Housing recession could reduce home prices by 20%

U.S. home prices are finally falling from a record high notched earlier this year, and could tumble by as much as 20% by mid-2023

Ian Shepherdson, the chief economist at Pantheon Macroeconomics, said in an analyst note published this week that home prices have already declined 5% from their May peak. His projections show that seasonally adjusted existing home sales slid 0.7% in August, the third monthly decline.

"The plunging trend in sales has further to go, and prices are falling," Shepherdson wrote in the note.

Painfully high inflation and rising borrowing costs have proven to be a lethal combination for the housing market, forcing potential buyers to pull back on spending. Many experts – including Shepherdson – agree the housing market is now experiencing a recession.

But unlike the 2008 housing crash that helped to fuel a broader global financial crisis, the current recession is unlikely to seep throughout the rest of the U.S. economy. That's because the market has fewer entrenched risks than compared to the mid-2000s housing bubble.

"The very low level of inventory means that a headlong collapse in prices is unlikely, but we still expect a total decline of up to 20% by the middle of next year," Shepherdson said.

Painfully high inflation and rising borrowing costs have proven to be a lethal combination for the once red-hot housing market, forcing potential buyers to pull back on spending.

The Federal Reserve is tightening policy at the fastest pace in three decades as it tries to crush runaway inflation. Policymakers have voted to approve five consecutive interest rate increases this year, including three consecutive 75-basis-point hikes in June, July and September. At the conclusion of their latest meeting this week, Chairman Jerome Powell signaled that another 125 basis points of rate increases is on the table this year.

The rate hikes have driven the average rate for a 30-year fixed mortgage rate above 6%, according to Freddie Mac, the highest since the 2008 recession.

With mortgage rates rising, demand for new homes is rapidly drying up, prompting home prices to fall.

The National Association of Realtors said in a new report on Wednesday that home prices declined slightly from the median high of $413,800 recorded in June to $389,500. However, home prices are still up 7.7% from the same time a year ago, the 126th consecutive month of year-over-year home price increases. That is the longest-running streak on record.

New Era of Real Estate Investment

The New Era Of Real Estate Investing - A Simpler Path To Building Wealth.

https://finance.yahoo.com/amphtml/news/era-real-estate-investing-simpler-122557672.html#amp_tf=From%20%251%24s&aoh=16615542914200&referrer=https%3A%2F%2Fwww.google.com

Real estate is one of the greatest wealth-building assets of all time, providing stable returns through all market cycles. However, investing in real estate through traditional means is becoming increasingly difficult.

The housing shortage has made it more difficult to find investment opportunities and surging home prices along with recent interest rate hikes have further limited the access to real estate investments.

While this may seem like a death blow to many investors' dreams of becoming real estate moguls, a growing number of retail investors are becoming landlords through a more affordable and efficient strategy: fractional real estate.

The real estate investment platform Arrived Homes, backed by Amazon.com Inc (NASDAQ: AMZN) founder Jeff Bezos, is one of the fastest-growing providers of fractional real estate investments. The company offers securitized shares of income-producing single-family rentals through SEC-regulated offerings.

The company caught the attention of many high-profile investors during its seed round, attracting investments from Jeff Bezos through his Bezos Expeditions fund, Salesforce.com Inc (NYSE: CRM) founder Marc Benioff through Time Ventures, former Zillow Group Inc (NASDAQ: Z) CEO Spencer Rascoff and Uber Technologies Inc (NYSE: UBER) CEO Dara Khosrowshah

By utilizing Regulation A+, the platform can offer property ownership to non-accredited investors with investment amounts ranging from $100 to $10,000 per property.

Real estate investors receive quarterly distributions from their share of the rental income and later realize gains through the price appreciation at the end of the target hold period.

One of the most overlooked benefits, however, is the tax advantages that come with owning equity in investment real estate. Since real estate depreciates, the actual cash distributions received each year are often more than the taxable income.

Fractional ownership isn't just limited to single-family rentals. Accredited investors are able to own shares of multi-million dollar commercial real estate assets and even major ground-up developments.

The real estate platform RealtyMogul has private equity offerings for commercial properties, like multifamily, industrial, office and self-storage, with minimum investments starting at $35,000. Annualized returns on realized investments through the platform have averaged about 17%.

See also:

Browse private equity real estate investments with Benzinga’s offering screener

Have $100 to invest? Here are three ways you can start investing in real estate today

Fractional Real Estate vs REITs
Real estate investment trusts (REITs) have long been the popular option for passive investors to gain exposure to real estate, but this type of real estate investment is still vulnerable to stock market volatility.

For example, the leading single-family rental REIT Invitation Homes Inc’s (NYSE: INVH) share price is down roughly 20% so far in 2022, while its real estate portfolio, rental revenue and funds from operations (FFO) have increased and its net debt has decreased.

Fractional real estate, on the other hand, has very little correlation with the stock market. This means that overall investment returns are typically more predictable and stable.

The lower volatility does come with a trade-off, however. Since shares of fractional rental properties aren’t traded on a stock exchange, liquidity options are typically more limited. There aren’t many options yet for secondary trading, whereas shares of a publicly traded REIT can normally be sold instantly during trading hours.

If one of your investment goals has been to start investing in real estate, you can now find available properties and become a landlord in minutes without having to get pre-approved for a mortgage or get into bidding wars with other home buyers.

Looking at UK perspective

 

Interest rates might dampen house prices – but investors would be foolish to ignore this builder.

https://www.yahoo.com/news/interest-rates-might-dampen-house-050000617.html

A house price crash is not guaranteed to take place over the coming months. Certainly, factors such as rising interest rates and a cost of living crisis are likely to act as a drag on the housing market because of their negative impact on affordability.

But assuming that these circumstances are certain to prompt an early 1990s or late 2000s-esque slump in property prices could be a grave mistake.

After all, rapidly falling commodity prices that ease today’s rampant rate of inflation could lead to a far less hawkish monetary policy that supports house prices. Even if interest rates do continue to rise, some prospective buyers may even be encouraged to lock in lower rates.

In Questor’s view, trying to predict the short-term outlook for the housing market is pointless. There are simply too many variables that could affect prices but cannot be accurately forecast.

However, there are opportunities for long‑term investors to take advantage of current downbeat market assumptions. Housebuilders such as Barratt Developments, for example, trade on extremely low valuations that do not appear to factor in their growth potential over the coming years.

The stock currently trades at about six times forecast earnings. This suggests that investors are assuming that extremely difficult trading conditions that will cause a vast deterioration in its profits are ahead.

While that may or may not prove to be accurate, the long‑term outlook for housebuilders is upbeat. There is, and has been for many years, a fundamental imbalance between property demand and supply. For example, England’s population increased by about 390,000 a year between 2010 and 2020. Over the same period, just 135,000 new homes were built annually.

It is impossible to say whether the recent rate of population growth will persist. Likewise, planning rules could tighten or loosen depending on the government of the day. But the premise that a multi‑decade supply/demand imbalance can quickly, or easily, be corrected is flawed in this column’s view.

Moreover, while major housebuilders hold vast land banks in what is essentially an oligopolistic industry, there is unlikely to be a wave of new development that boosts supply over the coming years – unless it is accompanied by house price rises. Barratt spent more than £1bn on land last year and aims to have an owned and controlled land bank of four and a half years. Further information on its recent performance will come with full-year results due on Sept 7.

Even if there is a housing market downturn, the company’s £1.3bn in net cash will give it the financial means to survive. It could even capitalise on lower land prices to further boost its long-term profit potential. It may also wish to make further acquisitions following the recent £250m spent on land sourcing specialist Gladman Developments should asset price falls present opportunities to buy rivals or complementary businesses at attractive prices.

Undoubtedly, there are threats to Barratt’s future profits. The company’s cladding bill recently rose by about £400m, while the Government’s new 4pc Residential Property Developer Tax will cut the profits of all major housebuilders. Meanwhile, rising input costs and an increasingly downbeat economic outlook remain threats to the industry’s prospects.

However, in Questor’s view those risks are more than adequately priced into the company’s valuation. Its shares have fallen by 35pc since the start of the year. They are down by a similar amount since we first tipped them in January 2020. In doing so, they have heavily underperformed the FTSE 100 index.

With favourable industry supply/demand dynamics, solid finances and a strong market position, the long‑term prospects for the shares are extremely positive. Weak investor sentiment prompted by fears of a housing market bust could hold them back in the short run. Those who can look beyond current uncertainty are likely to be richly rewarded in future years.

Questor says: buy

Ticker: BDEV

Share price at close: 486.9p

Housing market slower but no major price drops yet

 

Rising home prices and mortgage rates have made it next to impossible for many Americans to afford a home. And, even though the market is starting to show signs of cooling, many prospective buyers will remain on the sidelines for now.

https://www.cnn.com/2022/08/08/perspectives/housing-market-mortgage-rates/index.html

Although they have fallen slightly from the 5.81% peak reached earlier this year, mortgage rates have nearly doubled since the start of the year. Combined with rising home prices, the mortgage payment for the nation's typical home is up by roughly 60% from a year ago, dragging housing affordability down to a 15-year low in June.

That means an increasing number of people are being priced out of the market, especially in some of the nation's most expensive areas. Sales of existing homes fell 14.2% in June from a year before and have fallen on an annual basis in each of the last 12 months, according to Zillow data, indicating a drop in both supply and demand.

For now, there are enough people who are still able to afford a home that prices continue to rise, but there are clear signs the market is starting to rebalance. Home value growth, for instance, is slowing. And while homes that have recently gone under contract have done so very quickly compared to historic norms, the time that the typical home spends on the market is starting to rise from record lows, according to Zillow data. More sellers are also cutting prices.

Many potential buyers who have been stuck on the sidelines are likely cheering this slowdown and hoping prices might fall enough for them to jump back in. But that is unlikely, at least on a grand scale.

While rising mortgage and interest rates chill demand, they also chill supply. Residential construction, which tends to be highly responsive to changes in interest rates, has pulled back in recent months — limiting supply and pushing home prices up. Housing starts fell 6.3% in June from a year ago, and while total home construction permits are up slightly from last year's levels, permits associated with single-family homebuilding fell 11.4% in June from last year's levels.

Declining new construction has long been a leading indicator of economic malaise. And while we can't fully see the future, one thing remains crystal clear: A persistent housing deficit does not bode well for housing affordability in the United States. A key reason homes are so expensive in the first place is that the country is 3.8 million homes short of meeting housing needs.

It's not just new construction that's being slowed by higher mortgage rates. Potential sellers are pulling back from listing — 8% fewer new listings came on the market in June compared to the same month in 2021, according to Zillow data. If a potential seller expects housing demand to fall and their house to sit on the market longer, they become less likely to list in the first place. Nearly a fifth of homeowners surveyed by Zillow earlier this year with no plans to sell cited financial uncertainty as a reason. And with 71% of sellers buying at the same time, and likely facing a much higher mortgage rate than the one they currently have, the idea of trading up — or even downsizing — is much less appealing.

For those trying to get on the housing ladder, all of this means buying won't get notably less expensive for the foreseeable future. Instead, this market transition only suggests that those who can still afford to buy a home are getting a little breathing room.

To truly ease America's affordability crisis, we need to build more housing at all price points — especially entry-level.

Zillow research has shown there is broad support for duplexes, triplexes and accessory dwelling units throughout residential neighborhoods — even among homeowners. Adding units generally helps keep prices down, and these types of homes especially tend to be more affordable than single-family homes.

In addition, loosening single-family zoning restrictions — which prevent homes from being built — could yield millions of additional homes. At the federal level, expanding and passing new tax incentives to build or rehabilitate affordable housing — like the Low-Income Housing Tax Credit and the Neighborhood Homes Investment Act — can also help.

Struggling Americans shouldn't be left cheering for a crash that ultimately won't get them any closer to homeownership. There's no better time for policymakers to help homes of all types be built faster

Markets with up prices & down price

 

If you wet your beak in the real estate biz, there’s a good chance this already feels like a personal recession. Spiked mortgage rates—which saw the average 30-year fixed rate jump from 3.1% to 5.3% this year—have pushed the U.S. housing market into its swiftest plunge in activity since 2006. Home sales and home construction are both falling—fast. And layoffs have already hit big-name real estate firms like Redfin and Compass, as well as mortgage departments at financial firms like JPMorgan and Wells Fargo.

https://fortune.com/2022/08/01/housing-markets-where-home-prices-fall-and-rise-2023-2024-housing-forecast/

Housing economists have a name for what we’re seeing now: a “turned-over” housing cycle. That means the housing expansion, which started back in 2011, has been replaced by a downward slide. That said, just because housing activity is falling doesn’t guarantee that house prices will also fall. On paper, the housing crash of 2008 is an anomaly. Historically speaking, house prices are incredibly sticky. Home sellers cling to the price they have in their head for as long as possible. Even during most recessions, house prices go higher—not lower.

As the housing cycle “turns over,” it’s only logical to ask if the housing market is headed for another historical anomaly, i.e. falling house prices, or the historical norm, i.e. rising house prices.

To find out, Fortune reached out to Moody’s Analytics to get access to its latest proprietary housing analysis. Researchers at the financial intelligence firm calculated how house prices are likely to shift in 414 regional housing markets between the fourth quarter of 2022 and the fourth quarter of 2024.

The finding? Among the nation’s 414 largest housing markets, the Moody’s Analytics forecast model predicts that 210 markets are poised to see house prices decline over the coming two years; 204 markets are poised to see house prices rise over the coming two years.

Moody's Analytics forecast model predicts that The Villages in Florida is poised to see the biggest drop in house prices. Between the fourth quarter of 2022 and the fourth quarter of 2024, Moody's Analytics predicts, home prices in The Villages will fall 12.8%. Not too far behind, are Punta Gorda, Fla (-11.4% forecasted home price decline); Spokane, Wash. (-9.4%); Cape Coral, Fla.(-9.4%); Ocala, Fla. (-9.3%); Lake Havasu City, Ariz. (-9%); Fort Lauderdale (-8.6%); Reno (-8.2%); Missoula, Mont. (-7.7%), and Palm Bay, Fla. (-7.6%).

Most of these markets at risk of falling house prices are also the very places that saw the most home price appreciation over the past two years. Now they're simply more vulnerable to a homebuyer revolt. Meanwhile, markets in Florida, where homebuilding soared during the pandemic, are now at an elevated risk of oversupply. If Florida homebuilders can't offload their unsold homes, it could lead to a temporary oversupply.

Among the 414 markets analyzed by Moody's Analytics, Albany, Ga., is predicted to see the biggest jump in house prices over the next two years. Between the fourth quarter of 2022 and the fourth quarter of 2024, Moody's Analytics predicts, home prices in Albany will rise 9.8%. Just behind Albany are Casper, Wyo. (8.0% forecasted house price growth); New Bern, N.C. (7.6%); Rocky Mount, N.C. (7.3%); Augusta, Ga. (7.2%); Hartford (7.1%); Columbus, Ga. (6.6%); Farmington, N.M (6.5%); Valdosta, Ga. (6.4%), and Danville, Ill. (6.3%).

The pandemic housing boom saw the U.S. housing market go from, historically speaking, an affordable housing market to a historically unaffordable market in just 24 months. At the end of the day, that's the main reason 210 markets are vulnerable to falling home prices.

Every quarter, Moody’s Analytics does an analysis to determine if home prices in regional housing markets can be supported by underlying economic fundamentals like local income levels. The last reading wasn't pretty. Through the first quarter of 2022, Moody's Analytics estimates, national house prices are “overvalued” by 24.7%. That means U.S. house prices are now the most detached they've been from fundamentals since the housing bubble.

The pandemic housing boom saw the U.S. housing market go from, historically speaking, an affordable housing market to a historically unaffordable market in just 24 months. At the end of the day, that's the main reason 210 markets are vulnerable to falling home prices.

Every quarter, Moody’s Analytics does an analysis to determine if home prices in regional housing markets can be supported by underlying economic fundamentals like local income levels. The last reading wasn't pretty. Through the first quarter of 2022, Moody's Analytics estimates, national house prices are “overvalued” by 24.7%. That means U.S. house prices are now the most detached they've been from fundamentals since the housing bubble.

Moody's Analytics isn't the only firm predicting that some regional housing markets could see falling house prices. Among the nation's 392 largest markets, CoreLogic estimates that 98 markets have a "high" or "very high" chance of seeing falling house prices over the coming year.

But even if some regional housing markets see falling home prices, it doesn't mean we're headed for a nationwide bust. Neither Moody's Analytics nor CoreLogic predicts a national home price decline. Unlike 2008, this time around homeowners are in better financial shape. Not to mention, the shady subprime mortgages that nearly brought the financial system to its brink in 2008 have been outlawed.

Bill McBride, author of the blog Calculated Risk, tells Fortune he believes that pandemic boomtown markets like Phoenix and Boise—where home prices soared around 60% during the pandemic—might see home values decline by around 5% to 10% over the coming year. But that wouldn't be the end of the world, McBride says.

"So what? You’re still up 50%," McBride says.

Want to stay updated on the U.S. housing market? Follow me on Twitter at @NewsLambert.

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.