Real Estate Updates // May 12, 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:

• Four congressional representatives with real estate backgrounds have formed the Bipartisan Housing Caucus, which will focus on highlighting the nation's affordable housing needs and spurring development. A number of organizations are supporting the new caucus.
• Home prices were up 6.4% from the prior year in February, marking the fastest annual gain since November 2022, according to the S&P CoreLogic Case-Shiller national home price index. "For the third consecutive month, all cities reported increases in annual prices, with four currently at all-time highs: San Diego, Los Angeles, Washington, D.C., and New York," said Brian Luke of S&P Dow Jones Indices. Separately, the Federal Housing Finance Agency reported that prices were up 1.2% in February compared with the prior month.

• The seasonally adjusted monthly index increased 1.2% in February. Here is a graph from the FHFA report showing the annual change by region for February 2024 compared to February 2023. Prices have increased year-over-year everywhere. Note that the YoY increase is larger this year, compared to the YoY increase in February 2023 in six of the nine regions.

• Pending home sales climbed 3.4% in March over the prior month, a larger-than-expected increase that came amid elevated mortgage rates, according to the National Association of Realtors. Transactions climbed 0.1% on a year-over-year basis.

• New Home Sales: Sales of new single-family houses in March 2024 were at a seasonally adjusted annual rate of 693,000. This is 8.8 percent (+/- 17.2%)* above the revised February 2024 estimate of 637,000.
• March 2024: +8.8* % Change
• February 2024 (r): -5.1* % Change
• Some home sellers can't put off moving any longer, even though the housing market is cooler and interest rates are higher than they were a few years ago. Sellers may hope to refinance after interest rates eventually come down.
• Roughly one in 37 homes are now considered seriously underwater in the US, and that share is much higher across a swath of southern states. Nationally, 2.7% of homes carried loan balances at least 25% more than their market value in the first few months of the year. That’s up from 2.6% in the previous quarter.

• US Treasury Secretary Janet Yellen said it’s “almost impossible” for first-time buyers to purchase a home. Houses are prohibitively expensive, she said during testimony on President Joe Biden’s budget, thanks to a combination of elevated mortgage rates and prices that in many cases have climbed to record highs. By just about every measure, she’s right. It’s now more expensive in all 50 of the biggest US metro areas to buy a home and make monthly mortgage payments than it is to rent, according to a Bankrate study that analyzed data from Redfin and Zillow. And that was before the average rate on a 30-year fixed mortgage climbed for a fifth straight week, to 7.22%.

• US mortgage rates fell for the first time since late March, giving some relief to homebuyers and lifting applications for purchases and refinancing. The contract rate on a 30-year fixed mortgage fell 11 basis points in the week ended May 3 to 7.18%.
• Housing Vacancies and Homeownership: The homeownership rate of 65.6 percent was not statistically different from the rate in the first quarter 2023 (66.0 percent). Compared to the first quarter 2023, the homeownership rate was lower in the Midwest and not statistically different in the Northeast, South, and West.
• 1st Qtr 2024: 65.6*
• 1st Qtr 2023: 66.0
• As the market accepts the growing consensus that the Federal Reserve is taking a wait-and-see approach to interest-rate cuts, hedging costs are on the rise. Higher-for-longer interest rates can also stall real estate transactions and create challenges for the loans on lenders' books. This year, $929 billion of property loans are expected to mature, according to the Mortgage Bankers Association.

• Effective asking rents for the multifamily sector were down 0.1% in the first quarter, marking a stark difference with pre-pandemic norms for the period, according to a RealPage report. A large number of new properties entering the market helps to explain the trend, and "apartment operators have been cautious, especially in markets most impacted by elevated construction activity," RealPage says.

• Annual apartment rent changes are relatively stable, according to Zumper, which reported that its rent index for one-bedroom units was measured at $1,486 in April and its index for two-bedroom units was $1,843. The report noted that there is "significant" demand for rentals but that supply continues to be added to the market. However, New York City saw significant rent gains.

• Average multifamily rent growth could start to accelerate in the second half of the year amid positive absorption, according to CBRE. In the first quarter, there was a net absorption of 52,500 units, which was the third-strongest tally for the quarter in more than 20 years, CBRE noted.
• Wage growth outpaced rent increases nationally last year with strong construction activity helping to offset demand, although the opposite was true in New York City, according to a report based on data from Zillow, StreetEasy and the Bureau of Labor Statistics. For the period from 2019 to 2023, rents rose 30.4% while income grew 20.2%.

• A measure of apartment sales volume has risen, according to a quarterly survey by the National Multifamily Housing Council, although the survey also pointed to a loosening of market conditions. Nevertheless, "fewer and fewer people are leaving the rental market, driving more demand for multifamily housing formation and job growth," said CBRE's Matt Vance. "This is driving demand for multifamily and helping preserve the existing level of occupancy."
• A majority of voting-age Republicans and Democrats said they would support a measure to block Wall Street firms from buying homes, according to a new study funded by the University of California, Santa Barbara, and the Manhattan Institute, a conservative think tank.

• Construction Spending: Total construction activity for March 2024 ($2,083.9 billion) was 0.2 percent (+/-0.8 percent)* below the revised February 2024 ($2,087.8 billion).
• March 2024: -0.2* % Change
• February 2024 (r): +0.0* % Change
• Length of Time from Start to Completion: The Census released the annual data on the length of time from start to completion, and this showed ongoing construction delays in 2023. In 2023, it took a record 8.6 months from start to completion for single-family homes, up from an already elevated 8.3 months in 2022. For 2+ unit buildings, it took a record 17.1 months for buildings with 2 or more units in 2023, unchanged from 17.1 months in 2022.

• Massachusetts Gov. Maura Healey is proposing to allow cities to impose a transfer fee of up to 2% on property sales worth more than $1 million, with the revenue going toward affordable housing projects. However, some observers have raised concerns about how the provision would affect commercial property developers.
• Residential REITs are working to promote the financial empowerment of their residents. From complimentary rent payment reporting to major credit bureaus to providing access to financial workshops and coaching, REITs are focused on being responsible community members who support the longer-term financial goals of those who call their properties home.
• Watch David O'Reilly, CEO of Howard Hughes Holdings, notes that demand is "meaningfully outpacing supply" in the housing market, driven by millennials as well as retirees who want to be closer to children and grandchildren. O'Reilly discusses plans to eventually develop 100,000 homes in the Teravalis community in the Phoenix area and reflects on the amenities that consumers want.