The Small Balance Intersection Update - November 2, 2024
Michael Boggiano, CPA CPM
Experienced CRE Finance Professional | AI & Data Analytics Enthusiast | Championing Small Balance Commercial Lending
Quote of The Day:
If you can't fly, then run, if you can't run, then walk, if you can't walk, then crawl, but whatever you do, you have to keep moving forward. – Martin Luther King, Jr.
Welcome to the November 2, 2024 edition of The Small Balance Intersection! Today’s focus centers on significant cost pressures in housing, driven by insurance, tax policy, and home-building strategies as markets react to inflation and high interest rates. Key takeaways include sharp increases in home insurance premiums, tax strategies amid the SALT cap constraints, and potential shifts in the home-building market as high rates reshape housing supply.
Watch for High Costs
Home Insurance Premiums Surge Across U.S. Amid Climate and Market Pressures Home insurance premiums in high-risk U.S. counties surged by 25% from 2020 to 2023, with Monroe County, FL, seeing the highest median premium at $7,608. Climate-vulnerable areas, particularly in the southeastern U.S., report steep increases, while counties with minimal climate risks, like Penobscot, ME, and Erie, PA, have some of the lowest premiums, ranging from $887 to $1,015. This trend poses significant challenges for single-family rental investors and highlights how climate and inflation pressures are reshaping housing costs. [Read the full article here.]
Waterfall Way
A showcase of breathtaking U.S. waterfalls includes California’s McWay Falls on Big Sur’s Route 1, Oregon’s Multnomah Falls in spring bloom, and Hawaii’s Akaka Falls, each offering unique views and landscapes. Visitors can experience everything from the underground wonder of Ruby Falls in Tennessee to the renowned Niagara Falls, capturing America's natural diversity. These locations offer accessible escapes into nature’s beauty across varied terrains.
Tax Strategy Freeway
With the $10,000 SALT deduction cap set to sunset in 2025, taxpayers in high-tax states can mitigate liabilities by "bunching" deductions, utilizing state credit-exchange programs, or leveraging PTETs for pass-through entities. These strategies can offer substantial relief, especially for residents in high-SALT states like New York and California, amid ongoing uncertainties around the cap’s future.
Supply Zone – Potential Slowdown
High mortgage rates and low resale inventory have fueled a surge in home-builder stocks, with companies like D.R. Horton and Lennar benefitting from a resale gap that keeps inventory above the 7-month mark. However, costly incentives to lower buyer rates are reducing profit margins, and when mortgage rates eventually drop, homeowner inventory may flood the market, potentially deflating builder stock values. This scenario is already taking shape in states like Florida and Texas, where high new-home inventories challenge builder competitiveness. [Read the full article.]
#Affordability #smallbalanceloans #MarketTrends #CPACE #CPA #Lawyers #Equity #Realestate #CRE #MBA #NAR #AI #SmallBusinessOwners #CommercialLoans #CREInvestors #FannieMae #HUD #FreddieMac #CREF #SmallBalanceCRE #SBA #SFR #DSCR #FixandFlip #Economy #Housing #Affordability #NFIB #BTR #DST #STNL #AirBNB #Cannabis #TaxPlanning
Stats of The Day:
Banks and thrifts traditionally have been the largest providers of financing against commercial properties. As of the second quarter, they held $1.8 trillion of loans, or 38.3% of the mortgage universe.
Did You Know:
New U.S. Airline Rule Guarantees Quick Refunds for Cancellations and Delays
A new U.S. Department of Transportation rule ensures passengers will receive automatic refunds if their flights are canceled or significantly delayed, without needing to submit a request. Airlines must process refunds within seven days for card payments or 20 days for cash or points, with delays defined as three hours for domestic and six for international flights. Refunds also apply if an airline changes airports, adds a connection, or downgrades accessibility for disabled passengers, along with fees for unfulfilled services like lost baggage or paid Wi-Fi. This regulation could cost major airlines over $1 billion each, aiming to reduce traveler frustration during disruptions.
Watch for High Costs
领英推荐
Home Insurance Premiums Surge Across U.S. Amid Climate and Market Pressures
A recent analysis of home insurance premiums across the 500 largest U.S. counties reveals a significant 25% increase in median annual premiums from 2020 to 2023, with the sharpest costs affecting high-risk, climate-prone areas. Monroe County, FL, leads with the highest median premium at $7,608. By contrast, counties like Penobscot, ME, and Erie, PA, where climate risks are minimal, report the lowest premiums, with median costs ranging from $887 to $1,015. These premium hikes reflect both the impact of climate change and rising home repair costs, driven by the pandemic-induced housing boom. Consequently, southeastern coastal counties with higher hurricane exposure and central states vulnerable to severe storms and wildfires report some of the steepest insurance rates. Additionally, 55 U.S. counties saw premiums double over three years, with Prince William County, VA, experiencing a remarkable 150.1% increase. This trend has squeezed profitability for single-family rental investors, especially in high-risk markets like Florida and Louisiana. Overall, the rising premiums highlight the compounding pressures of climate risk and inflation on the housing market.
Waterfall Way
Exploring America’s Most Stunning Waterfalls
This article highlights some of the most breathtaking waterfalls across the U.S., each offering unique views and landscapes. McWay Falls in California flows onto a secluded beach along Big Sur’s scenic Route 1, creating a spectacular coastal viewpoint. Palouse Falls in Washington cuts through rolling hills before dropping into the Snake River, while Arizona’s Havasu Falls boasts vibrant blue-green waters framed by red rock cliffs, accessible only via a challenging 10-mile hike. In Oregon, Multnomah Falls, a 620-foot cascade, attracts millions each spring when surrounded by blooming wildflowers. Akaka Falls in Hawaii provides an accessible yet dramatic 442-foot drop, with nearby trails leading to other waterfalls. Michigan’s Tahquamenon Falls features tannin-rich waters, giving them a unique amber hue amid abundant wildlife. Yosemite’s Bridalveil Falls dazzles visitors with its spring surge, resembling a bridal veil, and Ruby Falls in Tennessee offers an unusual underground waterfall experience within Lookout Mountain. Finally, the iconic Niagara Falls in New York, one of the world's most famous waterfalls, captivates millions with its sheer scale and roaring flow, fed by the Great Lakes. Each location combines natural beauty with accessibility, showcasing America’s diverse landscapes.
For more on these stunning falls, read the full article here .
Tax Strategy Freeway
Navigating the SALT Cap: Key Tax Strategies
Taxpayers affected by the $10,000 SALT deduction cap, set to sunset in 2025, have several planning strategies to optimize tax outcomes in high-tax states. First, "bunching" deductions, or concentrating itemized deductions into specific years, helps surpass the standard deduction threshold. Second, using state-sponsored credit-exchange programs for charitable donations can alleviate federal tax liabilities. Third, for business owners in pass-through entities, utilizing PTETs in states that offer them allows SALT deductions at the entity level, bypassing the federal cap. Furthermore, remote work arrangements in states with lower tax rates present another option to reduce overall SALT burdens. For taxpayers in high-burden states like New York or California, these approaches can provide significant relief amid high SALT burdens, especially as the cap's future remains uncertain. Read more .
Supply Zone – Potential Slowdown
Home Builders Enjoy Boom Amid High Rates, But Declines May Loom
Despite typically adverse conditions, home-builder stocks have soared amidst high mortgage rates, benefiting from a stagnant resale market. Firms like D.R. Horton, Lennar, and PulteGroup have doubled in stock value since the Fed’s 2022 rate hikes due to a lack of existing homes for sale—still around 20% below pre-pandemic levels. Builders have continued constructing homes to fill the resale gap, maintaining an inventory of 7.6 months, above the typical 6.5-month threshold. To keep purchases feasible, builders have decreased home sizes by 5% and offered mortgage-rate buydowns, allowing buyers to secure rates around 4.5% to 5%, below prevailing market rates. However, these incentives are costly, significantly lowering gross profit margins; each rate buy-down point reduces gross margins by 3-4%. When mortgage rates do eventually drop, it could unlock supply from homeowners, 60% of whom hold mortgages below 4%, potentially marking the end of the builder-driven boom. In high-inventory states like Florida and Texas, builders are already struggling to sell new homes, and as resale prices continue to rise, home builders face rising challenges to stay competitive. With builder stocks currently trading well above historical valuations, a rate drop might increase supply from homeowners, potentially deflating builder stocks after this unusual high-rate boom.