- Vincent - Real Estate Report
- January 23rd, 2024 - This Week in Real Estate
January 23rd, 2024 - This Week in Real Estate
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What’s new in the world of Real Estate
Existing-home sales hit a 28-year low
But pending home sales are up
The IMF thinks commercial real estate is a risk
More properties are becoming uninsurable
Plus: $2.8 trillion in CRE debt is coming due, mortgage applications are trending up, RE investors are flocking to Houston, and more
Listing of the week: A downtown Chicago office building up for auction.
Freddie Mac 30 Year Fixed
Dow Jones Real Estate Index
S&P U.S. REIT
Zillow Home Value Index
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Annual existing-home sales fell to their lowest level since 1995. A new report from the National Association of Realtors (NAR) showed a monthly decline of 1% and a yearly decline of 6.2%. However, these numbers “look to be the bottom before inevitably turning higher in the new year.” Current inventory fell by 11.5% monthly, but was up 4.2% yearly, and more inventory is expected in the coming months as mortgage rates stabilize. The median existing-home sales price rose by 4.4% yearly to $382,600, an all-time high.
While completed sales fell, pending sales saw the biggest increase in over two years. A report from Redfin saw an increase in pending home sales (when an agreement has been made, but before the sale has been finalized) of 4.1% in December, with a year-over-year rise of 5.9%, the highest rate since June 2021. Similar to the NAR report, it saw prices rise by 4% year-over-year, as homebuyer demand is still outpacing supply. While it may seem unusual that completed sales are down while pending sales are up, it is exactly what would be expected from a housing market coming back to life, as completed sales is a lagging indicator. Pending sales come first in the process, and most will eventually become completed sales, which will show up in numbers in the next month or two.
Commercial real estate may be seeing its biggest price decline in at least sixty years. The International Monetary Fund (IMF) released a report that compared the performance of commercial real estate in different cycles of “monetary policy tightening” since 1965 and found that current price declines are the worst on record, with prices falling at least 11% since March 2022. Higher borrowing costs and stricter lending standards have contributed, as has the shift towards hybrid and remote work in the office sector. The IMF sees that “prospects for the sector remain challenging” even if anticipated interest rate cuts arrive this year. This is particularly true in the office and retail sectors, partially due in part to the amount of debt maturing in the next two years, and partially due to the societal shifts that started during the pandemic.
Uninsurable properties are throwing a wrench into the real-estate market. As the effects of climate change intensify - with 23 weather events causing $1 billion or more of damage in 2023 - many properties in the hot real estate markets of California and Florida either cannot get insurance or are facing prohibitively high rates. For example, homeowners in Florida pay over three times the national average for insurance. As a result, homes in those areas could become less desirable, and there could be a point where prices will fall significantly in some areas where weather-risk is the highest. Both states are introducing regulation to try and help homeowners, but if insurance rates continue to rise quickly it will have far-reaching effects on the market.
Listing of the Week
A property that caught our eye
A ten-story, 185,479 square-foot office building in Chicago’s West Loop is going to be auctioned starting February 20th with an opening bid of $1 million. The 125-year old building was last sold for $22 million in 2013 and was foreclosed on after the owner defaulted on a $16.5 million loan. The building is only 14.38% leased but is in a busy area and gives potential buyers a chance to rehabilitate a distressed asset that is almost certain to sell at a discount.
More stories worth checking out
Over $2.8 trillion of commercial real estate debt is due to expire by 2028 and will have to be refinanced before then. Unless interest rates fall before then, monthly payments will increase, making it difficult for building owners, particularly as vacancy rates rise.
Mortgage purchase applications rose 9% and refinance applications rose 11% in the last week, good signs that the residential market is defrosting.
In the second half of 2023, Houston led the way in investor activity like fix-and-flips, followed by Raleigh, Atlanta, Denver and Austin - which should boost inventory in those cities as projects finish and homes get listed.
Speaking of Atlanta, Animal, a new investment fund based there, is planning to spend $200 million to acquire property across the Southeast U.S., focusing on distressed commercial real estate buildings, signaling that they believe a turnaround is coming.
Interest costs on new farmland loans in 2023 were higher than appreciation rates for the first time since 2001, potentially depressing prices and making cash flow crucial to delivering strong returns for investors.
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