Weekly market video

 Here is the weekly market video. This week we update you on what happened last week:

https://s3.amazonaws.com/kajabi-storefronts-production/sites/53576/themes/2151251385/downloads/tWI7LElgTjGpe8nLNQ88_Market_Mentor_July_31.mp4

Fed rate hike 0.75%

 

Bloomberg) -- Federal Reserve officials raised interest rates by 75 basis points for the second straight month and Chair Jerome Powell left the same move again on the table for the next meeting in September, depending on how the data comes in.

Policy makers, facing the hottest cost pressures in 40 years, lifted the target for the federal funds rate on Wednesday to a range of 2.25% to 2.5%. That takes the cumulative June-July increase to 150 basis points -- the steepest since the price-fighting era of Paul Volcker in the early 1980s.

https://finance.yahoo.com/news/fed-raises-rates-75-basis-180001544.html

“While another unusually large increase could be appropriate at our next meeting,” that will depend on the data between now and then, Powell said during a press conference following a two-day policy gathering in Washington.

The Fed will also slow the pace of increases at some point, Powell said. In addition, he said officials would set policy on a meeting-by-meeting basis rather than offer explicit guidance on the size of their next rate move, as he has done recently.

Those comments sparked a rally in US stocks as Powell spoke, with Treasury yields tumbling along with the dollar.

Click here for Bloomberg’s TOPLive blog on the Fed decision and press conference

The Federal Open Market Committee “is strongly committed to returning inflation to its 2% objective,” it said in a statement, repeating previous language that it’s “highly attentive to inflation risks.” The FOMC reiterated it “anticipates that ongoing increases in the target range will be appropriate,” and that it would adjust policy if risks emerge that could impede attaining its goals.

What Bloomberg Economics Says...

While many are worried that the economy is verging on recession, Fed officials see the glass as half full, with the strong labor market allowing the economy to withstand rapid monetary tightening. Bloomberg Economics thinks there’s little chance that the Fed will pause its rate hikes later this year, as markets currently expect.

-- Anna Wong, Yelena Shulyatyeva, Andrew Husby and Eliza Winger

Click here for the full note

The FOMC vote, which included two new members -- Vice Chair for Supervision Michael Barr and Boston Fed President Susan Collins -- was unanimous. Barr’s addition to the board earlier this month ghereave it a full complement of seven governors for the first time since 2013.

Forceful Hikes

Criticized for misjudging inflation and being slow to respond, officials are now forcefully raising interest rates to cool the economy, even if that risks tipping it into recession.

Higher rates are already having an impact on the US economy. The effects are particularly evident in the housing market, where sales have slowed.

While Fed officials maintain that they can manage a so-called soft landing for the economy and avoid a steep downturn, a number of analysts say it will take a recession with mounting unemployment to significantly slow price gains.

The FOMC noted Wednesday that “recent indicators of spending and production have softened,” but also pointed out that job gains “have been robust in recent months, and the unemployment rate has remained low.”

Powell said that he did not believe the economy was in recession, citing a “very strong labor market” as evidence.

Read more: A Bloomberg survey of economists put the probability of a downturn over the next 12 months at 47.5%.

The latest increase puts rates near Fed policy makers’ estimates of neutral -- the level that neither speeds up nor slows down the economy. Forecasts in mid-June showed officials expected to raise rates to about 3.4% this year and 3.8% in 2023.

Investors are now watching to see if the Fed slows the pace of rate increases at its next meeting in September, or if strong price gains pressure the central bank to continue with super-sized hikes.

Futures Pricing

Traders saw a half-point hike at the Sept. 20-21 FOMC meeting as the most likely outcome, according to pricing earlier on Wednesday in interest-rate futures contracts. They see rates peaking around 3.4% by year-end, followed by cuts in the second quarter of 2023.

The US consumer price index rose by 9.1% in June from a year earlier, topping forecasts and hitting a fresh four-decade high. The price gains are eroding earnings and sowing discontent with the economy, creating challenges for President Joe Biden and congressional Democrats ahead of the midterm elections.

High inflation had briefly fueled speculation that the Fed would lift rates by a full percentage point this month. But those bets got dialed back after Fed officials voiced wariness and key readings on consumer expectations for future inflation were better than expected.

Central banks across the globe are engaged in a battle against surging prices. Earlier this month the Bank of Canada hiked rates by a full percentage point and the European Central Bank surprised with a larger-than-expected half-point move, its first increase in more than a decade.

(Updates with Powell comments at start of press conference)

Lack of inventory in half US

America's big coastal cities are known for their pricey real estate, driven by zoning restrictions and inadequate supply of homes. Now those problems are increasingly bedeviling once-affordable towns and cities across the U.S., a new study finds.

https://www.cbsnews.com/news/real-estate-housing-shortage-crisis/

More than half of the nation's metropolitan regions had an undersupply of homes in 2019, a sharp increase from one-third of cities in the 2012, according to a recent analysis from housing policy group Up For Growth. The nation is short 3.8 million homes to meet its housing needs — double the number from 2012 — Up for Growth found.

But the lack of housing is spreading beyond large coastal metropolises like San Francisco and New York and into communities across the U.S. As a result, home prices have surged even in smaller cities while exacerbating inequality, with high housing costs shutting out many people of color, young adults and low-income workers from the dream of homeownership

That could have long-term implications if many Americans are locked out of home buying, which is considered one of the primary avenues for building wealth over time.

"Clearly, affordability is at a crisis point for millions of Americans across the country," said Mike Kingsella, CEO of Up For Growth, which focuses on addressing the housing shortage. "Where we are seeing underproduction, we're seeing homeownership fall further and further out of reach."

As part of that growing shortage, 83 cities that had enough housing as of 2012 by 2019 had an undersupply of homes, Up for Growth found in its analysis of Census data. These now housing-starved cities include large metro areas such as the Phoenix-Mesa-Chandler region as well as smaller cities such as Merced, California, and Bend, Oregon.

To be sure, the report covers a period predating the pandemic's outsized impact on the real estate market, when work-from-home policies allowed people in big cities to relocate to less expensive regions. That housing demand, combined with a worsening shortage of homes and low interest rates, pushed prices to new heights, with the median home sales price reaching a record $416,000 in June.

At the same time, the Federal Reserve's recent interest-rate hikes are making it more expensive not only to buy homes, but also to build them, which could aggravate the undersupply problems, Kingsella said. "It's hard to imagine that we would see this get better."

However, he noted, policy changes such as zoning reform bills that allow accessory dwelling units and denser housing could help alleviate some of the issues.

Where housing is in short supply
The 83 metropolitan regions that shifted from having a sufficient housing supply to a shortfall are scattered across the U.S. Many of them are less affluent cities that lack the booming tech, finance and other major industries found in America's biggest urban hubs.

Take Merced, California, a small city in central California that's known for agriculture as well as serving as a base for visiting Yosemite National Park. The town's home prices was decimated by the 2008 housing bust, losing 31% of their value in a single year and making it the second worst-performing real estate market that year after Stockton, California, according to Zillow

But since 2012, Merced's housing market has faced another crisis: not enough homes available for those who want them. In 2019, the city had a shortage of homes that represented 8.7% of its total housing stock. That's even greater than Los Angeles' housing undersupply, which stood at 8.4% the same year, according to the analysis.

With a scarcity of homes, competition among house-hunters in Merced has pushed prices higher. The median home value in Merced stood at $282,900 in 2019, more than double its level in 2012, Up For Growth found. By comparison, the median home value across the nation's 310 metropolitan regions rose about 40% in the same period.

Other cities that shifted from enough homes to a housing shortage include Rust Belt cities like Wisconsin's Appleton, Racine and Green Bay. All three metros have an undersupply of about 5%, the analysis found. Some cities in the Southeast have also been hit by the trend, including the Atlanta area; Richmond, Virginia; and Hilton Head Island-Bluffton, South Carolina.

"California doesn't have a monopoly on exclusionary housing," Kingsella noted. "We're seeing the Southeast particularly falling deeper and deeper into a housing deficit, and at a rate that's much more rapid than places like California."

"We have a problem"
The current housing market is particularly tough on low-income Americans, said Peggy Bailey, vice president for housing policy at the research group Center on Budget and Policy Priorities, who testified on Thursday at a Senate hearing on the state of housing in America.

When new properties are developed, they are now often aimed at middle- and higher-income households, partly due to the pressures on developers from rising prices for land, supplies and labor — all costs that have sharply increased during the pandemic. As a result, low-income and affordable housing projects are becoming unaffordable for developers, according to Pew Stateline.

"We have partly been in a development boom over the last 18 months," but the typical rents for those properties are about $1,700 to $1,800 a month, Bailey said at the hearing. "The median renter can only afford about $1,000 month."

Housing shortages and affordability issues are hurting the economy, said Senator Jon Tester, a Democrat from Montana.

We have a problem," he said. "It is having some major impacts on economic growth in small towns because there's no place for the workforce to live, no place for entrepreneurs to live."

Widening wealth inequality
Changing zoning laws and supporting funding for more affordable housing are among the strategies that could help alleviate the housing shortage crisis, Kingsella said. For instance, areas that have job opportunities and strong infrastructure, but lack sufficient housing, could support up to 40% greater housing density, the Up For Growth report noted.

"It means supporting more homes and [Accessory Dwelling Units] and duplexes and triplexes and showing up at city council meetings and saying yes to more housing," he said.

Without expanding the nation's housing supply, in short, the market's dynamics aren't likely to change. A continued shortage will benefit existing homeowners, without helping those with lower rates of homeownership, such as Black Americans, experts say.

"If we are raising demand but not increasing supply, most of the benefits would go to current owners, who tend to be White Americans," noted Lawrence Yun, chief economist at the National Association of Realtors, at the Senate hearing.

It might feel good for current homeowners to see their Zillow "Zestimate" rising each year, but surging home prices divorced from a similar surge in household incomes are contributing to widening wealth inequality, Kingsella noted.

Because home prices are rising much faster than incomes, current homeowners are growing their wealth at a faster pace than people who can't get a foothold into the housing market, Kingsella said. "We're seeing housing costs in particular driving income and wealth inequality," he added.

— With reporting from Irina Ivanova

Why now is the best time to buy?

Here’s why Americans think now is the best time to buy a home

Despite the crush of inflation, rising mortgage rates to battle and the ongoing woes of rising rent, a new study shows that, hey, maybe there’s some reason for optimism?

Some six in 10 Americans, or 56%, believe that “right now” is the time to buy a house, according to the study, conducted by OnePoll on behalf of the fintech mortgage lender Lower. The survey compiled responses from 1,000 homeowners and 1,000 renters, finding that 55% of respondents claim ongoing record-high inflation has made them want to buy a home even more.

https://nypost.com/2022/07/19/heres-why-americans-think-now-is-the-time-to-buy-a-home/

Specifically, 47% of that group said they aim to get one in the next year. The bulk of that individual sample, 74%, add that it would be their first time buying a house. Just 26% are existing homeowners who want to get something else.

Just more than half of the participants — 51% — said they see homeownership as an investment opportunity toward financial freedom, while 50% said they want to get their foot in the door of homeownership before appreciation rises more. Others with their eyes on their golden years — 42% to be exact — said they want to live comfortably in retirement. (Of the total pool, 41% admitted to feeling bored in their current residences, and 41% aim to get a home for their growing family.)

“Homeowners have gained tens of thousands in equity over the past few years. This is money renters have left on the table,” Lower co-founder and CEO Dan Snyder said in the report. “A lot of people are waiting until prices cool off, but the reality is, they’ll just slow down from their record-breaking pace. Now is the time to buy before appreciation continues to climb.”

Of the study’s pool, 30% felt optimistic that the housing market will cool off in the next year — while 43% saw the “very” concerning status quo continuing, while 25% believed things will take a turn for the worst.

And though headlines of the housing market cooling off are making their way through the media, 45% of the poll’s participants said the boom — and the high demand that came with it — is actually getting even hotter. (Just 10%, meanwhile, thought the boom has slowed down.)

For the 1,000 renters, 56% of them said they want to move but can’t afford to. Among them, 27% pay $2,001 to $3,000 per month, 20% pay between $1,001 and $2,000 — while 16% owe $3,001 to $4,000 per month. Still, 57% of those 1,000 polled hoped to own their own homes one day. Their reasoning included financial stability — 40% — and the chance to gain financial freedom, for 35%.

“It may seem daunting, but it doesn’t have to be,” Snyder added. “Find a real estate agent and a lender who value the customer experience by creating a certain, simple process. They’ll help you along the way and your biggest worry will be finding the perfect home.”

Freeze in housing market?

 

The US housing market is on the cusp of a “deep freeze” as rising mortgage rates and steep home prices conspire to limit buying and selling activity, a prominent economist warned this week.

https://nypost.com/2022/07/21/us-housing-market-headed-for-deep-freeze-as-mortgage-rates-soar/

Mark Zandi, the chief economist of Moody’s Analytics, pointed to a slowdown in demand among prospective home buyers. Sales of previously owned homes slumped by 14.2% in June compared to the same month one year earlier, even as the median sale price jumped to 13.4% to $416,000 over the same period, according to the National Association of Realtors.

“It makes sense, with the higher mortgages conflating with higher house prices, first-time homebuyers just can’t afford to buy in. They’re locked out,” Zandi told CNBC. “And trade-up buyers, they’re kind of locked in because if they sell and buy, they’ve got to get another mortgage at a higher rate and their monthly payments are going to rise.”

Zandi added that real estate investors are “going to the sidelines” until market conditions become more favorable

Demand is really weakening very rapidly and you’re right, I think housing is going into a deep freeze,” Zandi said.

All forms of borrowing are becoming more expensive as the Federal Reserve hikes interest rates to combat inflation. The volume of mortgage loan applications recently hit a 22-year low as the higher rates and steep home prices shut real estate shoppers out of the market.

Earlier this week, the National Association of Home Builders/Wells Fargo Housing Market Index showed home builder confidence fell 12 points to 55 in July, hitting its lowest level since May 2020 as builders react to the deteriorating conditions.

Zandi noted his view that “house prices have peaked,” with declines likely to follow later this year or early next year as sellers acknowledge the reality that their asking prices have become unaffordable.

“I’m not arguing we’re going to crash; I’m just arguing there’s a major comeuppance coming in regard to house prices. I think the market is under a lot of stress,” he added.

Earlier this week,  Ian Shepherdson, chief economist at Pantheon Macroeconomics, said the housing market was on the verge of a “meltdown” due to sagging demand and confidence.

As The Post reported in June, Zandi and other economists warned that a housing correction was inevitable due to rising interest rates – though experts say the slowdown won’t reach the depths that occurred during the subprime mortgage crisis of 2008.

Fed’s next rate hike

 

Word on the street is that the Federal Reserve may raise rates by 1% at their July 26 meeting — as they try to quell inflation that now sits at a 40-year high. Barron’s recently noted that: “With inflation so hot, the Fed’s next rate hike might be the biggest in decades,” and plenty of other sources — from CNBC to CBS News — are speculating about a 1% rate hike at the meeting.  If the Fed does hike rates, what might that mean for mortgage rates? (See the lowest mortgage rates you can get now here.) We asked six pros their thoughts.

https://www.marketwatch.com/picks/the-feds-next-interest-rate-hike-might-be-the-biggest-in-decades-so-we-asked-6-real-estate-pros-what-might-that-do-to-mortgage-rates-01658191514?siteid=yhoof2

The first thing to note is that The Federal Reserve does not set mortgage rates, and there isn’t a direct relationship between the central bank’s moves and what happens with mortgage rates. But, “it’s often said that mortgage lenders price upcoming Fed rate hikes into the mortgage rates they offer before the Fed even makes an announcement,” says Jacob Channel, LendingTree’s senior economist. This means that rates might actually stay about where they currently are, even if the Fed does announce a larger-than-expected hike, he says. That said, “because inflation is as high as it is and because economic uncertainty appears to be growing among both consumers and businesses, some lenders may feel pressured to hike rates,” says Channel.

But if rates do rise, Channel doesn’t anticipate that they’ll rise above 6%; and he adds that even if they do spike following the next announcement, he says they could fall again shortly thereafter. “This is what happened after last month’s 75-basis point hike when mortgage rates spiked by 50 basis points to 5.78% before eventually cooling down to their current levels at around 5.51%,” says Channel. (See the lowest mortgage rates you can get now here.)

For his part, Greg McBride, chief financial analyst at Bankrate, says: “The prospect of the Fed front-loading their interest rate hikes and doing more sooner rather than later, may actually help keep a lid on mortgage rates or even bring them down.” In fact, more rate hikes now means fewer rate hikes later which means the timetable for peak interest rates gets moved up and the eventual decline in rates due to a weak economy also happens sooner, he notes. “But all of this depends on, and even assumes, that inflation peaks very soon. If not, all bets are off,” says McBride. 

Sean Roberts, chief operating officer at home-selling start-up Orchard, says a 1% hike will likely not have a major impact on mortgage rates in the near-term. “Mortgage rates are much more correlated to the 10-year U.S. Treasury yield, which is determined by market forces and not driven by the Fed’s policy rate,” says Roberts. (See the lowest mortgage rates you can get now here.)

But for his part, Holden Lewis, mortgage and home expert at NerdWallet, says that while the immediate result might be an increase in mortgage rates of a quarter of a percentage point or less, after digesting the news, investors might conclude that the Fed is putting the economy at a strong risk of recession. “Fear of recession could actually send mortgage rates downward and the trajectory of mortgage rates depends not only on how much the central bank increases the federal funds rate, but the words they use to explain the action,” says Lewis. 

Mortgage rates are heavily weighted on the future expectation of what will happen, so a Fed increase of this magnitude is already priced into the market, says Cameron Findlay, chief economist for AmeriSave Mortgage Corp. Because the market already factored this increase into mortgage rates, and it stands to reason mortgage rates may actually fall if the Fed does not increase the full 1%, Findlay says: “Be cautious when selecting your lender for how much time it will take to close your loan. Time in a volatile market is critical and can add thousands of dollars in cost to your loan if you’re not careful.”

Suze Orman's advice?

The median selling price of a U.S. home soared past $400,000 for the first time in May, the National Association of Realtors reported Tuesday. That news came just days after the 30-year fixed-rate mortgage rate hit 5.78%, the highest since the Great Recession.

https://finance.yahoo.com/news/suze-ormans-advice-on-buying-real-estate-164149528.html

Still, personal finance expert Suze Orman thinks the housing market holds promise for U.S. consumers even though she says "the tables have turned a little."

In a new interview with Yahoo Finance's editor-in-chef, Andy Serwer, Orman dispensed advice for homebuyers and renters on how to navigate a tough environment with both soaring mortgage rates and skyrocketing rents. Orman encourages renters to be in the best financial shape possible, so they can afford inflated costs and potentially negotiate lower leases. And she advises home hunters to be realistic about whether they can afford higher mortgage rates, property taxes, and insurance.

"Just see the entire picture before you jump in," she said. "I think it's a little different than it was a year or two ago." In general, though, Orman suggests a home is still a wise investment.

“I don’t think you’re going to see homes go down really in value. You know, the truth is, real estate always does pretty well during a recession,” Orman told Yahoo Finance on June 20. "..If you own real estate, I don't think you're going to see it go down dramatically. Maybe you'll only see it go up 5% or 7% a year."

Still, many experts are spotting signals that the housing market is cooling. Sales of previously owned homes dropped for the fourth straight month in May as interest rates creep up. This forecast came a week before the Federal Reserve voted to hike short-term interest rates by 75 basis points on Wednesday, the steepest hike since 1994.

Speaking to Yahoo Finance, Orman acknowledged that the housing market is changing. Specifically, she said buyers won't feel as rushed to bid for a house right away to beat out competing offers.

“You're not going to see a house go on the market, again, in my opinion, and get 30 offers over the asking price," Orman said. "I think now maybe you'll see three, four offers — maybe you have to lower your asking price a little bit."

'It is too late to refi'
The housing market was booming last year. The 2021 National Association of REALTORS Profile of Home Buyers and Sellers found the typical home sold was only on the market for one week. With near-zero short-term interest rates and low 30-year fixed-rate mortgages (2.65%) in January 2021, prospective homebuyers were in luck.

That luck is starting to shift, even for existing homeowners. Fannie Mae’s Refinance Application-Level Index estimated only 2% of mortgages have a 50+ basis point incentive to refinance as of Thursday.

“It is too late to refi. You got to sit tight without a shadow of a doubt,” Orman said.

Orman also alerts homebuyers to be careful about adjustable-rate mortgages.

“If you can only afford a home because you're doing an adjustable-rate mortgage, and you don't know how they really work. I would be very careful with them if I were you,” warns Orman.

Adjustable-rate mortgages may start with lower payments than fixed-rate mortgages, but you could experience a payment shock, negative amortization (when you owe more than you borrowed), or prepayment penalties if rates change.

Even if it turns out you can't buy a home, renters can take steps to reduce their monthly payments.

“A landlord will really value you if you keep up the property. You paint on your own, you make it even more valuable for them,” says Orman. She also encourages renters to maintain a high FICO credit score, so landlords trust that they will be paid.

Yaseen Shah is a writer at Yahoo Finance. Follow him on Twitter @yaseennshah22

SF Boat residence evicted for construction

Several dozen South San Francisco residents who live on their boats, many of whom say they have nowhere else to go, are being evicted from Oyster Cove Marina to make way for a biotech campus expansion.

Residents of the private 200-slip marina were given just two weeks last month to sign a document agreeing to leave by Oct. 15 — or else face eviction after 30 days. And while 14 were offered $10,000 to relocate, many others, some of whom lost their legal “live-aboard” status in recent years, are being left out of the offer.

The move comes after Kilroy Realty purchased the marina, along with 50 acres adjacent, in 2018. The Southern California based developer is currently in the midst of building 3 million square feet of office and research space on the land.

“For me, I’m not going to be able to afford a place on land, that’s the end of my life here,” said Dave H., a resident of the marina since 2001 who did not want his last name published. The 77-year-old Vietnam veteran retired last year and now relies on Social Security and disability to afford his $500-a-month slip costs.

He’s also among those not being offered the monetary relocation assistance, despite having held a live-aboard permit for more than a decade. His current permit is for an “extended stay,” a downgrade sold as a way of being allowed to keep a second boat at the marina, according to several residents, who estimated 40 or more who live at the dock lack the paperwork to do so.

The marina now sits more than half empty, and those left aren’t being charged for their slip if they sign the agreement to vacate, which Kilroy recently extended the deadline for to July 31 following a call from the city to do so. Ten of the 14 offered checks have agreed to the offer.

But those who remain say they need more time to either find another marina or make arrangements to move elsewhere. And even those offered the checks contend it’s not enough to cover boat inspections and other costs associated with moving — assuming they could find an increasingly rare live-aboard slip to take them.

Just 10% of the nearby 455-slip Oyster Point Marina, which is the jurisdiction of the San Mateo County Harbor District, can legally be rented to live-aboard tenants, for instance, and the waitlist is years long.

That’s in part a product of multiple marina closures on the Peninsula in recent years, including Pete’s Harbor in Redwood City in 2015, which forced about 50 live-aboard residents out. Amid bitter litigation, Redwood City’s Docktown has also been in the process of moving out its 70 residents since 2013.

Lucia Lachmayr, a resident of Oyster Cove since 2012 and one of those not offered a check to leave, said many at the marina are in their 70s, are low income and some are disabled. As an instructor at Skyline College, she said she’s one of the lucky ones to have a good income and other housing options.

Limited options

“There’s a lot of people here that are working poor,” she said. “They have no place to move to, so they’re just terrified, where are they going to go? The reality is some will become homeless and some will just say screw it, I’m going to go take my boat right out here in the channel and be an anchor-out.”

In Sausalito, the closure of marinas offering live-aboard slips and tightening enforcement around people unlawfully calling their boats home has led to both outcomes, as some have opted to brave the Bay waters by dropping anchor offshore, risking unsafe conditions that can often lead to boats being swept into rocky shores. It’s also led to encampments of ex-boaters who’ve become homeless following the loss of their vessels.

Lachmayr said some of those displaced elsewhere ended up at Oyster Cove, also around the time more residents began living on their boats without proper permitting.

While some expressed the leniency had been granted by the Oyster Cove harbormaster at the time to make accommodations that skirted the limits on live-aboard slips, Lachmayr said she felt it was done so to aid in the eventual evictions.

“This was intentional,” she said. “They got rid of the live-aboards so that when they did offer, it was only a few people that were left to make that offer to.”

Real estate firm Shorenstein originally gained approval to develop the area in 2011, but sold the land to Greenland Group in 2016. Plans at the time were for a 2.2-million square-foot campus aimed at the biotech sector, with the marina retained. Lachmayr said residents met with city planners as recently as 2018 and were assured there would not be displacement.

But the eviction notice, delivered June 16 on behalf of Oyster Cove Marina Owner LLC, states “as part of the planning for the neighborhood, we are currently reevaluating the long term use of the marina … we will not be providing return rights of any kind to existing tenants.”

A statement from Kilroy uses similar language and adds “we understand the uncertainty that these changes will introduce to our boat owners, which is why we are working with them to make their transition as painless as possible.”

City working to help

South San Francisco Councilmember Eddie Flores said the city is actively working with Kilroy to reach better terms for the boaters, including an extension of the move out date to February next year and more assistance with relocation. He said city staff had provided a list of nearby marinas with openings.

We will continue to use our voice and bring the dialogue so that Kilroy knows that these are very important residents, and we take care of our residents here in South City,” he said.

He noted, however, that ultimately the city has limited say in the matter because the marina is privately owned, and state tenant protections do not apply to those living on the water, regardless of live-aboard status.

“For those living on their boats without a permit, I’m also willing to discuss with Kilroy Reality whether any relief can also be provided to those boaters, but whether relief is possible is really unknown,” he said. He indicated a meeting with Kilroy had been set for next week.

In the meantime, Chris Robinson, a resident of the marina since the late 90s, said he’s been both unable to find another marina and unable to find affordable housing on land since being asked to leave.

“There’s no reasonable option that you can find any type of live-aboard slip,” he said. “It’s just a disappearing lifestyle.”

And while South San Francisco has looked to offer more affordable housing in recent years, units available often go to those who have been on waitlists for years. Additionally, even the most affordable studio (for those dubbed “extremely low-income” per state lingo) is nearly double the monthly rent of an Oyster Cove slip.

“Just living around here, the bigger picture I think people don’t realize … there’s really no longer a middle class, there’s really no longer a lower class,” Robinson said. “There’s either homeless, left the state, or high-income, and that is it. And that’s the way this whole Bay Area is going to become at this point.”

Kilroy Realty is currently in the second of four phases of construction on the waterfront campus. The company is worth approximately $6.3 billion and the second phase alone is projected to cost $900 million.

By corey@smdailyjournal.com

(650) 344-5200, ext. 105

Vegas builder bets $32.5m on So Cal

 

A newly built cliff-side mansion overlooking the Pacific Ocean in Southern California comes with an ambitious $32.5 million asking price.

It's only Las Vegas-based builder Blue Heron's second home project outside of Sin City.

https://www.cnbc.com/2022/07/16/a-peek-inside-this-32point5-million-mansion-in-southern-california.html

At nearly 8,900 square feet, the home includes five bedrooms, eight bathrooms and three kitchens.

This newly built cliff-side mansion overlooking the Pacific Ocean in Southern California comes with an ambitious $32.5 million asking price. It's one of the most expensive homes for sale in San Diego County, and that price tag puts it in the running to break a local record in the picturesque beach-side community of La Jolla.

Perhaps more interesting than its potentially record-breaking price is the fact that the home was designed and constructed by Las Vegas-based builder Blue Heron, which almost exclusively designs and builds luxury mansions in the Mojave desert.

"I would consider us the authority and the experts in luxury real estate in all of Las Vegas without a doubt," said Blue Heron's founder, Tyler Jones, a fourth-generation Vegas native.

Building on the ocean is more similar to building in the desert than you'd imagine, according to Jones. In both environments, Blue Heron's design is focused on blurring the lines between indoor and outdoor living.

"The Mojave Desert is a great place to do that," he said. "But arguably, you know, La Jolla, San Diego, is actually a much better place to do that."

Over the past 18 years, Blue Heron has built several hundred homes — every one of them (except for two in La Jolla) in the Las Vegas area, according to the CEO. Today, the starting price for one of the firm's more affordable desert homes is about a million bucks, but the average sale price for one of the company's newly constructed desert mansions is about $8 million. Just last year, Blue Heron made headlines when one of its Sin City spec mansions broke a record when it sold for $25 million to billionaire LoanDepot founder Anthony Hsieh.

About 300 miles away from its core business in Vegas, Blue Heron's new coastal spec mansion spans four levels with an expansive deck and infinity pool out back on the edge of the Pacific.

A glass bridge floats above a lower lounge area and delivers visitors to the home's second floor. At nearly 8,900 square feet, the home includes five bedrooms, eight bathrooms and three kitchens.

The mansion, known as the Ora House, is the second residence Blue Heron has built outside of Vegas. The first one, also a spec house located in La Jolla, was on the market for about nine months before selling last year for $20 million. The median price of a single family home in La Jolla was $3.6 million in the second quarter this year, according to data provided by real estate brokerage firm Compass.

So why has a builder who's been betting big on luxury real estate in Vegas turned his attention to shattering a local record on the edge of the Pacific?

Jones said he has a soft spot for La Jolla, and it's filled with childhood memories of vacationing in the beachfront town with his family. That's just one of the reasons he had his eye on the area in 2016, when he bought the $4.7 million oceanfront home at 5228 Chelsea Street. It was what developers call a "teardown." Blue Heron was more interested in the site than the existing home that sat on it. The company tore down the old home and over six years developed a new $32.5 million spec house in its place.

That price puts the home at the very top of La Jolla's ultra high-end market. Since 2018, the community has recorded 11 sales at $20 million or more, according to title records. One of the most publicized was back in 2018, when singer-songwriter Alicia Keys and her record-producing husband Swizz Beatz spent $20.8 million on the waterfront residence known as The Razor House

But La Jolla's top sale price was achieved in 2019, when the oceanfront mansion located at 8466 El Paseo Grande sold for $24.7 million, according to public records.

And while Blue Heron's Ora House is the most expensive home for sale in La Jolla at $3,660 price per square feet, it's actually a relative bargain compared to the over $4,000 per square foot price achieved on the El Paseo Grande sale.

"People love the San Diego lifestyle," said real estate broker Brett Dickinson of Compass, who was involved in six of the neighborhood's transactions of $20 million and more. Dickinson is co-listing agent on Ora House with Deborah Greenspan of Sotheby's. Dickinson told CNBC the attraction to the area is fueled by a tech boom that's migrating from the northern part of the state southward.

Jones told CNBC Ora House's jumbo-sized price tag is partially a function of the cost of developing on the California coastline, which requires more time, more effort and a lot more money because development is complicated by heavy regulation.

"It's not worth it for a smaller dollar project," he said.

But a lot has changed since Blue Heron bought the site in 2016, and the company's beachfront spec home is now facing a trifecta of headwinds: rising interest rates, diving equity markets and sky-rocketing inflation.

Dickinson told CNBC those are serious factors, but they are mitigated by La Jolla's limited housing inventory. According to the broker, typically the number of homes available for sale in the neighborhood hovers around 150 to 200 units, but this month there are just 89 homes listed. The market is even tighter when you focus on the higher-end oceanfront inventory.

"Inventory is extremely low," he said. "And to build a waterfront property is a six-to-eight-year process."

That's likely one of the reasons the Vegas-based developer remains confident the odds in La Jolla are stacked in his favor.

"We have a great deal of confidence that we can deliver that exceptional experience that's going to speak to people," Jones said. "And I believe we're going to find high net worth individuals that are willing to pay for that."

In Vegas they say the house always wins, but only time will tell if that holds true in La Jolla.

Housing pricesb started to fall?

Inflation and high mortgage rates are taking a bite out of homebuyer budgets, leading to fewer sales and supply gains.
The median sale price for U.S. homes came down 0.7% from its record-breaking June peak during the four weeks ending July 10. Sellers’ asking prices also came down 3% from their May peak as the share of homes with price drops hit another new high. Home supply posted its first year-over-year increase since August 2019 as pending sales continued to slide. These changes in the housing market can be attributed to buyers reaching their limit on costs—not just of homes and mortgages, but also food, transportation and energy.

”Inflation and high mortgage rates are taking a bite out of homebuyer budgets,“ said Redfin chief economist Daryl Fairweather. “Few people are able to afford homes costing 50% more than just two years ago in some areas, so homes are beginning to pile up on the market. As a result, prices are starting to come down from their all-time highs. We expect this environment of reduced competition and declining home prices to continue for at least the next several months.”

Leading indicators of homebuying activity:
For the week ending July 14, 30-year mortgage rates rose to 5.51%. This was down from a 2022 high of 5.81% but up from 3.11% at the start of the year.
Fewer people searched for “homes for sale” on Google—searches during the week ending July 9 were down 5% from a year earlier.
The seasonally-adjusted Redfin Homebuyer Demand Index—a measure of requests for home tours and other home-buying services from Redfin agents—was down 18% year over year during the week ending July 10.
Touring activity as of July 10 was up 1% from the start of the year, compared to a 23% increase at the same time last year, according to home tour technology company ShowingTime.
Mortgage purchase applications were down 18% from a year earlier during the week ending July 8, while the seasonally-adjusted index was down 4% week over week.
Key housing market takeaways for 400+ U.S. metro areas:
Unless otherwise noted, the data in this report covers the four-week period ending July 10. Redfin’s housing market data goes back through 2012.

Data based on homes listed and/or sold during the period:

The median home sale price was up 12% year over year to $393,449. This was down 0.7% from the peak during the four-week period ending June 19. A year ago the median price rose 0.9% during the same period. The year-over-year growth rate was down from the March peak of 16%.
The median asking price of newly listed homes increased 14% year over year to $397,475, but was down 2.8% from the all-time high set during the four-week period ending May 22. Last year during the same period median prices were down just 0.9%.
The monthly mortgage payment on the median asking price home hit $2,387 at the current 5.51% mortgage rate, up 44% from $1,663 a year earlier, when mortgage rates were 2.88%. That’s down slightly from the peak of $2,487 reached during the four weeks ending June 12.
Pending home sales were down 14% year over year, the largest decline since May 2020.
New listings of homes for sale were down 1.7% from a year earlier.
Active listings (the number of homes listed for sale at any point during the period) rose 1.3% year over year—the largest increase since August 2019.
43% of homes that went under contract had an accepted offer within the first two weeks on the market, down from 47% a year earlier.
29% of homes that went under contract had an accepted offer within one week of hitting the market, down from 33% a year earlier.
Homes that sold were on the market for a median of 18 days, flat from a year earlier and up slightly from the record low of 15 days set in May and early June.
51% of homes sold above list price, down from 54% a year earlier.
On average, 7.1% of homes for sale each week had a price drop, a record high as far back as the data goes, through the beginning of 2015.
The average sale-to-list price ratio, which measures how close homes are selling to their asking prices, declined to 101.6%. In other words, the average home sold for 1.6% above its asking price. This was down from 102.2% a year earlier.
Refer to our metrics definition page for explanations of all the metrics used in this report.
See charts in link below:

https://www.redfin.com/news/housing-market-update-prices-fall-inventory-climbs/

By Tim Ellis
Tim Ellis has been analyzing the real estate market since 2005, and worked at Redfin as a housing market analyst from 2010 through 2013 and again starting in 2018. In his free time, he runs the independently-operated Seattle-area real estate website Seattle Bubble, and produces the "Dispatches from the Multiverse" improvised comedy sci-fi podcast

Cities Prime Dor Price Drop

 

If you’ve been squeezed out of the tight housing market over the past couple of years waiting for the opportunity to buy, you might finally be getting your chance – and some places are already looking more attractive for buyers.

The housing market is beginning to cool and cities that have seen an “influx of affluence” as Rick Palacios, Jr. calls it, may see prices drop the farthest.

Palacios is the director of research at John Burns Real Estate Consulting, which delivers analysis on the housing market to clients such as builders, realtors and investors.

https://finance.yahoo.com/news/us-housing-market-starts-cool-230000145.html

He’s predicting a significant downturn in the housing market in Boise, Austin, Nashville, Phoenix, Sacramento and other cities where prices climbed during the COVID-19 pandemic as more people moved to them.

“These are some of the markets where we were anticipating the steepest price declines in 2023,” says Palacios.

Once tight markets will be leading the way down
They’re the cities people flocked to during the pandemic, garnering them the nickname “Zoom towns”. They have a high quality of life and traditionally lower housing prices than the major centers.

And since the beginning of the pandemic, people who could work remotely have relocated to these areas, nabbed the relatively cheap homes and drove up prices.

But Palacios is predicting a steep drop in housing prices in these cities, with Boise leading the way.

Boise became one of the least affordable cities to buy during the pandemic as an influx of people bought property in the area. House prices reached 72% above what a middle-income family can afford last year, according to Oxford Economics.

“Boise is one of those markets that always rides the bubble wave. When things are great, I mean, it just – it catches that wave,” says Palacios.

But the same can be said for when things start going downhill.

“Just looking at the growth rate in home appreciation, [Boise] has reversed completely. And it is, I think, the single market that we anticipate actually getting to price declines in 2022.”

And though this might be tough news for people who have bought in Boise and similar cities in the past couple of years, it’s good news for anyone looking to buy property — although it may take several months or even years before prices level out.
Investors are pumping the breaks
Home values in Phoenix went up 25% over the past year, according to Zillow’s value index.

“As of the first quarter of this year… investor transactions are 45% of the entire housing market,” says Palacios.

That includes people buying second homes, investment properties and houses to flip.

“That's a big deal,” says Palacios. “And there's a lot of markets across the country where investor transactions are now 30-40-45% of all home purchases.”

Markets that depend on investment activities do well on the upside, says Palacios, but they can turn quickly.

“That's why we've got some pretty negative forecasts, especially on a relative basis to more kind of slow, steady markets.”

According to Redfin, investor purchases in Nashville were down nearly 17% in the first quarter of 2022, 17% in Las Vegas, and 21% in Sacramento.

Inventory on the rise
From February 2020, before the housing market went haywire, to today, housing prices in Boise are up 58%, says Palacios. In Austin, they’re up 75% and in Nashville, it’s up 56%.

“We look at affordability as probably one of the most, if not the most, important indicator for how sustainable things are in a market,” says Palacios.

And as interest rates began to rise — the national rate on a 30-year mortgage is now 5.5%, according to Freddie Mac — it became clear how unsustainable those prices had become.

“The monthly payment is up 40-50% year over year,” says Palacios. “And that's a huge shock to that buyer, which tells you why these markets have pulled back so fast.”

Companies are also starting to bring people back to the office, which has played some part in more people putting their homes up for sale and a growth in inventory.

June saw an 18% increase in housing inventory nationally year over year, according to Realtor.com.

Ratiu says inventory is growing in Austin, Raleigh, Nashville, Sacramento and others – again, cities that saw a surge in population over the past two years.

“These markets have, in many ways, attracted people from coastal, much more expensive markets,” Ratiu says.

“Austin has been a magnet for a lot of tech workers from San Francisco, Silicon Valley, Seattle, Los Angeles, most of them really attracted to the relative affordability. It's not surprising to see that, in turn, these markets are sort of leading the shift in the market.”

Austin saw some of the biggest growth in inventory, according to Redfin. The number of homes for sale in the city rose by 27% in June, compared with last year.

But as more homes come on the market, sellers are still hoping for those top of the market prices, says Ratiu.

“Markets have changed dramatically in the last three months. And what we're seeing pricing wise, we're still seeing a lot of homeowners list homes based on the market from six months ago.”

And price cuts for listings are on the rise. In June, 11% of listings nationally cut their prices, compared with 6% in June the year before.

More than 60% of sellers in Boise had to cut their prices in June, according to Redfin.

What should buyers do now?
Palacios says all signs point to a housing slow down, and though it may take several months or more for prices to come down, if you can wait, you should.

“We haven't been in a slowing environment for several years,” says Palacios.

“The choices are going to be out there. And I don't think it's the worst decision in the world to be a bit more patient now than you would have been when rates were 3-4%.”

Pandemic Housing Rush

 

What actually caused the pandemic housing market rush?

By Katie McKellar

We all know the result: Shortly after the COVID-19 pandemic hit the U.S., it set off a housing market feeding frenzy — especially in the West — that’s only now slowing down now amid rising mortgage interest rates.

https://www.deseret.com/utah/2022/7/8/23198345/us-housing-market-what-actually-cuased-pandemic-housing-rush-boom-federal-reserve-report

Still, prices remain sky high.

We also know that the U.S. and Utah have faced a housing shortage for years now — but while the housing gap certainly didn’t help the COVID-19 rush on housing, it doesn’t fully explain what really happened.

It’s like a bomb went off. Demand skyrocketed, particularly in high-growth, booming areas like the West, and it accelerated price increases at record speeds to unprecedented levels

So what really happened? What forces were at play to set off this pandemic housing scramble?

New Federal Reserve report findings
Researchers at the Federal Reserve took a deep dive into that question, and this week published a report detailing what their models found. Those models, they wrote, concluded that the COVID-19 rush on housing — and the accompanying price acceleration — had more to do with increased demand than it did a lack of supply.

“First, we show that the COVID-19 housing boom in the U.S. was driven by an increase in demand. Even though the supply of new for-sale listings fell sharply at the beginning of the pandemic, we show that reduction of supply was a minor factor relative to increased demand in explaining the tightening of housing markets over the first year of the pandemic,” researchers wrote.

While lack of supply is part of the bigger, long-term picture, it wasn’t the main factor at play in the middle of the pandemic. However, housing supply issues aren’t to be discounted, seen as more of a long-term issue rather than a short-term problem that accelerated demand to such high levels in a matter of two years.

What likely fed American’s ravenous, pandemic-era housing demand, researchers wrote, was low interest rates combined with increased remote or telework, which “may have induced more buyers into the market.”

Why did so many want to buy in a pandemic?
As the Deseret News has reported, the pandemic’s shutdowns and new remote work opportunities spurred many Americans to reevaluate their lives, in many cases choosing to move out of big, expensive cities, in states such as California or New York, in search of more space or larger homes at more affordable price points.

States in the West, including Idaho and Utah, with their relatively low cost of living and plentiful recreation opportunities, topped multiple national lists for in-migration in 2021.

While the pandemic pushed more buyers into the market, at the same time some home sellers could have been more reluctant to list their homes for sale during a time of uncertainty. Meanwhile, “generous mortgage forbearance programs and the foreclosure moratorium may have also reduced supply,” Fed researchers wrote.

However, as the pandemic dragged on, the dynamics shifted. Researchers wrote their models show “stronger demand overtakes lower supply as the main factor behind the observed decrease in months’ supply.”

By the middle of 2021, higher demand “can explain essentially all of the decrease in months’ supply since March 2020,” researchers wrote. “We conclude that, outside of a brief shock at the beginning of the pandemic, reduction of supply was a minor factor relative to increased demand in explaining the tightening of housing markets.”

What will slow housing market demand?
Fed researchers also gave a nod to what has been a major policy concern throughout the pandemic — that the “sharp increase in house prices has exacerbated affordability pressures and increased financial stability risks.” Using their models, the researchers estimated just how much housing supply would be needed to satiate demand enough so that housing prices would continue along their pre-pandemic trend, “instead of accelerating.”

Their findings? The country would have needed a 30% boost in the monthly number of homes coming onto the market in order to keep up with the pandemic rush.
Since new construction typically accounts for about 15% of supply, our estimates imply that new construction would have had to increase by roughly 300% to absorb the pandemic-era surge in demand,” researchers wrote.

“This is a very large, unrealistic impulse to housing supply in the short-run, suggesting that policies aimed at reducing bottlenecks to new construction would have done little to cool the housing market during COVID-19.”

Secondly, Fed researchers wrote that their models show housing demand was very “mortgage rate elastic.” As rates tick up, they have a significant dampening effect on demand.

“We estimate that a one percentage point increase in the mortgage rate lowers housing demand by 10.4%,” researchers wrote. “This is a larger demand sensitivity to rates than evidence using purely observable housing market variables suggests.”

The report comes as the Federal Reserve continues to wage its war on record inflation that continues to grip the U.S. In recent weeks, the Fed raised its benchmark borrowing rate, including a 0.75% bump, the biggest single hike since 1994. As a result, mortgage interest rates have climbed drastically, shattering the 5% threshold and some days topping 6%.

The average rate for a 30-year mortgage on Thursday hovered at 5.67%, according to Bankrate.com. Compare that to just 3% this time last year.
The report’s findings, Fed researchers wrote, indicate the best way to get a handle on housing demand is through rate increases.

“A high mortgage rate sensitivity of demand combined with our main result showing that short-run housing market fluctuations are largely explained by demand suggest that policies that target mortgage rates are an effective way to influence short-run fluctuations in the housing market,” researchers wrote.

5 things to know about real estate issues

 

As real estate in the United States remains strong despite rising interest rates, market analysts interviewed by Al Jazeera predict that the next housing crisis will centre around Americans locked out of homeownership.

https://www.aljazeera.com/economy/2022/7/13/five-things-to-know-about-the-next-us-housing-crisis

“That’s our big problem going forward,” Mark Zandi, chief economist at Moody’s Analytics, a research firm based in New York City, told Al Jazeera. “It’s not going to be a crash in house prices; it’s going to be getting people into homeownership so they can build wealth. I think younger people are going to have a great deal of difficulty.”

The coronavirus pandemic sparked a home-buying frenzy as millions of Americans across the economic spectrum, working from home, set out in search of more space. Low interest rates fuelled the purchasing spree.

“You had very few homes and a lot of people that were going to try to buy them,” said Nicole Bachaud, an economist at Zillow, a tech real-estate marketplace company in Seattle, Washington.

Purchasing a home has become much more expensive recently as the US Federal Reserve raises interest rates to fight runaway inflation. Rates for a 30-year mortgage recently neared 6 percent, after dropping to 2.65 percent in January 2021.

And real estate agents say they are already seeing cracks in the housing market.

“We’re seeing price reductions a little bit more frequently than we had before,” said David Berger, real estate agent at Compass, a broker agency in New York. “We’re seeing listings stay on the market a little longer than a year ago, even six months ago.”

Inflation, a bear market on Wall Street after the S&P 500 dropped 20 percent, free-falling cryptocurrencies, war in Ukraine, and high fuel and food prices may evoke memories of the 2007-2008 real estate crash, but experts Al Jazeera spoke to said the market is very different this time. Here are five things to know:

1. Don’t expect a housing crash like the one we saw in the 2007-2008 financial crisis

In 2005 and 2006, US banks lent money to “low-quality borrowers” with very low credit scores, Zandi of Moody’s explained. Borrowers signed up for two-year adjustable mortgages, which meant that their interest rates would rise after two years due to their poor credit. Fraud by mortgage brokers, appraisers and real estate agents to secure loans was also prevalent.

The subprime mortgage crisis resulted in a surge of defaults and, eventually, large price drops. As these mortgages were packaged into a tradable financial asset or securities and sold on the global market, the housing tsunami hit global markets.

Mortgage lending has been pristine ever since the financial crisis, Zandi explained, because of changes in regulation.

“Today mortgage products are very plain vanilla – 30-year and 15-year fixed rate loans,” he added. “We’re just not going to see the kind of defaults, foreclosures and distressed sales that lead to big price declines.”
The housing market is undersupplied, with vacancy rates for single-family homes near record lows. Institutional investors like hedge funds and mutual funds are interested in purchasing homes and are unlikely to sell. They are purchasing with the intention of holding.
Plus, the majority of American homeowners refinanced between 2020 and 2021, when interest rates were low.

“Those people who own a home right now have pretty low mortgages – they’re not worried about affordability,” Zillow’s Bachaud said. “We’re seeing an affordability crisis with people trying to get into homeownership. That is the big difference between this market and what happened in 2008-2009.”

2. No, housing prices will not plummet
According to Zillow, the price of the average home in the US is $350,000 – up 20.7 percent from a year ago.

“A lot of people are thinking, ‘We’ve seen so much growth, it has to come down from here,'” Bachaud told Al Jazeera. “But what we’re really seeing is that things are just starting to balance out a little bit faster than we might have expected if interest rates hadn’t risen so quickly.”

Home prices in some US markets jumped even higher. In Phoenix, Arizona, the average home cost $264,000 in March 2020 compared to $433,660 today. In Tampa, Florida, the median price is now $408,997 up from $253,000 in March 2020.

We didn’t have enough homes, and a lot of people were trying to buy them so that pushed prices way up,” Bachaud said, referring to the pandemic buying frenzy. “The time homes were staying on the market – between when a house is listed and when it is pending – in a lot of places was less than a week.”

3. People are going to be less willing to sell their homes now, too
Home price appreciation is expected to remain in the double digits at least until the end of 2022, experts said. Currently, annual home appreciation is at 17 percent, according to the American Enterprise Institute, a think-tank based in Washington, DC.

“But a 10 percent home appreciation is going to feel a lot different than the 20 percent homeowners have seen in the last two years,” Bachaud added.

As a result, people may be less likely to sell their houses.

“They’re not going to give up so easily on the high valuation of their home they may have seen in the last two years, so the number of transactions will fall very sharply,” Zandi of Moody’s predicted.

4. The American dream of owning a home may be a pipe dream for young people
Millennials, those born between 1981 and 1996, are being locked out of homeownership due to a lack of available housing, price increases, wage stagnation, and skyrocketing student debt.
Young people are having a hard time saving for a down payment, typically 5 to 20 percent of the purchase price,” Zillow’s Bachaud said.

And with today’s higher interest rates, a monthly mortgage payment is more than 50 percent higher than it was a year ago.

During the pandemic, when the government eased monetary policy and doled out trillions of dollars to encourage spending and keep the economy afloat, 30-year fixed-rate mortgage interest rates fell as low as 2.65 percent.

Young people are having a hard time saving for a down payment, typically 5 to 20 percent of the purchase price,” Zillow’s Bachaud said.

And with today’s higher interest rates, a monthly mortgage payment is more than 50 percent higher than it was a year ago.

During the pandemic, when the government eased monetary policy and doled out trillions of dollars to encourage spending and keep the economy afloat, 30-year fixed-rate mortgage interest rates fell as low as 2.65 percent.

“Just consider the difference between a 3 percent interest rate and a 6 percent interest rate on a $350,000 home,” Bachaud explained. “That’s an extra $500 in interest that homeowners are expected to pay every month.”

Young people simply cannot compete with cash-rich investors, both institutional and foreign, who do not need a mortgage and are purchasing rental properties.

Rents have soared across the US since the pandemic. For example, the median rent in Dallas, Texas is $2,045, up $420 in the last year. In Miami, Florida, median rents are $4,000, up $1,500 compared to last year.

Compass’s Berger, who relocated to Miami from New York during the pandemic and witnessed the South Florida boom firsthand, told Al Jazeera that the city’s real estate has no plans of slowing down.

“Miami is now a city that drives demand, attracts international buyers and talent from all over the country,” he said.

Zandi from Moody’s Analytics noted that lawmakers “can try to incentivise builders to build more affordable rentals”.

“Affordable rentals,” he said, “are critical to homeownership because it allows people to save for a down payment.”

5. There is a lot of uncertainty right now
The S&P 500 entered a bear market in 2022, having suffered its worst first six months since 1970. Cryptocurrencies plummeted, with the world’s largest digital coin, Bitcoin, losing more than 55 percent this year.

Supply-chain issues and the war in Ukraine, which has compounded soaring food and fuel costs, are both making Americans cautious and wary about their spending habits. These factors also weigh on someone’s decision to make a large purchase like buying a house.

Still, there is reason to be optimistic about the real estate market, analysts said.

“Unemployment in the US is at a historic low. People have jobs. We don’t have subprime mortgages. The risk of being unable to pay mortgages and foreclosures is relatively low,” Compass’s Berger told Al Jazeera.

“If we can get inflation under control, and perhaps the war in Ukraine resolves itself, I think that will stabilise not just equity markets, but markets overall. All markets want is stability; uncertainty makes everyone crazy. And there’s a lot of uncertainty right now,” he explained.

Even though he admits the US economy is slowing, Zandi from Moody’s Analytics is bullish about the long term.

“The dollar is about as strong as it ever gets,” he said. “I mean, we’re now at parity with the euro and even against the Chinese yuan. We’re driving the train right now; we’re keeping the global economy moving down the tracks.”

Amazon real estate co

The real estate investment platform Arrived Homes, backed by Amazon.com Inc. (NASDAQ: AMZN) founder Jeff Bezos, is launching its largest batch of new offerings with a total of 14 new single-family rental properties set to go live. Seven of the 14 rental homes are hitting the platform today and the remaining properties are expected to become available later in the week.

https://finance.yahoo.com/news/bezos-backed-arrived-homes-launches-143203806.html

The rental property investment platform allows individual investors to purchase shares of the single-family properties with investments ranging from $100 to $10,000 per property.

Arrived Homes caught the attention of several high-profile investors last year. Jeff Bezos invested in the company’s $37 million seed round last June through Bezos Expeditions and recently made a second investment during the company’s $25 million Series A round.

The platform has experienced rapid growth since its launch last year, which is largely due to Arrived being one of the few real estate investment platforms available to non-accredited investors. The company funded 51 homes on its platform during the last eight months of 2021, with approximately $18.5 million in property value. So far in 2022, Arrived Homes has already funded over $30 million worth of rental properties.

The newest batch of properties has a total value of approximately $7 million. The properties are located in several high-growth markets, including Atlanta, Nashville, upstate South Carolina, and Northwest Arkansas.

How The Platform Works 

Arrived Homes finds and acquires single-family rental properties, then offers fractional ownership to investors through its online platform with a minimum investment of $100. Investors can browse available properties and invest in whichever ones they choose.

The company handles the property management responsibilities while investors collect rental income and wait for the property to appreciate in value over time.

After a target hold period of five to seven years, the property is sold and Arrived Homes distributes the equity to each investor according to the number of shares they own. Assuming the property increases in value, the investors share in the profits from the sale.

Single-Family Rental Market 

Investors have a growing appetite for single-family homes, which is no surprise considering that the average rent in the U.S. has increased 16.4% in the past 12 months and as high as 32% in cities like Miami over the same period, according to data from Housing Tides.

While the housing market is beginning to cool down in certain areas, homeownership is becoming even less affordable as higher interest rates are adding to the overall cost of buying a home. This is likely to continue adding strain to the supply of rental units, resulting in further rental rate increases over the next several years.

Looking for ways to boost your returns? Check out Benzinga's coverage on Alternative Real Estate Investments:

Investors Are Getting Into Real Estate By Purchasing Shares Of Rental Properties For As Little As $100

This REIT You've Probably Never Heard of Has Paid a Dividend Above 8% For The Last 5 Years

This Non-Listed Real Estate Fund Continues To Outperform Publicly Traded REITs

Or browse current investment options based on your criteria with Benzinga’s Offering Screener

Photo: Courtesy of Arrived Homes

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Builders reducing prices?

Home builders are feeling jittery.

That’s according to a June survey of home builder sentiment by John Burns Real Estate Consulting. Demand for new homes is cooling as buyers cancel orders, and builders are slashing prices to offload homes, the survey found.

https://www.realtor.com/news/trends/scary-times-builders-are-slashing-home-prices-and-slowing-construction-as-buyers-pull-back-survey-shows/amp/

“Scary times,” a home builder in Nashville, Tenn. told the company. “Hoard cash and hang on for the ride!”

Sales of new homes fell 31% this June as compared to last year. Cancelation rates jumped in June to 14.5% nationally, up from 6.5% a year ago, as seen in the tweet below.

The monthly survey was based on 320 participants in 84 metro areas.

Texas saw the highest rate of cancelations (when buyers terminate a contract for a new home), followed by the broader Southwest, and Northern California.

A quarter of home builders are reducing their prices, according to the John Burns Real Estate Consulting survey.

There are couple of reasons that homebuyers are pulling back: Mortgage rates have risen considerably since last year, which has made borrowing expensive, on top of rising inventory levels.

Other surveys have suggested that home builder morale is sinking. Builder confidence fell for the sixth straight month in June, according to the NAHB/Wells Fargo U.S. Housing Market Index. This month’s numbers will be released on Monday.

Home builders surveyed by John Burns expressed frustration over the slowdown.

“Someone turned out the lights on our sales in June!” one builder in Atlanta, Ga. told the company.

“Sales have fallen off a cliff,” an Austin, Texas builder said. “We’re selling 1/3 of what we sold in March and April.”

A Boise, Idaho builder said that builders are slashing new home prices by 15% to 20%.
By Aarthi Swaminathan.

Red Fin shares

Shares of Redfin Corp. RDFN tumbled 9.6% in morning trading Monday, after the online real estate services company said that housing market deals are falling through at the fastest clip in two years, as home buyers are using a slowing market to try to renegotiate.

https://www.marketwatch.com/story/redfin-stock-tumbles-after-it-says-housing-market-deals-are-falling-through-at-the-fastest-rate-in-2-years-2022-07-11

In addition, buyers are backing out because higher mortgage rates mean they can no longer afford the home they agreed to buy. The company said roughly 60,000 home-purchase agreements across the country in June, or 14.9% of homes that went under contract, fell through. That's the highest percentage since March and April 2020, at the onset of the COVID-19 pandemic. "The slowdown in housing-market competition is giving homebuyers room to negotiate, which is one reason more of them are backing out of deals," said Redfin Chief Economist Taylor Marr. "Buyers are increasingly keeping rather than waiving inspection and appraisal contingencies. That gives them the flexibility to call the deal off if issues arise during the homebuying process." Redfin's stock has tumbled 77.6% year to date, while the S&P 500 SPX has shed 19.0%.

Rate affect

 

Rising interest are effecting the U.S. housing market.

To which readers will likely respond: "Tell me something I don't know."

https://finance.yahoo.com/news/market-morning-brief-july-12-100031449.html

But as the Federal Reserve remains resolute in its plans to aggressively raise interest rates in an effort to tamp down inflation, the U.S. housing market remains ground zero for where the most acute impacts are being felt.

In a great Twitter thread on Monday, Rick Palacios, Jr., director of research at John Burns Real Estate Consulting, offered some of the highlights from the firm's most recent survey of homebuilders.

The commentary ranges from concerned to apocalyptic. Things have changed that quickly.

A
A "sold" sign is seen outside of a recently purchased home in Washington, U.S., July 7, 2022. REUTERS/Sarah Silbiger
In Greenville, S.C., a builder said: "Traffic has slowed from red hot. Feels different for sure, but it's more like a normal market."

A builder in Charlotte told the firm: "This recession is looking like and feeling like a big long five year depression."

In Palacios' view, the June survey highlights three main issues for housing right now:

More new homebuyers are canceling.
Price cuts are widespread.
Falling demand is cooling construction cost pressures.
Data out late last month on both new and existing home sales pointed to a continued slowdown in the U.S. housing market, while survey data from Fannie Mae showed sentiment among potential homebuyers hit its lowest reading since 2014.

And though mortgage rates registered their largest weekly drop since 2008 last week, at 5.3% the average rate on a 30-year fixed mortgage is still at the highest level since 2009.

Of course, some folks who are hopeful homebuyers may look to news of a slowdown in the market as a positive sign for their future prospects. Though as we've written previously in this space, higher rates have dramatically changed the affordability equation for homes at the same price point.

Last month, Federal Reserve chair Jerome Powell described the housing market as going through a "reset" amid rising interest rates; economists at the time said the shift in housing was "a bit more than that."

Rising interest rates and a general cooldown in financial markets may well extinguish the current housing boom. Data from Eric Finnigan at Johns Burns Real Estate showed the demand for second-home mortgages has dropped sharply this year after exploding in 2020 and 2021.

The end of this latest housing mania, however, likely doesn't usher in a new era of increased affordability. Inventory is on the rise, but remains depressed.

And as the economist Ed Leamer argued in his famous 2007 paper saying housing is the business cycle, housing downturns are expressed as drops in volume.

"For GDP and for employment, it’s the volume that matters," Leamer wrote, later adding: "With the decline in sales volume comes a like decline in jobs in construction, finance and real estate brokerages."

Which is why this housing market slowdown has economists and policymakers worried about this slowdown turning in to something larger.

Good deals for the bold

This article is reprinted by permission from NerdWallet.

The first half of 2022 was a catastrophe for home buyers. Skyrocketing mortgage rates and home prices made homeownership unaffordable for millions of renters. At the year’s midpoint, the real-estate landscape remains steeply tilted against home buyers. But the terrain may become less hostile to buyers in months to come.

Here’s how we got here and what could happen across the housing market in the second half of 2022.

Rising mortgage rates and home prices
Mortgage rates climbed faster in the first half of 2022 than anytime since 1981. The 30-year fixed-rate mortgage averaged 3.06% in December and 5.66% in June. Mortgages went up in response to rising prices and the Federal Reserve’s policy of trying to control inflation by raising interest rates.

Meanwhile, home prices shot into the stratosphere. The median price of a resold home was $407,600 in May, a 14.8% increase over 12 months earlier, according to the National Association of Realtors.

In the second half of the year, forecasters expect the median existing home price to drop but stay within striking distance of $400,000. The Fed is expected to keep hiking rates, exerting continuous upward pressure on mortgage rates.

Sinking affordability
Sharply higher mortgage rates and home prices have created an affordability crisis.

We’ll look at the decline in affordability from two angles:

First, how much you can borrow for a given monthly payment. Let’s say you can afford $1,500 a month in principal and interest on a 30-year mortgage.

the beginning of the year, at an interest rate of 3.25%, you could borrow about $344,700.
Mid-year, at an interest rate of 5.75%, you could borrow $257,000. That’s an $87,700 loss in borrowing capacity.
Second, the change in mortgage payments for a typical home. Compare someone who bought a median-priced home at the prevailing interest rate in January with a neighbor who did the same in May. Both buyers made 5% down payments.

The January buyer had a monthly principal-and-interest payment of $1,465.
The May buyer had a P&I payment of $2,260 — or $795 more.
In its 2022 “The State of the Nation’s Housing” report, Harvard’s Joint Center for Housing Studies says a household needed an income of at least $79,600 to afford a typical house in April 2021. “One year later, the income requirement stood at $107,600.”

About 4 million renters potentially were priced out of homeownership over those 12 months, the report concludes.

Seller’s market could fade

Sellers have negotiation leverage. In Fannie Mae’s Home Purchase Sentiment Index for May, 76% of respondents said now is a good time to sell. But sellers may be in for an attitude adjustment because the pace of home sales is slowing, leaving more homes on the market.

Nationwide, the number of homes listed for sale in the week ending June 25 was 25% higher than the same week a year before, according to Realtor.com data. To put it another way, for every four homes for sale a year ago, five are for sale now. With more homes on the market, sellers are rethinking their pricing to compete. Sellers reduced listing prices on more than 177,000 homes this May, compared to fewer than 105,000 price reductions in May 2021.

A slowdown in house price appreciation could persuade homeowners to sell while they can get top dollar. Rising inventory could reinforce a cycle of slowing price growth.

See: Here’s how much housing inventory has risen with higher rates. Our interactive map can help you track the number of homes available for sale near you.

Buyers will feel uncertain, despite less competition
Demand exceeds the supply of homes for sale, but the imbalance isn’t as lopsided as it was before rates zoomed and home sales slowed.

Even so, some buyers feel desperate. “I think it’s made even more emotional right now because there is such a lack of inventory on the market that people feel like if they don’t get a home now, they’re not going to get one,” says Carolyn Morganbesser, assistant vice president, mortgage originations for Affinity Federal Credit Union.

Alec Hartman, CEO and co-founder of Welcome Homes, an online home building platform, worries that people will feel uncertain, making them hesitant to buy even as inventory rises. “The last half of 2022 will be characterized by good deals for the bold,” he said in an email.

ARMs will flex their advantage
Hardly anyone got adjustable-rate mortgages while 30-year fixed-rate mortgages remained low. But as fixed rates jumped this spring, home buyers rediscovered ARMs. At times in May and June, at least 10% of mortgage applications were for adjustables.

ARMs are appealing because their initial interest rates are lower than on fixed-rate mortgages, so monthly payments are lower. Rates and payments can rise after a few years, though. Adjustables will remain an appropriate option for some borrowers, especially those who expect to sell their homes within a few years.

Homeowners will fall in love with HELOCs again
Homeowners are sitting on trillions of dollars in equity — and they’re going to borrow against it in a different way.

For years, it was fashionable to tap equity through a cash-out refinance, when you refinance for more than you owe and take the difference in cash. But cash-out refis receded as mortgage rates smashed past 5%.

Another way to borrow from equity is through a home equity line of credit. HELOCs, once popular, faded after the Great Recession. They will become relevant again after younger homeowners learn how HELOCs work.

“You have a generation now that has grown up without home equity being one of their major product sources,” says Joe Mellman, senior vice president and mortgage business leader for TransUnion, “and what filled that vacuum largely was unsecured personal loans.”

Interest rates on HELOCs tend to be lower than on personal loans, because HELOCs are secured by the borrower’s home and are safer for the lender. However, HELOCs are often slower and less convenient to get, Mellman says, “so there is going to be a necessary education on the consumer’s side.”

Homeownership 5% cheaper

 

30-year fixed-rate mortgages

The average rate on a 30-year fixed mortgage fell to 5.30% this week, down from 5.70% a week ago, mortgage finance giant Freddie Mac reported on Thursday. A year ago, the 30-year rate was averaging 2.90%.

“Over the last two weeks, the 30-year fixed-rate mortgage dropped by half a percent, as concerns about a potential recession continue to rise,” says Sam Khater, Freddie Mac’s chief economist.

The Federal Reserve, which is trying to lower inflation by cooling the economy, hiked its benchmark interest rate three-quarters of a percentage point in June.

The central bank is likely to make another hike of the same magnitude when it meets again later this month, according to the minutes from last month’s Fed meeting.

15-year fixed-rate mortgages

The 15-year fixed-rate mortgage averaged 4.45% this week, down from 4.83% last week, Freddie Mac says. Last year at this time, the 15-year rate averaged 2.20%.

Higher borrowing costs have been tempering demand for homes, and the market is recalibrating.

“Home price growth has started to soften and price cuts are becoming more common, as sellers are finally being challenged and begin to reconsider their expectations,” Matthew Speakman, senior economist with Zillow, said in a recent interview.

Indeed, homeowners are being forced to shift their mindsets.

While many new listings are still selling within days, multiple-offer situations are fewer and farther between, says Corey Burr, a Washington D.C. real estate agent.

A seller should be prepared to make adjustments if a property doesn’t go under contract within two weeks of being listed.

“In these cases, we are seeing more broker commission incentives, more seller offers to help pay for buyer closing costs and outright list price reductions,” says Burr, senior vice president at TTR Sotheby’s International Realty.

5-year adjustable-rate mortgages

The five-year adjustable-rate mortgage (ARM) averaged 4.19% this week, down from 4.50% last week. The 5-year ARM was averaging 2.52% a year ago.

ARMs, which fluctuate depending on the prime rate, start off with lower interest costs. They can surge, however, once the initial fixed-rate period expires.

Despite the recent dips in rates, fewer Americans are taking on new mortgages.

Applications fell 5.4% according the Mortgage Brokers Association’s (MBA) latest weekly survey.

“Rates are still significantly higher than they were a year ago, which is why applications for home purchases and refinances remain depressed,” says Joel Kan, the MBA’s associate vice president of economic and industry forecasting.

When will home prices start to fall?

The median price of a home hit a record $450,000 in June, 17% higher than last year, according to Realtor.com.

That’s leaving little room for buyers on budgets.

While prices are expected to soften, they have yet to make any appreciable moves, according to researchers at Florida Atlantic University (FAU) and Florida International University.

Average prices still are rising in nearly all of the 100 largest housing markets, they found. Evidence, however, suggests the market may be nearing its peak.

“There are plenty of reports that mortgage applications and home showings are falling as interest rates rise,” Ken Johnson, an economist in FAU’s College of Business, says in a new report.

“We expect prices eventually will level off as well, particularly if a recession occurs and lending rates remain high.”

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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

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