Daily Dose of Real Estate for November 13
Opening Summary
The U.S. real estate market is navigating a complex landscape shaped by rising mortgage rates, diverse local market trends, and innovative financing solutions in the commercial sector. Recent data shows mortgage rates climbing to new highs, while local housing markets display varied patterns of inventory and price changes. The commercial real estate sector is seeing significant green financing initiatives, particularly in major urban centers. Meanwhile, the recent presidential election has added a layer of uncertainty to market dynamics. These developments underscore the ongoing evolution and resilience of the real estate market in the face of economic, political, and environmental challenges.
Key Takeaways
Mortgage Markets
Mortgage Rates Continue Sideways to Upward Trend
Recent data shows that mortgage rates are maintaining their upward trajectory. According to the latest information from [Mortgage News Daily](https://www.mortgagenewsdaily.com/mortgage-rates ), as of November 13, 2024, the average rates stand at:
These rates represent a significant increase from earlier in the year and continue to pose challenges for potential homebuyers and refinancers. The rise in rates is attributed to several factors, including recent economic data and market reactions to Federal Reserve policies. Despite the Fed's recent rate cuts, longer-term rates, which more directly influence mortgages, have continued to rise.
Matthew Graham, Chief Operating Officer at Mortgage News Daily, commented on the current rate environment: "While we're seeing rates at levels that are certainly high compared to recent years, it's important to note that they haven't reached the extreme levels some had feared. However, the consistent upward trend is undeniably impacting the housing market, particularly in terms of affordability and buyer demand."
This rate environment poses significant challenges for the housing market, including reduced affordability, dampened refinancing activity, and potential market slowdowns. However, it may also lead to some balancing effects, such as potential price stabilization in some markets and increased focus on alternative financing options like adjustable-rate mortgages.
Mortgage Applications and Originations
The Mortgage Bankers Association (MBA) reported a significant increase in commercial and multifamily mortgage originations in the third quarter of 2024. According to [National Mortgage News](https://www.nationalmortgagenews.com/news/interest-rate-movements-drive-multifamily-lending-surge ), originations rose 59% compared to the same period in 2023 and were up 44% from the previous quarter. This surge was particularly notable in the multifamily sector, where originations increased by 53% quarter-over-quarter and 56% year-over-year.
Jamie Woodwell, MBA's head of commercial real estate research, attributed this increase to a drop in the yield on the 10-year Treasury bond, which fell from an average of 4.31% in June to 3.72% in September. However, he cautioned that recent increases in long-term rates could slow this momentum.
Residential Real Estate Markets
Local Housing Markets Show Diverse Trends
A comprehensive analysis of local housing markets across the United States reveals a nuanced picture of inventory changes and price dynamics. According to [Calculated Risk Blog](https://www.calculatedriskblog.com/2024/11/2nd-look-at-local-housing-markets-in.html ), different regions are experiencing varied trends in housing inventory and pricing.
Key findings from the analysis include:
Bill McBride, the author of Calculated Risk Blog, notes, "These local market variations underscore the importance of understanding specific regional factors when assessing real estate opportunities. While national trends provide a broad overview, investors and homebuyers need to delve into local data to make informed decisions."
Housing Market Pauses for Election, but Optimism Remains
The recent election has caused a temporary dip in housing market activity, with inventory, new listings, sales, and prices all experiencing a slight decline. However, experts anticipate a rebound in the coming weeks. According to [HousingWire](https://www.housingwire.com/articles/housing-market-pauses-for-election/ ), this pause is not uncommon for early November, and the overall trend of increased seller volume and inventory is expected to continue into 2025.
Lawrence Yun, chief economist for the National Association of Realtors (NAR), forecasts a 9% increase in home sales in 2025 and a further boost of 13% in 2026. Yun attributes this potential growth to broader macroeconomic trends, stating, "When more people work, they have the capacity or they're in a better position to buy a home. Home sales depend mainly on jobs and mortgage rates."
Affordability Challenges Persist
Despite the optimistic outlook for sales volume, affordability remains a significant concern for many potential homebuyers. The median price of single-family homes that started contracts recently was $380,000, which is 4% above last year at this time. This continued price growth, coupled with rising mortgage rates, is putting pressure on buyers' purchasing power.
Commercial Real Estate Markets (including Multifamily)
Nearly $700 Million in Green Financing for Seattle and Los Angeles Projects
The commercial real estate sector is seeing a significant push towards sustainability, as evidenced by a major green financing initiative. According to [Urbanize Los Angeles](https://la.urbanize.city/sponsored/nearly-700-million-nuveen-green-capitals-c-pace-financing-seattle-los-angeles ), Nuveen Green Capital has provided nearly $700 million in Commercial Property Assessed Clean Energy (C-PACE) financing for projects in Seattle and Los Angeles.
Key details of this financing include:
1. Scale of Investment: The financing package totals $693 million, representing one of the largest C-PACE transactions to date.
2. Project Locations:
- Seattle: $485 million for the 8th & Pine mixed-use development
- Los Angeles: $208 million for The Star, a mixed-use project in Hollywood
3. Sustainability Focus: The financing is specifically aimed at supporting energy-efficient and sustainable building practices.
4. Economic Impact: These projects are expected to create numerous jobs and contribute to urban revitalization efforts in their respective locations.
Jason Beal, Head of Nuveen Green Capital, commented on the significance of these transactions: "These landmark C-PACE financings demonstrate the growing appetite for sustainable development in major urban centers. By providing attractive financing terms for green building practices, we're not only supporting individual projects but also contributing to broader climate resilience goals in these cities."
Lending Surge in Q3 2024
The commercial real estate sector experienced a significant boost in lending activity during the third quarter of 2024. [Mortgage Professional America](https://www.mpamag.com/us/specialty/commercial/commercial-real-estate-lending-surges-in-q3/513376 ) reported that loans for commercial mortgage-backed securities (CMBS) saw a remarkable 260% year-over-year rise, while loans from depository institutions increased by 69%.
This surge in lending was not uniform across all property types. Loans for health care properties saw an impressive 510% year-over-year increase, while hotel property loans rose by 99%, retail properties by 82%, industrial properties by 57%, and multifamily properties by 56%. In contrast, office property loan originations dropped by 3% compared to the previous year, reflecting the continuing challenges in that sector.
Multifamily Market Strength
The multifamily sector has shown particular resilience, with originations increasing by more than 50% in the third quarter. This growth is attributed to lower interest rates during that period, which stimulated borrowing and lending activity. However, experts caution that recent upward movements in Treasury yields could potentially slow this momentum in the coming quarters.
CMBS / REIT Markets
CMBS Performance and Outlook
The commercial mortgage-backed securities (CMBS) market has shown remarkable growth, with a 260% year-over-year increase in loan originations during Q3 2024. This surge indicates a strong appetite for CMBS investments, despite broader economic uncertainties. However, as noted by [Trepp](https://www.trepp.com/trepptalk/cre-under-trump-2-opportunities-and-challenges-ahead ), the incoming Trump administration's policies could have significant implications for the CMBS market moving forward.
REITs and Regulatory Changes
Real Estate Investment Trusts (REITs) are closely watching potential regulatory changes under the new administration. The Trump campaign has proposed streamlining the regulatory process and reducing bureaucratic hurdles, which could benefit REITs by expediting construction timelines and potentially lowering development costs. However, proposed changes to trade policies, particularly regarding tariffs, could have mixed effects on the REIT sector.
Economic News & Data
GDP and Federal Reserve Outlook
The Mortgage Bankers Association (MBA) has released a macroeconomic forecast predicting a sluggish economy over the next few years. While gross domestic product rose 3.2% in 2023, MBA's outlook suggests that 2024 will finish at 2.3%, followed by three years of growth of 2% or less. This economic slowdown could have significant implications for the real estate market, potentially affecting both demand and investment strategies.
Labor Market and Housing Demand
The relationship between employment and housing demand remains a critical factor in market dynamics. Lawrence Yun of NAR emphasized this connection, stating, "When more people work, they have the capacity or they're in a better position to buy a home." However, proposed changes to immigration policies under the Trump administration could potentially impact the labor supply, particularly in the construction sector, which relies heavily on immigrant workers.
Navigating the Crosscurrents: A Market in Flux
The real estate landscape of 2024 is characterized by significant contrasts and challenges. Rising mortgage rates are pressuring affordability in the residential sector, while diverse local market trends offer varied opportunities. The commercial real estate sector's embrace of green financing signals a shift towards sustainability, potentially reshaping urban development. Recent political changes add another layer of complexity, with potential policy shifts that could impact immigration, regulations, and market dynamics.
For industry professionals, investors, and homebuyers, success in this environment demands a nuanced, location-specific approach. Staying informed about national trends and local conditions is crucial. Those who can adeptly interpret these signals and adapt their strategies will be best positioned to navigate and thrive in this dynamic market. As we move forward, the ability to balance challenges with emerging opportunities will be key in this evolving real estate landscape.
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Impact Capitol DC SitusAMC Mortgage Bankers Association The Mortgage Collaborative MortgagePoint Mortgage Action Alliance (MAA) National MI National Association of REALTORS? National Association of Home Builders National Reverse Mortgage Lenders Association (NRMLA) 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