The Small Balance Intersection Update - November 26, 2024
Michael Boggiano, CPA CPM
Experienced CRE Finance Professional | AI & Data Analytics Enthusiast | Championing Small Balance Commercial Lending
Did You Know:
Invention Milestone: On November 26, 1867, Alfred Nobel patented dynamite, revolutionizing construction and mining industries worldwide.
Thanksgiving History: In 1941, President Franklin D. Roosevelt signed a bill officially establishing Thanksgiving as the fourth Thursday in November.
Famous Birthdays: Charles Schulz, the creator of the beloved "Peanuts" comic strip, was born on November 26, 1922.
Housing Outlook Lane
Existing Home Sales Lag, New Construction Holds Strong in October
Fannie Mae’s Economic & Housing Weekly Note outlines contrasting trends in the U.S. housing market. Existing home sales rose 3.4% in October to a seasonally adjusted annualized rate (SAAR) of 3.96 million, a three-month high, yet inventory grew only 0.7%, driving the months’ supply down to 4.2. Median sales prices for existing homes climbed 4.0% year-over-year, reflecting affordability pressures. New housing starts, meanwhile, fell 3.1% to a SAAR of 1.31 million, driven by a 6.9% decline in single-family starts, attributed partly to hurricane disruptions in the South.
Multifamily construction offset some of this decline, with a 9.6% increase in starts, although permits fell by 3.0%. Encouragingly, single-family permits rose 0.5%, signaling confidence in future building. The NAHB/Wells Fargo Housing Market Index increased to 46, the highest since April, with a notable 7-point jump in the six-month sales outlook index. Analysts expect the new home market to remain robust, supported by builder confidence and unmet demand, while existing home sales are forecasted to improve modestly in 2025 due to affordability constraints and high mortgage rates.
Sentiment Shifting Ahead
Consumer Sentiment Rises Amid Post-Election Partisan Split
Reuters reports that U.S. consumer sentiment rose for the fourth consecutive month in November, reaching 71.8, the highest since April, though below economists' forecast of 73.7. The University of Michigan's survey showed a sharp partisan divide post-election, with sentiment surging 15.5 points among Republicans after Donald Trump’s presidential victory and dropping 10.1 points among Democrats. Political independents showed a slight decline in sentiment. These shifts mirror past partisan flips seen after major elections, reflecting contrasting economic expectations for Trump's policies.
Inflation expectations also revealed mixed trends. One-year expectations dropped to 2.6%, the lowest since December 2020, signaling near-term inflation moderation. However, five-year expectations rose to 3.2%, the highest in a year, fueled by concerns over Trump's economic agenda, which includes tax cuts, tariffs, and immigration restrictions. Wall Street reacted positively to the nomination of Scott Bessent as Treasury secretary, with bond yields declining and stock markets posting gains.
Rent Pressure Parkway
Survey: 22% of Renters Spend Entire Paycheck on Rent
Redfin reports that 22% of U.S. renters spend their entire paycheck on rent, while 19% have worked jobs they disliked to meet housing costs. Additionally, 20% of renters work second jobs to afford their rent, highlighting the financial strain many face. The survey, conducted by Ipsos in September 2024, revealed that 14% of renters rely on family cash gifts, while 13% have dipped into retirement funds and 12% reduced retirement contributions to cover rent.
Though U.S. rents have stabilized over the past year, they remain significantly higher than pre-pandemic levels, outpacing wage growth. Lower-income Americans face the greatest challenges, but affordability may improve as more apartments are built and rents show signs of cooling. Still, renting remains a popular choice as homeownership becomes increasingly unattainable. A separate Redfin analysis found that renter households are growing three times faster than homeowner households, largely due to skyrocketing homebuying costs.
Small Business Success Street
Top and Bottom States for Small Business Growth in 2024
Bankrate’s study identifies Washington as the most favorable state for small businesses due to its robust small business activity, skilled labor force, and access to capital. It ranks highest in small business metrics like SBA 7(a) loan funding ($965M in 2024) and net small business job creation. Western states, including Utah, Wyoming, and Idaho, also excel due to tax-friendly policies, strong infrastructure, and educated workforces. Conversely, Louisiana ranks last, hampered by high poverty rates, a weak economy, and poor infrastructure.
While Western states dominate, factors like business costs and tax policies shape each state's environment. For instance, Washington imposes gross receipts taxes rather than corporate income taxes, creating mixed outcomes. Louisiana's struggles are compounded by worker shortages, a net decline in small businesses post-hurricane disruptions, and limited funding access despite $333M in SBA loans. Small business owners should consider their state’s unique challenges and opportunities to navigate the complexities of local economies effectively.