- Vincent - Real Estate Report
- November 14th, 2023 - This Week in Real Estate
November 14th, 2023 - This Week in Real Estate
What’s new in the world of Real Estate
The median household income of home buyers jumped a record 22% this year
Commercial real estate valuations may fall by an additional 10% according to CBRE’s CEO
Annual rent growth rose in October for the first time since early 2022
Banks are increasing their industrial real estate lending as other sectors slow down
Plus: The fallout from the real estate commission lawsuit and the WeWork bankruptcy, and a record number of mezzanine debt foreclosures.
Listing of the week: A castle in Oregon wine country.
Freddie Mac 30 Year Fixed
Dow Jones Real Estate Index
S&P U.S. REIT
Zillow Observed Rent Index
Real Impact Investing
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Research and Insights from the Vincent team
As mortgage rates and home prices increase, buying a home has required a much higher income in the past year. This is according to a report from the National Association of Realtors (NAR) that looked at transactions between July 2022 and June 2023 and found that the median household income for home buyers jumped from $88,000 to $107,000 in that time. It also found that down payments for first-time buyers were the highest since 1997 and for repeat buyers were the highest since 2005. One good sign is that first-time home buyers made up 32% of all buyers, up from 26% the previous year, which had been an all-time low.
While office prices have declined by 20% in the last year, CBRE’s CEO believes they could fall another 10%. The head of the world’s largest commercial real estate broker thinks workers will spend 20-25% less time at the office compared to pre-pandemic times, and this will lead to high vacancy rates, which combined with rising borrowing costs, will affect property values. While the 10% decline was aimed at all commercial real estate, he said that declines would be “most acute” for office buildings. His comments come as overdue commercial property loans hit a 10-year high, underlining the struggles facing the market as prices decline below the outstanding debt on many properties.
While the average rent decreased in October, the year-over-year gain showed growth for the first time in 20 months. Zillow’s October rent report put the typical U.S. rent at $2,011, which represented a 3.23% gain over last year, a very slight uptick over the 3.19% year-over-year gain shown in September. Rents saw the highest increases in the Midwest and Northeast but actually fell in some formerly hot markets like Austin, San Francisco and Portland. As the buying becomes less affordable, demand for rentals remains strong and price growth is likely to continue rising, adjusted for seasonal declines often seen in winter.
Leading lenders are increasing their exposure to industrial real estate. As the office property sector struggles, banks are turning to the sector that has been the most stable in the post-pandemic world, despite some indicators that its performance has weakened recently. Wells Fargo, the largest lender in the space, saw a 25.4% gain in its exposure to industrial real estate and Bank of America, the 2nd largest, saw a 12.8% gain. More specialized lenders also saw large increases in their exposure. While the short-term industrial real estate boom has started to slow, there are still positive short-term and long-term signs that are promising as lenders pull back from riskier areas.
Listing of the Week
A property that caught our eye
If you ever wanted to feel like royalty, this 4,141 square foot castle on 6.84 acres of land could be yours for an even $1 million. Located on a hill southwest of downtown Eugene, Oregon, the castle was built in 1999 and is apparently in “solid shape” but does need some updating.
More stories worth checking out
In the wake of the successful lawsuit targeting real estate commissions, another class-action lawsuit was filed, this time in South Carolina.
WeWork’s bankruptcy is going to add to the office vacancy issue nationwide.
Lenders have issued a record-number of foreclosures on mezzanine loans - higher-interest, riskier secondary loans - this year, another sign of distress in the commercial real estate market.
Investment firm TPG Group says they have $15 billion of dry powder to target real estate assets that may become available due to “disruptive” market conditions, highlighting that there are always opportunities available.
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