Real Estate Updates // February 11, 2024

I would like to share a few headlines and a brief analysis of the Real Estate and [Housing] Development industry from the last few days. I hope you find them insightful:

• 2023 was a tale of two markets for housing. New single-family home sales rose 8% in December to a seasonally adjusted annual rate of 664,000, capping a solid year for home builders despite mortgage rates touching a two-decade high. Buyers turned to new construction while the market for previously owned homes froze. The National Association of Realtors last week said sales of existing, single-family homes for the full year were the lowest since 1995.

• Existing-home sales slid 19% in 2023, the National Association of Realtors said. The 4.09 million homes sold marked the lowest full-year total since 1995.

• The S&P CoreLogic Case-Shiller National Home Price Index gained 5.1% on a year-over-year basis in November, compared with a 4.7% increase in October. After seasonal adjustments, the index was up 0.2% on a month-over-month basis.

• Housing Vacancies and Homeownership: Homeownership Rate 4th Qtr 2023: 65.7*4th Qtr 2022: 65.9The homeownership rate of 65.7 percent was not statistically different from the rate in the fourth quarter 2022 (65.9 percent). Compared to the fourth quarter 2022, the homeownership rate was higher in the South, lower in the Northeast and West, and not statistically different in the Midwest. Rental Vacancy Rate 4th Qtr 2023: 6.64th Qtr 2022: 5.8The rental vacancy rate of 6.6 percent was higher than the rate in the fourth quarter 2022 (5.8 percent). Compared to the fourth quarter 2022, the rental vacancy rate was higher in the South and West and not statistically different in the Northeast and Midwest.
• Construction Spending: Total construction activity for December 2023 ($2,096.0 billion) was 0.9 percent (+/-0.8 percent) above the revised November 2023 ($2,078.3 billion).December 2023: +0.9 % ChangeNovember 2023 (r): +0.9* % Change
• Home shopping activity in the US rose last month, and declining mortgage rates are a factor behind the trend, experts say. Real estate showings for the last week of January were up nearly 10% from the beginning of the month, a ShowingTime analysis found, and Freddie Mac reports that the average rate for a 30-year fixed mortgage has hovered around 6.6% or 6.7% in recent weeks.

• "The bipartisan tax deal would raise allocations for the Low Income Housing Tax Credit, a critical tool for encouraging new home?construction."

• A decline in inflation has increased real interest rates, raising pressure on the Federal Reserve to pivot away from tightening. The central bank did not cut its benchmark rate during last week's policy meeting, but officials could abandon "tightening bias," which signals rates are more likely to rise than fall.
• "The map below shows the share of multifamily loans with potential performance issues across the country. The Southeast has the direst outlook, with more than a quarter of loans potentially in trouble. But in the Great Plains, just 3.4% of loans are in trouble. The Midwest doesn’t have major hubs of tech and finance, and the region generally plays second fiddle to the Sun Belt in job growth and population trends. But sometimes, that’s not a bad thing. Midwest multifamily asset values didn't inflate at the same hectic pace as the Southeast and its rental rates did not climb as quickly."

• Apartment landlords have been lowering rents and offering more concessions for luxury units and high-end single-family homes, and Yardi Matrix reports that US rents only rose 0.3% last year. However, prices were up 2% in December on a year-over-year basis for middle- and lower-tier apartments.

• "With home prices and rents hovering near record highs, and for-sale inventories and vacancies stuck near record lows, there is a significant housing shortfall. Most experts agree that it is this deficit that is at the root of the country’s affordability challenges. Measuring this gap is difficult, though, and estimates vary widely depending on the assumptions and methodologies used to calculate it."

• "NYC Apartment Buildings Are on Sale Now for 50% Off: Tougher rent control, returning worldwide, destroys $75 billion in property value. Cash-strapped tenants cheer as they maintain a foothold in the city."
• The average 30-year fixed mortgage rate tracked by Mortgage News Daily has dropped from 8.03% in October to 6.98% as of Friday. This improvement in affordability translates into slightly reduced "switching costs" for homeowners contemplating selling their homes to purchase something else.
• According to John Burns' national BTR Tenant Survey, tenants verified that on-site maintenance and professional management were critical in their rental decisions. These two factors are more important than if the homes are new or in a dedicated rental community.

• Commercial loan origination is projected to increase 29% over last year to reach $576 billion in 2024, according to the Mortgage Bankers Association. At the same time, borrowing demand is expected to increase as debt comes due this year, according to CenterSquare Investment Management, which also notes that mREITs and specialty lenders are accounting for a growing share of the market.
• About $2.6 trillion in commercial real estate loans are expected to come due in the next five years, and banks have $1.4 trillion of this debt, according to Trepp. In some cases, banks have offered short-term extensions as the market continues to deal with elevated vacancies at some office properties as well as high-interest rates. Treasury Secretary Janet Yellen noted that regulators are working with banks as they deal with these issues. Some smaller banks could experience stress from the situation, but Yellen said that she did not believe that there would be "a systemic risk to the banking system."
• “Mortgage delinquencies increased across all product types for the second consecutive quarter,” said Marina Walsh, CMB, MBA’s Vice President of Industry Analysis. “While the overall delinquency rate is still very low compared to the historical average, the pace of new loans entering delinquency picked up and some loans moved into later stages of delinquency. The resumption of student loan payments, robust personal spending, and rising balances on credit cards and other forms of consumer debt, paired with declining savings rates, are likely behind some borrowers falling behind at the end of 2023.”

• Housing affordability is so strained that some homebuilders are turning to smaller builds. Parcl Labs: The median square footage for new construction fell by 3% in 2023, marking the biggest single-year dip over the past decade.

• The Green Street Commercial Property Price Index increased 0.3% in January compared with the end of last year. "For most property types, pricing has probably hit its low," said Peter Rothemund, co-head of strategic research at the firm.

• Watch Marcus & Millichap "Insightful 2024 Economic and CRE Outlook".
• Watch CBRE "Opportunities and Outlook: Multifamily in 2024, Capital Markets Conversations".
• Watch CBRE "U.S. Real Estate Market Outlook Event 2024".
• Watch MHN "The Midyear Multifamily Investment Outlook".