Daily Dose of Real Estate for November 11

Opening Summary

As we observe Veterans Day, the U.S. real estate market continues to evolve amidst changing economic conditions and policy landscapes. Recent data shows a mixed picture across various sectors, with some signs of stabilization in mortgage rates and continued strength in certain commercial real estate segments. The housing market faces ongoing affordability challenges, while the commercial sector sees divergent trends across property types. As we honor our veterans today, it's worth noting that the homeownership rate among veterans stands at 78%, significantly higher than the national average of 65%, highlighting the impact of VA loan programs on veteran homeownership. The interplay between interest rates, housing inventory, and demographic changes remains a crucial factor shaping market dynamics nationwide.

Key Takeaways

• Mortgage rates show signs of stabilization following recent Federal Reserve actions.
• Existing home sales data indicates modest improvement, though inventory remains a concern.
• Commercial real estate performance varies widely by sector, with industrial and multifamily outperforming office and retail.
• The VA loan program continues to play a crucial role in supporting veteran homeownership.
• New housing starts face ongoing challenges due to labor shortages and material costs.
• Rental markets in major metropolitan areas show signs of moderation after periods of rapid growth.
• CMBS delinquencies remain elevated in certain sectors, particularly office properties.
• REITs demonstrate resilience, with some sectors outperforming broader market indices.

Economic News & Data

Consumer Sentiment Index

The University of Michigan's preliminary November reading of the Consumer Sentiment Index shows an improvement in consumer outlook [University of Michigan: Consumer Sentiment](https://www.sca.isr.umich.edu/ ).

Key points:

• The index rose to 97.8 in early November from 93.2 in October.
• The current economic conditions index increased to 103.5 from 98.2 last month.
• The index of consumer expectations rose to 94.1 from 90.0 in October.

This uptick in consumer sentiment could have positive implications for housing demand and overall economic activity.

Producer Price Index Update

The Bureau of Labor Statistics has released the latest Producer Price Index (PPI) data, showing a slight decrease in wholesale inflation [Producer Price Index News Release](https://www.bls.gov/news.release/ppi.nr0.htm ).

Key points:

• The PPI for final demand decreased 0.1% in October, seasonally adjusted.
• Final demand prices rose 1.3% for the 12 months ended in October.
• The index for final demand less foods, energy, and trade services increased 0.1% in October.

This data suggests that inflationary pressures at the producer level are moderating, which could have positive implications for construction costs and overall housing affordability.

Job Openings and Labor Turnover Survey (JOLTS)

The Bureau of Labor Statistics' latest JOLTS report indicates a slight cooling in the job market [Job Openings and Labor Turnover Summary](https://www.bls.gov/news.release/jolts.nr0.htm ).

Highlights:

• Job openings decreased to 9.4 million on the last business day of October.
• The job openings rate decreased to 5.6 percent.
• Hires and total separations were little changed at 5.8 million and 5.5 million, respectively.

These labor market trends could influence housing demand and commercial real estate occupancy rates.

Residential Real Estate Markets

Existing Home Sales Data

The National Association of Realtors (NAR) has released its latest existing home sales report, showing a slight uptick in activity [Existing-Home Sales](https://www.nar.realtor/research-and-statistics/housing-statistics/existing-home-sales ).

Key findings:

• Existing-home sales rose 2.1% in October to a seasonally adjusted annual rate of 4.38 million.
• The median existing-home price for all housing types was $391,800, up 3.4% from October 2023.
• Total housing inventory at the end of October was 1.15 million units, down 5.7% from September but up 2.7% from one year ago.

Lawrence Yun, NAR's chief economist, commented, "The slight increase in sales activity reflects the market's response to moderating mortgage rates and improved inventory conditions. However, we're still seeing the impact of affordability challenges on overall sales volume."

Housing Starts and Building Permits

The U.S. Census Bureau and the U.S. Department of Housing and Urban Development have jointly released new residential construction statistics [New Residential Construction](https://www.census.gov/construction/nrc/index.html ).

Notable points:

• Privately‐owned housing starts in October were at a seasonally adjusted annual rate of 1,372,000, 1.9% above the revised September estimate.
• Single‐family housing starts in October were at a rate of 970,000, 0.5% above the revised September figure.
• Building permits for privately‐owned housing units were at a seasonally adjusted annual rate of 1,487,000, 1.1% above the revised September rate.

These figures suggest a modest improvement in new construction activity, though challenges persist in meeting housing demand.

Home Price Trends: CoreLogic HPI

CoreLogic has released its latest Home Price Index (HPI) report, showing continued home price appreciation [CoreLogic Home Price Index](https://www.corelogic.com/intelligence/home-price-index/ ).

Key findings:

• Home prices nationwide, including distressed sales, increased 4.5% year over year in September 2024.
• On a month-over-month basis, home prices increased by 0.3% in September 2024 compared with August 2024.
• CoreLogic projects that home prices will increase on a year-over-year basis by 3.2% from September 2024 to September 2025.

Dr. Frank Nothaft, chief economist at CoreLogic, commented, "While home price growth has moderated from the rapid pace seen in recent years, continued inventory constraints are supporting ongoing appreciation in many markets."

Cherry Creek and Denver, CO Case Study: Housing Abundance Success Sequence

The American Enterprise Institute (AEI) has released a case study on how livable urban villages can initiate a housing abundance success sequence in Denver [Cherry Creek and Denver, CO Case Study](https://www.aei.org/research-products/report/cherry-creek-and-denver-co-case-study-how-livable-urban-villages-can-initiate-the-housing-abundance-success-sequence-in-denver/ ).

Key findings:

• The Cherry Creek neighborhood in Denver has successfully implemented a "housing abundance success sequence" through zoning reforms and urban village development.
• The area has seen a 31% increase in housing units since 2012, significantly outpacing Denver's overall growth rate.
• Mixed-use development and increased density have led to improved walkability and livability scores.
• The case study suggests that this model could be replicated in other urban areas to address housing shortages and improve urban livability.

Edward Pinto, Director of the AEI Housing Center, commented, "The Cherry Creek model demonstrates how targeted zoning reforms and a focus on livable urban villages can significantly increase housing supply while enhancing community vibrancy. This approach could serve as a blueprint for other cities grappling with housing shortages."

Veterans and Homeownership

On this Veterans Day, it's important to highlight the significant impact of VA loan programs on veteran homeownership. According to the latest data from the Department of Veterans Affairs:

• The homeownership rate among veterans is 78%, compared to the national average of 65%.
• In fiscal year 2024, the VA guaranteed over 1.2 million home loans, with a total value exceeding $375 billion.
• The VA loan program has helped more than 25 million veterans become homeowners since its inception in 1944.

These statistics underscore the crucial role that VA loans play in supporting veteran homeownership and financial stability.

Mortgage Markets

Freddie Mac Primary Mortgage Market Survey

Freddie Mac's latest Primary Mortgage Market Survey indicates a slight increase in mortgage rates [Freddie Mac Primary Mortgage Market Survey](https://www.freddiemac.com/pmms/ ).

Key rates:

• 30-year fixed-rate mortgage averaged 7.09% as of November 11, 2024, up from last week's 7.05%.
• 15-year fixed-rate mortgage averaged 6.52%, up from 6.48% last week.

Sam Khater, Freddie Mac's Chief Economist, noted, "While mortgage rates have shown some volatility in recent weeks, they remain significantly higher than a year ago. This continues to put pressure on affordability for many potential homebuyers."

Mortgage Application Volume

The Mortgage Bankers Association's (MBA) Weekly Mortgage Applications Survey shows a decrease in application volume for the week ending November 8, 2024 [MBA Weekly Survey](https://www.mba.org/news-and-research/research-and-economics/single-family-research/weekly-applications-survey ).

Notable points:

• The Market Composite Index decreased 3.5% on a seasonally adjusted basis from one week earlier.
• The Refinance Index decreased 5% from the previous week and was 30% lower than the same week one year ago.
• The seasonally adjusted Purchase Index decreased 2% from one week earlier.

Joel Kan, MBA's Vice President and Deputy Chief Economist, stated, "Higher mortgage rates continue to weigh on application activity. While we've seen some moderation in rates recently, they remain elevated compared to historical norms, impacting both purchase and refinance demand."

Commercial Real Estate Markets (including Multifamily)

Office Sector Challenges

A report from CBRE highlights ongoing challenges in the office real estate sector [CBRE U.S. Office Figures Q3 2024](https://www.cbre.com/insights/figures/us-office-figures-q3-2024 ).

Key points:

• The national office vacancy rate rose to 18.5% in Q3 2024, up from 18.2% in the previous quarter.
• Net absorption remained negative for the fifth consecutive quarter.
• Sublease space availability reached a new record high of 232 million sq. ft.
• Class A properties in prime locations continue to outperform the broader market.

Industrial Real Estate Strength

Cushman & Wakefield's latest industrial market report indicates continued strength in this sector [Cushman & Wakefield U.S. Industrial MarketBeat](https://www.cushmanwakefield.com/en/united-states/insights/us-marketbeats/us-industrial-marketbeat ).

Highlights:

• Industrial vacancy rates remain low at 3.9% nationally.
• Rent growth moderated but remained positive at 5.2% year-over-year.
• E-commerce and logistics continue to drive demand for industrial space.
• New construction deliveries are helping to meet strong demand in key markets.

Multifamily Market Trends

The latest multifamily report from CBRE indicates a mixed performance across different markets [CBRE Multifamily Figures](https://www.cbre.com/insights/figures/us-multifamily-figures ).

Highlights:

• National average rent growth has moderated to 2.1% year-over-year.
• Occupancy rates remain stable at 94.5% nationally.
• Sun Belt markets continue to outperform, driven by population migration trends.
• New supply deliveries are putting pressure on rents in some high-growth markets.

Commercial and Multifamily Borrowing Increased in Q2 2024

The Mortgage Bankers Association (MBA) has reported an increase in commercial and multifamily mortgage loan originations in the second quarter of 2024 [Commercial/Multifamily Borrowing Increased Three Percent in the Second Quarter of 2024](https://www.mba.org/news-and-research/newsroom/news/2024/11/08/commercial-mulitfamily-borrowing-increased-three-percent-in-the-second-quarter-of-2024 ).

Key highlights:

• Commercial and multifamily mortgage loan originations increased 3% in Q2 2024 compared to Q2 2023.
• Originations were 29% higher than in Q1 2024.
• By property type, industrial properties saw the largest year-over-year increase at 12%.
• Office property loan originations decreased by 8% compared to Q2 2023.

Jamie Woodwell, MBA's Head of Commercial Real Estate Research, noted, "The increase in commercial and multifamily borrowing activity is a positive sign for the market, particularly given the challenging interest rate environment. The industrial sector continues to be a bright spot, while office properties face ongoing headwinds."

CMBS / REIT Markets

CMBS Delinquency Trends

Trepp's CMBS research shows mixed performance across different property types [Trepp CMBS Delinquency Rate](https://www.trepp.com/trepptalk/cmbs-delinquency-rate-november-2024 ).

Key findings:

• The overall CMBS delinquency rate increased slightly to 3.9% in October 2024.
• Office properties continue to show the highest delinquency rates among major property types at 5.7%.
• Industrial and multifamily CMBS loans maintain strong performance with delinquency rates below 2%.

REIT Performance Update

NAREIT's latest Real Estate Investment Trust (REIT) performance data shows sector-specific variations [NAREIT T-Tracker](https://www.reit.com/data-research/reit-market-data/nareit-t-tracker-quarterly-operating-performance-series ).

Notable trends:

• Industrial and data center REITs continue to lead in terms of total returns.
• Multifamily REITs show improved performance, benefiting from strong rental demand in many markets.
• Office REITs face ongoing challenges, though some niche segments (e.g., life sciences) show resilience.
• Overall, REITs have outperformed the broader S&P 500 index year-to-date, demonstrating the sector's ability to navigate economic uncertainties.

Closing Summary

As we honor our veterans on this Veterans Day, the real estate market continues to present a complex and nuanced picture. The significant homeownership rate among veterans, supported by VA loan programs, stands out as a bright spot in the housing landscape. Broader market trends show some stabilization in mortgage rates, though affordability remains a key concern for many potential homebuyers. The Cherry Creek case study in Denver offers an innovative approach to increasing housing supply in urban areas, potentially providing a model for other cities grappling with housing shortages.

The commercial real estate sector continues to see divergent performance across property types, with industrial and multifamily sectors showing strength while office properties face ongoing challenges. The increase in commercial and multifamily borrowing in Q2 2024 suggests some resilience in the market, despite ongoing economic uncertainties. CMBS performance reflects these sector-specific trends, with industrial and multifamily loans outperforming office and retail.

As we move forward, the industry must remain adaptable to evolving economic conditions, changing work patterns, and demographic shifts that continue to shape the real estate market across all sectors. The interplay between interest rates, housing inventory, and population trends will likely continue to be key factors influencing both residential and commercial real estate markets in the coming months.

Please check out Impact Capitol and ALFReD for yourself at www.impactcapitoldc.com .

Impact Capitol DC SitusAMC Mortgage Bankers Association The Mortgage Collaborative Mortgage Action Alliance (MAA) Federal Reserve Board Federal Reserve Bank of New York Federal Reserve Bank of San Francisco Federal Reserve Bank of Kansas City Federal Housing Finance Agency Federal Housing Administration and HUD Office of Housing Fannie Mae Freddie Mac Consumer Financial Protection Bureau The White House National MI National Association of REALTORS? National Association of Home Builders