Daily Dose of Real Estate for November 22

Opening Summary

The real estate market continues to navigate a complex landscape as we approach the end of 2024. Mortgage rates have shown volatility, with recent increases putting pressure on both buyers and sellers. Despite challenges, the housing market is displaying resilience, with new construction and refinancing activity showing signs of life. The commercial real estate sector faces significant hurdles, particularly in transaction volume and lending stress, while emerging trends like wellness-focused developments offer new opportunities. As we delve into today's analysis, we'll explore the intricate dynamics shaping the residential, commercial, and mortgage markets across the United States.

Key Takeaways

• Mortgage rates have risen to 6.84%, continuing an upward trend.
• The housing market is expected to see higher mortgage demand and stabilizing home prices in 2025, according to industry forecasts.
• Commercial real estate transaction volume has hit its lowest point since 2011, indicating significant market challenges.
• HUD has announced a $3.4 billion funding notice to address homelessness, which could impact affordable housing development.
• The wellness trend is reshaping global commercial real estate, offering new opportunities for developers and investors.

Residential Real Estate Markets

Housing Market Forecasts for 2025

According to industry forecasts, the housing market in 2025 is expected to see some positive shifts. HousingWire reports that experts anticipate higher mortgage demand, stabilizing home prices, lower mortgage rates, and an uptick in housing inventory for the coming year. Zillow's 2025 forecast predicts that home values will level off, falling by a marginal 0.2%. This stabilization could provide some relief to potential homebuyers who have been facing rapidly appreciating home prices.

Freddie Mac offers a slightly different perspective, projecting that house prices will increase at a slower pace of 2.6% in 2025, down from the expected growth in 2024. This moderation in price growth could help improve affordability for some buyers.

Housing Supply and Sales Projections

The outlook for housing supply and sales in 2025 presents a mixed picture. Realtor.com predicts that there will be 14% fewer existing homes on the market nationally compared to 2024. However, it's important to note that real estate markets are local, and inventory conditions can vary significantly across different regions.

On a more positive note, the National Association of Realtors (NAR) projects that existing-home sales will jump 13.5% in 2025, following the expected performance in 2024. This forecast suggests a potential rebound in market activity, which could be driven by pent-up demand and possibly more favorable market conditions.

New Construction Outlook

The outlook for newly built homes is promising. The National Association of Home Builders projects that single-family home building will increase to an annual pace of 925,000 in 2025, up from the expected figures in 2024. This increase in new construction could help alleviate some of the supply constraints that have been putting upward pressure on home prices.

Affordability Challenges Persist

Despite some positive forecasts, affordability remains a significant concern. Realtor.com 's analysis indicates that Americans now need to spend an astonishing 38% of their income for the typical home. This affordability challenge is even more pronounced for low-income families, highlighting the ongoing struggle many face in achieving homeownership.

Mortgage Markets

Current Mortgage Rate Trends

The mortgage market has seen some volatility in recent weeks. Freddie Mac reports that the average rate for a 30-year fixed home loan increased to 6.84% as of November 21, 2024, up from 6.78% the previous week. This marks a continuation of the upward trend in rates observed over the past month. Despite this increase, current rates remain below the levels seen at the same time last year, providing a marginal advantage for current buyers compared to those who purchased in late 2023.

Mortgage Rate Forecasts

Looking ahead, Realtor.com forecasts that mortgage rates for a 30-year, fixed-rate home loan will stay above 6.5% for most of 2025. This projection suggests that while rates may not return to the historic lows seen in recent years, they could stabilize at levels that are still relatively favorable by historical standards.

Refinancing and Origination Volume

The Mortgage Bankers Association (MBA) provides an optimistic outlook for mortgage origination volume in 2025. They forecast that total mortgage origination volume will climb to $1.95 trillion, up from the expected figures in 2024. Additionally, the MBA estimates 5.2 million total loans to be originated in 2025, an increase over the previous year. This projected increase in volume could be driven by a combination of purchase activity and refinancing, as some homeowners may find opportunities to lower their rates or tap into home equity.

HUD Announces $3.4 Billion Funding Notice to Address Homelessness

In a significant development for affordable housing and homelessness prevention, the U.S. Department of Housing and Urban Development (HUD) has announced a $3.4 billion funding notice to address homelessness across the country. This funding, made available through HUD's Continuum of Care (CoC) Program, represents the largest single-year funding announcement in the program's history.

Key points of the announcement include:

• The funding aims to support efforts by nonprofit organizations, states, and local governments to reduce and end homelessness.
• It includes $52 million for new rapid re-housing, permanent supportive housing, and transitional housing projects specifically serving survivors of domestic violence, dating violence, sexual assault, or stalking.
• An additional $55 million is available for new permanent supportive housing projects that will serve individuals and families experiencing chronic homelessness.

This significant investment could have far-reaching implications for the affordable housing sector, potentially stimulating development and renovation projects aimed at providing housing for vulnerable populations. It may also influence local real estate markets by increasing demand for properties suitable for conversion into supportive housing units.

Commercial Real Estate Markets

CRE Transaction Volume Hits Lowest Point Since 2011

The commercial real estate market is facing significant challenges, as evidenced by recent transaction data. According to GlobeSt.com , commercial real estate transaction volume has hit its lowest point since 2011. This dramatic decline in activity signals a period of uncertainty and caution among investors and developers.

Key findings from the report include:

• Transaction volume across all property types has decreased significantly.
• The office sector has been particularly hard hit, with many investors hesitant to commit capital due to ongoing uncertainties about future workspace needs.
• Industrial and multifamily properties, while performing better than office spaces, have also seen a slowdown in transaction activity.

This downturn in transaction volume could lead to repricing in certain markets and property types, potentially creating opportunities for well-capitalized investors but also posing challenges for property owners looking to sell or refinance.

CRE Lenders Feeling Stress but Weathering the Storm

A recent report from S&P Global Market Intelligence, as reported by Morningstar , indicates that commercial real estate lenders are feeling stress but are generally weathering the current market challenges.

Key points from the report include:

• Many lenders have increased their loan loss reserves in anticipation of potential defaults, particularly in the office sector.
• Despite the stress, most lenders remain well-capitalized and are not facing immediate liquidity concerns.
• Regional banks, which have significant exposure to commercial real estate, are under closer scrutiny from regulators and investors.

This situation underscores the importance of careful risk management in commercial real estate lending and highlights the potential for tighter credit conditions in the coming months.

Wellness Boom Reshaping Global Commercial Real Estate

An emerging trend in commercial real estate is the growing focus on wellness-oriented developments. According to a report from Altus Group , the wellness boom is significantly reshaping global commercial real estate markets.

Key insights from the report include:

• There's a growing demand for properties that incorporate wellness features, such as fitness centers, green spaces, and air purification systems.
• This trend is influencing design and development across various property types, including office buildings, multifamily residences, and retail spaces.
• Investors and developers who prioritize wellness features in their properties may see increased tenant demand and potentially higher property values.

This shift towards wellness-focused real estate presents both opportunities and challenges for the industry. Developers and investors who can successfully incorporate wellness features into their properties may gain a competitive advantage in attracting tenants and buyers.

Digital Transformation in Mortgage Origination

The mortgage industry continues to undergo significant digital transformation to address current challenges and improve efficiency. A whitepaper from HCL Technologies highlights the importance of digitizing mortgage origination processes to streamline operations, enhance customer experience, and improve efficiency in handling increased volumes of mortgage applications.

Key aspects of this digital transformation include:

• Implementation of Robotic Process Automation (RPA), Artificial Intelligence (AI), and Machine Learning (ML) to automate repetitive tasks and improve data accuracy.
• Development of digital self-service channels to enhance customer experience.
• Creation of end-to-end process orchestration layers to enable seamless interaction between machines and humans.
• Establishment of a digital decisioning ecosystem with business intelligence and smart analytics.

These technological advancements are becoming increasingly crucial for lenders to remain competitive in a rapidly evolving market landscape.

The Road Ahead: Navigating Challenges and Opportunities

As we close out 2024, the real estate market stands at a crossroads of challenges and opportunities. The residential sector shows promise for 2025, with forecasts of stabilizing prices and increased sales, yet affordability remains a pressing concern. In the commercial realm, transaction volumes have hit a low point, signaling potential repricing and opportunities for well-positioned investors. The emerging focus on wellness in real estate development offers a new avenue for innovation and value creation. As we move forward, success in this dynamic environment will hinge on the ability to adapt to evolving market conditions, leverage technological advancements, and balance risk management with strategic innovation. Those who can navigate these turbulent waters with agility and foresight will be best positioned to thrive in the ever-changing landscape of real estate.

Please check out Impact Capitol & ALFReD at www.impactcapitoldc.com

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