising inflation, skyrocketing rents, and eviction filing rates are reaching or surpassing pre-pandemic averages."

As emerging data points to a possibility of a housing recession, Yentel is not alone in her concerns — more economists are giving warnings.

"The whole housing sector is now in retreat," Ian Shepherdson, the chief economist at Pantheon Macro, "told Forbes, adding that housing construction will likely continue falling until early 2023 — and that could mean the US housing affordability crisis is just getting started.

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Source: Housing Market Outlook: Builders Could Stop Construction Due to Expense Falling Demand

https://www.creconsult.net/market-trends/housing-market-outlook-builders-could-stop-construction-due-to-expense-falling-demand/

Commercial Real Estate Investor Sentiment

Commercial Real Estate Investor Sentiment

The top investor concerns for the next 12 months are, not surprisingly, interest rates and inflation.

Despite the Federal Reserve increasing interest rates by 225 basis points in the last six months, 74 percent of investors indicated this is not affecting their investment plans.

The market is going through a recalibration with the rising cost of capital, but the survey numbers aren’t telegraphing a significant market change as investors continue to adapt their investment strategies.

The last 12 months through the second quarter of 2022 were by far, the most active CRE transaction year on record. 

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Source: https://www.linkedin.com/posts/johnchang_commercialrealestate-investorsentiment-surveyresults-activity-6972997819196465152-ah-Y?utm_source=share&utm_medium=member_desktop

https://www.creconsult.net/market-trends/commercial-real-estate-investor-sentiment/

Commercial Real Estate Financing Rates September 6th, 2022

Commercial Real Estate Financing Rates September 6th, 2022 These are the average available rates from eXp Commercial's Capital Markets Partner CommLoan with a database of 640+ commercial lenders. Provided for comparison purposes only. Actual rates are dependent on property and sponsor. https://www.creconsult.net/market-trends/guide-to-commercial-multifamily-real-estate-loans/ #CommercialRealEstateFinancing #Multifmaily #

Sunny with a chance of headwinds: CRE forecast, according to its leaders

 

If you don’t like the weather in Chicago, wait a few minutes…it’s likely to change.

Another thing that is seeing a fair amount of change is the overall sentiment for CRE in Chicago. Last year’s DePaul Real Estate Center Mid-Year Report found that 60% of industry participants were generally optimistic about the industry as they looked ahead. But in 2022? The DePaul-ULI Chicago Report found that 65% are trending toward concern when looking at 2H2022.

Headwinds have gained steam locally, nationally, and internationally, as professionals are concerned about construction costs, labor issues, inflation, interest rates, and speculation of a recession. There’s also less confidence that related issues like crime and the effectiveness of the local political system can be resolved quickly or easily. But through it all, one asset class has remained largely untouchable. Industrial.

According to DePaul, Hugh Williams, Principal, MK Asset Brokerage, and Director of Entrepreneurship/Strategic Relationships for Sterling Bay, when asked about the health of the market, pointed to Prologis’ initial offer to acquire Duke Realty. Prologis was offering a premium, plus upside.

“When you see that, and with vacancies in the sub 4% range, it signals strength and optimism,” Williams said. “We are at one of the high water marks. No one knows if we are at the top, but over the recent long-term, the strength of the market has only gone in one direction, and new baselines have been established.”

That’s not to say the market is exempt from concerns, though. Even the strongest markets must remain creative and be willing to approach issues a little differently. CRG President Shawn Clark noted that, on a recent project in Country Club Hills, the increasing cost of steel prompted CRG to purchase the necessary steel for the 1,033,450-square-foot building before they closed on the 70 acres of land, based on the report. But if the steel had been purchased as typical, the cost would have been more than double.

From the perspective of Molly McShane, CEO of The McShane Companies, “Going from just-in-time to just in case is a real strategy businesses are using, and it is driving demand. As long as that continues, the market is in a good place.”

So while it’s true that there are concerns about the remainder of 2022, 50.9% said they are bullish or optimistic about market conditions in 2023. And despite headwinds, there are investors who continue to believe in the future of Chicago. DePaul said while it may be based, in part, on a “right corner, right project” viewpoint, there remains an appeal about Chicagoland and a belief that all issues will soon be resolved.

 

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Source: Sunny with a chance of headwinds: CRE forecast, according to its leaders

https://www.creconsult.net/market-trends/sunny-with-a-chance-of-headwinds-cre-forecast-according-to-its-leaders/

eXp Commercial Expands Research and Analytics Capabilities With Addition of Economist KC Conway

 

BELLINGHAM, Wash. — February 16, 2022 — eXp Commercial, the commercial real estate division of eXp World Holdings (Nasdaq: EXPI), today announced that KC Conway, founder, and president of Red Shoe Economics, will serve as an economic advisor, adding to the company’s research, data and analytics capabilities.

 

As a recognized expert in commercial and investment real estate, Conway will provide eXp Commercial agents and clients with industry research, data analytics, and economic insight to deepen their knowledge of the complex and evolving commercial market.

Conway brings valuable insights into the shift in capital markets, the new regulatory environment, and the availability of data to reshape today’s commercial real estate transactions. These insights support eXp Commercial’s growth strategy as the company continues to challenge the status quo, offering expertise in traditional brokerage as well as emerging digital and metaverse opportunities that deliver on clients' needs.

“We are pleased to collaborate with KC and his team at Red Shoe Economics,” said James Huang, president of eXp Commercial. “We are at the forefront of the fast-changing commercial real estate landscape and are committed to providing the best resources and training to our agents so they can deliver strong results to clients.”

“eXp Commercial is uniquely positioned to lead the industry, particularly with its investment and capabilities in the metaverse, and we are excited to be a part of their success,” said Conway. “No other company has embraced both the physical and virtual commercial market like eXp. Working with eXp agents across the country, we will identify market trends and opportunities to build their businesses and make sound, economic decisions.” More information about eXp Commercial can be found at expcommercial.com. About 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 tech company in the world with more than 75,000 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, and the Dominican Republic, 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.

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Source: eXp Commercial Expands Research and Analytics Capabilities With Addition of Economist KC Conway

https://www.creconsult.net/market-trends/exp-commercial-expands-research-and-analytics-capabilities-with-addition-of-economist-kc-conway/

An Inflection Point for Multifamily Lending - Freddie Mac

 

Freddie Mac, and agency lending in general, has been foundational to the success of the multifamily industry in the post-Great Recession era. Prior to our more active role in the financing of rental housing, the market lacked stability and liquidity throughout the cycle. Workforce and Targeted Affordable Housing were particularly deficient and inconsistent sources of debt. Today we lead the industry in this highly affordable space where we lend expertise in addition to capital.

At no time was this truer than in our response to the pandemic housing market. Fulfilling our countercyclical role, we stayed on the field as many capital sources moved to the sidelines. The result was a debt market that continued to perform efficiently. Multifamily transactions never stopped, and borrowers benefited from a historically low-rate environment. Freddie Mac and Fannie Mae also extended unprecedented flexibility to borrowers and essential protections to tenants in a way that no other debt capital sources could.

As the economy recovered from the pandemic, multifamily housing demand accelerated, vacancies cratered, and rents shot up like nothing we have ever seen before. There are a host of reasons why this happened. A long-run housing supply shortage that predates COVID-19 worsened as a result of pandemic-related supply chain issues, labor shortages, and construction delays. A highly competitive single-family market drove more households to become or remain renters. The desire for more personal space caused roommates to seek solo accommodations. Remote work enabled office workers to relocate. Certainly not least, higher salaries and inflation shifted the demand curve.

We saw big changes on the supply side too. Investor interest in multifamily throughout the capital stack jumped markedly. In a world of economic uncertainty, multifamily is a proven, reliable asset class and an inflation hedge to boot. With rising net operating incomes and values, it has been the place to be for many investors. This surge in capital has also driven new construction – an excellent signal that supply has room to grow even if never fast enough.

Today we’re at something of an inflection point. Inflation risk and recession fears have many debt providers tightening or closing up. At the same time, we have a negative leverage issue with note rates catching up to, and in some cases surpassing, cap rates which have been trending down for some time. Fewer deals seem to pencil in as interest rates surpass investment returns. As a result, the market is in a period of transition.

The fundamentals, however, are very strong, and lenders that maintained credit discipline and appropriately distributed risk are well positioned to weather even a serious economic downturn.

Freddie Mac Multifamily counts itself among those market participants and stands ready to continue deploying capital consistently and responsibly. We’ll do this, as always, in a way that is mission-centric. That’s more important than ever, given the essential role we play in helping address the housing affordability crisis.

The current economic moment is accelerating the need for action. Freddie Mac recently fielded a survey that shows 58% of renters have seen their rent increase in the past 12 months. Although salaries are on the rise, a third of renters say their rent increase was greater than any raise they received at work. More concerning is that nearly 20% say that their rent increase makes them extremely likely to miss a rent payment.

To address the affordability crisis, we are driving toward a record year for our Targeted Affordable Housing business, and we’re poised to meet our aggressive affordability goals. This year, at least 50% of our production volume must support units that are affordable to families earning 80% of area median income (AMI) and 25% must support units affordable at 60% AMI. We said at the beginning of the year that this would be a tough challenge, but that we are up for the task. We’ve prioritized our mission-driven business.

Separately, we recently announced a landmark Equitable Housing Finance Plan that proposes several new initiatives aimed at enhancing borrower diversity, advancing tenant interests, and broadly addressing affordability through both preservation of and support for new supply. Building on past efforts, we’ve also expanded our Duty to Serve commitments to address housing needs in underserved markets, including rural communities and manufactured housing communities.

We know there is tremendous work to be done to ensure that more Americans can find safe and affordable rental housing, and as the new head of Freddie Mac Multifamily, it’s my highest priority. As the market dynamic shifts, we will continue to ensure a stable foundation for the multifamily industry while seeking out new innovations that can make homes possible for more of the nation’s 44 million renting households.

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Source: An Inflection Point for Multifamily Lending – Freddie Mac

https://www.creconsult.net/market-trends/an-inflection-point-for-multifamily-lending-freddie-mac/