Daily Dose of Real Estate for November 15

Opening Summary

Today's Daily Dose of Real Estate presents a complex landscape of opportunities and challenges across various sectors. The Federal Reserve's recent interest rate cut, coupled with persistent inflation concerns, has created an intricate economic backdrop. In the residential sector, we observe increased home sales activity despite ongoing affordability issues, as highlighted in the latest AEI Housing Finance Watch report. The commercial real estate market shows signs of recovery, though uncertainties linger about future Fed policy decisions. Mortgage rates have slightly declined, potentially offering some relief to homebuyers. Meanwhile, consumer attitudes towards housing development reveal a nuanced picture of support and resistance, which could significantly impact future housing supply and affordability. As we navigate through these developments, it's clear that the real estate market is at a pivotal juncture, balancing between affordability challenges and opportunities for growth.

Key Takeaways

• The Federal Reserve cut interest rates by 0.25 percentage points in November, bringing the federal funds rate to a range of 4.50% to 4.75%.
• October's inflation rate rose to 2.6% year-over-year, slightly above the Fed's 2% target.
• Mortgage rates decreased marginally to 6.78% for a 30-year fixed-rate mortgage, according to Freddie Mac's latest report.
• AEI's Housing Finance Watch reports a 5.5% year-over-year increase in home purchase loan rate locks, despite affordability challenges.
• Commercial and multifamily mortgage loan originations increased 59% compared to a year ago.
• Consumer attitudes towards housing development show general support but resistance to development in immediate neighborhoods.
• The housing market is showing signs of a seasonal slowdown, with inventory and sales activity dipping in early November.

Economic News & Data

Federal Reserve Rate Cut

On November 7, 2024, the Federal Open Market Committee (FOMC) announced a 0.25 percentage point cut to the federal funds rate, bringing it to a range of 4.50% to 4.75%. This decision follows a larger 0.50 percentage point cut in September, indicating a cautious approach to monetary easing. Federal Reserve Chair Jerome Powell stated, "The economy is not sending any signals that we need to be in a hurry to lower rates. The strength we are currently seeing in the economy gives us the ability to approach our decisions carefully." [Federal Reserve Chair Jerome Powell delivers remarks in Dallas on Nov. 14, 2024](https://www.cnbc.com/2024/11/14/powell-says-the-fed-doesnt-need-to-be-in-a-hurry-to-reduce-interest-rates.html)

Inflation Report

The latest inflation data shows that the consumer price index (CPI) increased by 2.6% year-over-year in October, up from 2.4% in September. Key points include:

• The monthly CPI increase was 0.2%, in line with expectations.
• Core CPI, which excludes food and energy, rose 0.3% for the month and 3.3% annually.
• Energy costs were flat in October, while food prices increased by 0.2%.
• Shelter costs rose 0.4% for the month and 4.9% annually.

[CPI inflation October 2024 - CNBC](https://www.cnbc.com/2024/11/13/cpi-inflation-october-2024.html)

Labor Market and Consumer Sentiment

The labor market remains robust, with the unemployment rate stabilized at historically low levels. This strength provides the Fed with some flexibility in its monetary policy decisions. Consumer sentiment has shown resilience in the face of economic uncertainties. A survey by the Federal Reserve Bank of New York revealed that households' inflation expectations declined slightly, with the one-year outlook dropping to 2.9%, the lowest since October 2020. [US Consumer Inflation Outlook Fell Slightly, Fed Survey Shows](https://www.bloomberg.com/news/articles/2024-11-12/us-consumer-inflation-outlook-fell-slightly-fed-survey-shows)

Residential Real Estate Markets

AEI Housing Finance Watch Report Breakdown

The AEI Housing Finance Watch report for Week 45 of 2024 offers key insights:

1. Home Purchase Loan Rate Lock Activity:

• A 5.5% year-over-year increase in home purchase loan rate locks was observed.
• This growth occurred despite a 30-year fixed-rate mortgage rate of 7.4%, which is 80 basis points higher than the previous year.

2. First-Time Buyers (FTBs):

• FTBs accounted for 51.5% of primary owner-occupied home purchase loans.
• The median FICO score for FTBs was 741, indicating strong credit profiles among new homebuyers.

3. Repeat Buyers:

• Repeat buyers showed a 6.5% year-over-year increase in activity.
• Their median FICO score was 780, higher than that of FTBs.

4. Loan Types and Risk Levels:

• Conventional loans comprised 68.5% of all loans, with FHA at 21.5% and VA at 10%.
• High-risk loans (FICO < 660) accounted for 9.5% of all loans, a slight decrease from the previous year.

5. Home Price Appreciation (HPA):

• The national median HPA stood at 4.5% year-over-year.
• Significant regional variations were observed, with some areas experiencing double-digit growth while others saw declines.

[AEI Housing Finance Watch - Week 45, 2024](https://www.aei.org/research-products/report/housing-finance-watch-week-45-2024/)

Regional Market Variations

Significant regional differences in home price appreciation were observed:

• High-growth areas: States like Connecticut, Rhode Island, and New Hampshire saw HPA rates above 8%.
• Moderate growth: Many Midwestern states experienced HPA rates between 4-6%.
• Slower markets: Some Western states, including California and Oregon, saw more modest price growth or even slight declines.

Housing Market Activity

The housing market has shown signs of a seasonal slowdown, typical for early November:

• Inventory, new listings, sales, and prices all dipped in the first week of November 2024.
• The election and rising mortgage rates contributed to delayed listing and sales activity.
• Experts anticipate a rebound in inventory and new listings before the end of the month.

Despite the temporary dip, the overall trend of increased seller volume and inventory is expected to continue into 2025. This could provide more options for potential buyers in the coming months. [Housing market pauses for election](https://www.housingwire.com/articles/housing-market-pauses-for-election/)

Home Prices and Affordability

Home prices have shown resilience despite affordability challenges:

• Home prices experienced a slight dip during the election week but are expected to rebound.
• Prices remain higher than the previous year, indicating ongoing appreciation.
• Affordability continues to be a significant concern for potential homebuyers.

Some market trends could benefit buyers, such as:

• The highest inventory levels since December 2019
• A slower seasonal market compared to the past five years
• Nearly 20% of listings offering price cuts

[Housing market pauses for election](https://www.housingwire.com/articles/housing-market-pauses-for-election/)

Mortgage Markets

Mortgage Rates

According to Freddie Mac's latest Primary Mortgage Market Survey:

• The average rate for a 30-year fixed mortgage decreased slightly to 6.78% from 6.79% the previous week.
• This marks the first decline in seven weeks, potentially offering some relief to homebuyers.

Despite this minor decrease, mortgage rates remain higher than many initially expected. The recent uptick in rates has been attributed to:

• Investors adjusting to potential economic impacts of Donald Trump's re-election
• Concerns over inflation from proposed tariffs and rising labor costs due to reduced immigration
• Market focus on how Trump's policies might affect interest rates moving forward

[Mortgage Rates Drop Slightly to 6.78%, Remaining Higher Than Expected](https://www.realtor.com/research/freddie-mac-mortgage-rates-nov-14-2024/)

Consumer Attitudes Towards Housing Development

A recent Fannie Mae report provides insights into consumer attitudes towards housing development, which has significant implications for the mortgage market and housing affordability:

1. General Support for New Housing:

• 82% of consumers agree that their local area needs more housing options.
• 76% support building more housing in their broader local area.

2. NIMBY Sentiment:

• Only 48% support building more housing in their immediate neighborhood.
• Support decreases further for specific types of housing near their homes.

3. Demographic Differences:

• Younger consumers (aged 18-34) show higher support for new housing development across all categories.
• Renters are more supportive of new housing than homeowners, particularly for multi-unit buildings.

4. Regional Variations:

• The West region shows the highest support for new housing development (86%).
• The Midwest has the lowest support at 77%, but still a significant majority.

5. Concerns and Priorities:

• Top concerns about new housing include increased traffic (56%) and strain on local infrastructure (51%).
• Priorities for new housing include affordability (64%), proximity to amenities (48%), and energy efficiency (46%).

6. Impact on Home Values:

• 37% believe new housing would increase their home's value.
• 34% think it would have no impact.
• 29% fear it would decrease their home's value.

Summary of Consumer Attitudes:

The report highlights a complex dynamic in housing development attitudes. While there's broad support for increasing housing options in general, there's significant resistance to development in immediate neighborhoods. This "Not In My Back Yard" (NIMBY) sentiment poses challenges for addressing housing shortages and affordability issues. To gain broader support for development projects, policymakers and developers need to address community concerns and emphasize the benefits of new housing. Strategies could include focusing on affordable housing, ensuring infrastructure improvements, and highlighting potential positive impacts on local economies and property values.

[Most Consumers Support Building New Housing, but Disagree on the Details in Their Own Neighborhoods](https://www.fanniemae.com/research-and-insights/perspectives/most-consumers-support-building-new-housing-disagree-details-their-own-neighborhoods)

Commercial Real Estate Markets (including Multifamily)

Originations and Lending Activity

The Mortgage Bankers Association's (MBA) Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations revealed substantial growth in the third quarter of 2024:

• Commercial and multifamily mortgage loan originations increased 59% compared to a year ago.
• Originations also rose 44% from the second quarter of 2024.
• Lower interest rates were a key driver of this increase, with the yield on the 10-year Treasury bond dropping during the quarter.

This surge in originations indicates renewed confidence in the commercial real estate sector and improved lending conditions. [MBA 3Q24 Commercial/Multifamily Mortgage Bankers Originations Survey](https://www.mba.org/docs/default-source/research-and-forecasts/cmf-originations-index/3q24cmforiginationssurvey.pdf)

Federal Reserve's Stance on Future Rate Cuts

A recent statement from Boston Fed President Susan Collins has added a layer of uncertainty to the commercial real estate outlook. Collins stated that a December rate cut is "not a done deal" despite market expectations. She emphasized that the Fed needs to see more evidence that inflation is moving sustainably toward the 2% target.

This cautious stance from the Fed could impact commercial real estate in several ways:

• Financing Costs: If rates remain higher for longer, it could affect the cost of financing for commercial real estate projects and potentially slow down transaction activity.
• Investor Sentiment: Uncertainty about future rate cuts may cause some investors to adopt a wait-and-see approach, potentially impacting deal flow in the short term.
• Valuation Considerations: The prospect of rates staying higher could influence property valuations, particularly for assets with floating-rate debt.
• Sector-Specific Impacts: Different commercial real estate sectors may react differently to this uncertainty, with some potentially seeing increased caution from investors and lenders.

[Boston Fed President Says December Rate Cut Isn't a Done Deal](https://www.wsj.com/economy/central-banking/boston-fed-president-says-december-rate-cut-isnt-a-done-deal-50ef1429?mod=hp_lead_pos4)

Property Type Performance

Different property types within the commercial real estate sector have shown varying levels of performance:

• Industrial and multifamily properties continue to be strong performers, driven by e-commerce growth and housing demand.
• Office properties face ongoing challenges due to remote work trends, but some markets are seeing a gradual return to office spaces.
• Retail properties are adapting to changing consumer behaviors, with some segments showing resilience.

Investors and developers are closely monitoring these trends to identify opportunities and manage risks across different property types.

Multifamily Market Trends

The multifamily sector has shown particular strength:

• Demand for rental housing remains robust in many markets, driven by demographic shifts and affordability concerns in the for-sale housing market.
• Rent growth has moderated in some areas but remains positive overall.
• New construction of multifamily properties continues, though supply chain issues and labor shortages have impacted development timelines.

A recent article from Multi-Housing News highlights the importance of data analytics in identifying profitable niches within the multifamily sector. Key points include:

• The use of advanced data analytics to identify micro-markets and specific property characteristics that drive higher returns.
• The growing importance of amenities and location-specific factors in determining rental premiums.
• The emergence of niche markets such as build-to-rent single-family homes and co-living spaces.
• The increasing focus on ESG (Environmental, Social, and Governance) factors in multifamily investments.

This trend towards data-driven decision-making is reshaping investment strategies in the multifamily sector, allowing investors to target specific submarkets and property types with greater precision.

[Real Estate Investment Strategy: Data Analytics & US Multifamily Rental Housing Niches](https://www.multihousingnews.com/real-estate-investment-strategy-data-analytics-us-multifamily-rental-housing-niches/)

CMBS / REIT Markets

The Commercial Mortgage-Backed Securities (CMBS) and Real Estate Investment Trust (REIT) markets continue to play crucial roles in the commercial real estate financing landscape. Recent data and stories provide insights into the current state of these markets.

CMBS Performance

1. Delinquency Rates:

According to Trepp's CMBS Delinquency Rate report for October 2024:

• The overall CMBS delinquency rate increased slightly to 3.15%, up from 3.08% in September.
• Office properties continue to be a concern, with the delinquency rate for this sector rising to 5.42%.
• Retail properties showed improvement, with the delinquency rate decreasing to 5.89%.

2. New Issuance:

CMBS issuance has shown signs of recovery:

• Year-to-date issuance through October 2024 reached $65.2 billion, a 12% increase from the same period in 2023.
• Single-asset, single-borrower (SASB) deals have dominated issuance, accounting for 60% of the total volume.

3. Sector-Specific Trends:

• Industrial properties continue to perform well, with low delinquency rates and strong investor demand.
• Multifamily CMBS have shown resilience, supported by strong rental demand in many markets.
• Hotel properties have seen improved performance, with delinquency rates declining as travel rebounds.

[Trepp: US CMBS Delinquency Rate Rises in October](https://www.trepp.com/trepptalk/cmbs-delinquency-rate-october-2024)

[Fitch Ratings: US CMBS Delinquency Rate Declines in Q3 2024](https://www.fitchratings.com/research/structured-finance/us-cmbs-delinquency-rate-declines-in-q3-2024-15-10-2024)

REIT Market Trends

• The FTSE Nareit All Equity REITs Index showed a total return of 8.5% year-to-date through October 2024.
• Data Center REITs have been top performers with a 15.3% total return year-to-date.
• REITs raised $75.3 billion in capital through October, a 25% increase from 2023.

Trepp: US CMBS Delinquency Rate Rises in OctoberNareit: REIT Industry Monthly Data for October 2024

Navigating Uncertainty: A Balancing Act for Real Estate Markets

As we conclude today's Daily Dose of Real Estate, it's evident that the market is navigating a delicate balance between growth opportunities and persistent challenges. The AEI Housing Finance Watch report reveals a surprising resilience in home purchase activity, despite high mortgage rates and affordability concerns. This suggests that demand for homeownership remains strong, even in a challenging economic environment.

However, the commercial real estate sector faces new uncertainties with the Federal Reserve's cautious stance on future rate cuts. This uncertainty could lead to a period of recalibration in the commercial real estate market, particularly in terms of financing strategies and investment decisions.

Looking ahead, market participants should remain adaptable and vigilant. The potential for shifts in monetary policy, coupled with ongoing affordability challenges in the residential sector, suggests that the real estate landscape will continue to evolve. Success in this environment will likely depend on careful risk management, thorough market analysis, and the ability to capitalize on emerging opportunities across various property types and regions.

As we move into 2025, the interplay between economic indicators, policy decisions, and market dynamics will be crucial in shaping the trajectory of both residential and commercial real estate markets. Investors, developers, and homebuyers alike should stay informed and prepared to adjust their strategies in response to this ever-changing landscape.

Please visit www.impactcapitoldc.com and check out ALFReD and Impact Capitol.

Impact Capitol DC SitusAMC Mortgage Bankers Association The Mortgage Collaborative Mortgage Professional America National Association of REALTORS? National MI National Mortgage News Federal Reserve Board Federal Reserve Bank of New York Federal Reserve Bank of Dallas Federal Housing Finance Agency Federal Housing Administration and HUD Office of Housing Fannie Mae Freddie Mac Consumer Financial Protection Bureau The White House