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- November 7th, 2023 - This Week in Real Estate
November 7th, 2023 - This Week in Real Estate
Adam Katz
November 07, 2023
Headlines
What’s new in the world of Real Estate
A $1.8 billion judgment could change the future of real estate commissions. The verdict could radically transform the residential real estate market.
U.S. housing prices hit another all-time high. The Case-Shiller National Home Price Index rose 0.9% in August, while the FHFA House Price Index was up 0.6%.
Luxury home prices grew 9% last quarter. High-end houses are rising three times faster than the rest of the market.
WeWork filed for bankruptcy. While long expected, there will still be fallout for parts of the commercial real estate market.
Plus: The Fed left rates unchanged, more homes for sale are cutting their price, and tips for buying property in Europe.
Listing of the week: A San Jose house that comes with a bonus…meth lab?
Freddie Mac 30 Year Fixed | Dow Jones Real Estate Index |
S&P U.S. REIT | FHFA House Price Index |
Partner
Help Reshape the World of Startup Investing - Investment Round Closes Nov 15
StartEngine is one of the US’s first platforms specifically designed for online startup investing. Led by Activision co-founder Howard Marks along with strategic advisor Kevin O’Leary*, StartEngine opens up access to private companies, a potential $10 trillion market usually reserved for the wealthiest of investors.
And get this: while you’d usually use StartEngine to invest in other private companies, now you can invest in StartEngine itself.
With 5x revenue growth from 2019 to 2022**, this put StartEngine on Inc. Magazine’s list of the 5,000 fastest growing private companies in the U.S.*** two years in a row (2022 and 2023). After a strategic asset acquisition of competitor SeedInvest, StartEngine boasts a community of nearly two million people**** who have committed over $1.2 billion to date*****.
If you want to become a shareholder, act now as this opportunity is only available until November 15th.
Smart Humans Podcast
Smart Humans explores the world of alternative investments. From Venture to Collectibles, Real Estate to Art and beyond - we discuss a new world of investment opportunities and the catalysts that impact their demand.
In this episode, Slava Rubin talks with FarmTogether’s Artem Milinchuk about farmland as an asset class and hedging against inflation.
Market Updates
A jury awarded $1.8 billion in damages to home sellers over inflated real estate commissions. The National Association of Realtors and several other major real estate brokers were found liable for artificially inflating commissions by colluding with each other. One big issue is the practice of sellers paying one commission to be split by the seller’s agent and buyer’s agent - a practice known as “co-broking”. While it may take several more years for the case to be resolved or for any government action to take place, there are likely to be major changes to the market. If co-broking is no longer allowed, it could end up reducing the total commissions paid in the U.S. by $30 billion a year and put 1.6 million real estate agents out of work. If commissions do decrease, it would reduce frictional costs and potentially make homes more affordable, though buyers would then have to pay for their our agents.
Even as mortgage rates remain high, home prices are still gaining. The S&P CoreLogic Case-Shiller National Home Price Index saw a monthly gain of 0.9% - it's the seventh month in a row of gains and the index is at an all-time high. Additionally, the Federal Housing Finance Agency (FHFA) House Price Index went up 0.6% in August and has seen a 5.6% year-over-year gain. With prices and mortgage rates still high, housing affordability has hit an all-time low (since 1989, when it was first tracked). As long as demand continues to exceed a record-low supply, expect prices to keep rising.
Prices for homes in the top 5% of market value grew three times faster than the rest of the market. This according to a report from Redfin, which saw luxury home prices rise by 9% in the third quarter, as opposed to 3% for non-luxury homes. A big reason why is that high-end homes are more insulated from higher mortgage rates as a high proportion (43%) of buyers don’t take out a mortgage and pay in all cash. High-end buyers can also typically afford higher mortgage payments. Additionally, the supply of luxury homes on the market actually grew year-over-year (compared to a 21% drop for non-luxury homes), as wealthier homeowners tend to have more flexibility to move. This is just another reminder that the real estate market is not a monolith and different sectors need to be evaluated separately, as they can perform independently of each other.
Co-working company WeWork officially filed for bankruptcy. Once valued at $47 billion, the company’s market cap is now just $44.5 million as trading of their stock (which is down 98.5% this year) has now been halted. WeWork was once the largest private tenant of office space in New York City and London and its failure has already had and will continue to have major ramifications for the market in those cities. The company has stopped making rental payments in many of its locations, forcing some building owners to miss their own mortgage payments and face foreclosures. Its bankruptcy is just another hit to the already struggling office market.
Listing of the Week
A property that caught our eye
This San Jose property seems like a potential bargain - a 2,743 sqft., 6-bed, 3.5 bath house on a 6,000 sqft. lot in a convenient location. The asking price is $1.55 million - only slightly higher than the $1.4 million median house price in the city. The catch? The basement contains a meth lab. But don’t worry - the listing notes that it’s “inactive”. All the costs of removing the “meth smoke contamination” will belong to the lucky future buyer.
Explore
More stories worth checking out
The Federal Reserve kept interest rates unchanged, which led to a slight drop in mortgage rates.
6.9% of homes on the market cut their price in the last 4 weeks - the highest proportion since Redfin started tracking it, as sellers may be starting to get impatient.
San Francisco real estate startups Kasa Living ($70 million) and Samara ($41 million) raised substantial funding rounds. Kasa Living manages multi-family and boutique hospitality rentals, while Samara focuses on manufacturing Accessory Dwelling Units (ADUs), such as backyard cottages and in-law units.
A real estate agent in Spain shared tips on what to consider before buying property in Europe.
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Disclaimers:
Reg A+ offering made available through StartEngine Crowdfunding, Inc. No broker-dealer or intermediary involved in offering. This investment is speculative, illiquid, and involves a high degree of risk, including the possible loss of your entire investment. Please see the most recent supplement, offering circular, and selected risks.
*Kevin O’Leary is a paid spokesperson for StartEngine. See his 17(b) disclosure, https://www.startengine.com/17b.
**Based on StartEngine’s unaudited financials: $1.88M for first half of 2019 compared to $9.9M for first half 2023, since these are semi-annual numbers and have not been audited, they may not include year-end adjustments necessary to make those financial statements comparable to audited results.
***Inc 5000 measures fastest growing private companies by revenue growth over a three-year period.
****StartEngine Community: Count of 1.8 million is determined as the number of unique email addresses in StartEngine’s database as of 10-6-2023.
*****Includes $760M in funds raised as of May 9, 2023 via Reg. CF and Reg. A+ combined through StartEngine’s funding portal and broker dealer, StartEngine Capital, LLC and StartEngine Primary, LLC respectively, as well as StartEngine’s own raises. Also includes $470M in funds raised previously through offerings conducted on www.seedinvest.com outside of the StartEngine platform. In May 2023, StartEngine acquired assets of SeedInvest, including email lists for SeedInvest’s users, investors and founders seeking to raise funds.