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BlackRock Says to Invest In These Asset Types

Plus, Assumable mortgages grow in popularity and 5 more Real Estate Insights

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Macro Trends

Mortgage rates jump back over 7% as stronger economic data rolls in link

  • Mortgage rates soared past 7% for the first time since December, influenced by unexpectedly strong economic reports. The average rate on the popular 30-year fixed mortgage hit 7.04%, marking a sharp increase after the January employment report exceeded forecasts.

  • The surge in mortgage rates complicates affordability, especially as the spring housing market approaches. High rates, combined with low housing inventory and rising home prices, made 2023 the worst year for home sales since 1995, despite a recent uptick in buyer interest and home inventory.

  • Future mortgage rate trends hinge on economic data and inflation. If upcoming reports mirror the recent job market strength or if inflation cools less than anticipated, rates could struggle to dip below 7% again, affecting home affordability and the housing market's recovery in 2024.

Real Estate Trends

BlackRock Says to Invest In These Asset Types link

  • The real estate market is seeing a surge of investor interest, driven by the availability of capital and the anticipation of market bottoming. BlackRock's 2024 outlook highlights a window of opportunity for buying high-quality assets at attractive prices, despite falling valuations and rents across various property types.

  • Financing challenges and a significant drop in transactions signal a tough environment, yet non-bank lenders are finding opportunities. Investors are advised to focus on asset quality and types, with a preference for properties that offer cash-flow durability and rent pricing power.

  • BlackRock suggests targeting apartments in key suburban locations, necessity retail close to metropolitan areas, and logistics hubs near major cities. These areas offer growth potential, attractive entry points, and resilience in the face of e-commerce expansion and supply chain diversification.

FHFA Says Home Prices Up 6.6% Year Over Year link

  • Home prices in the U.S. rose by 6.6% from November 2022 to November 2023, according to the Federal Housing Finance Agency's House Price Index. This increase is slightly above the historical average, indicating a robust housing market.

  • The FHFA's seasonally adjusted monthly index for November also saw a rise of 0.3% from October. This continuous growth reflects a steady demand in the housing market despite economic fluctuations.

  • All nine census divisions reported positive price appreciation over the last 12 months. However, five of these divisions showed a deceleration in price growth compared to the previous year, suggesting a potential normalization in the housing market's rapid growth phase.

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Assumable mortgages grow in popularity, but hurdles remain link

  • Assumable mortgages have seen a resurgence due to high interest rates, with FHA and VA handling over 6,400 assumptions in 2023, doubling from 2022. These mortgages allow buyers to take over sellers' loan terms, offering lower fees and no need for appraisal.

  • Despite their benefits, assumable mortgages face significant barriers, including restrictions to FHA and VA loans and servicers' reluctance due to low profitability. Regulatory caps on assumption fees, currently at $900, are deemed insufficient, leading to calls for an increase to $3,500.

  • Innovations aim to streamline the assumable mortgage process; Roam, a new platform, facilitates transactions and offers a closing guarantee to mitigate delays. However, challenges like down payment gaps and stringent credit requirements for secondary financing options remain.

Something I found Interesting

Pretium Partners raises whopping $1 billion to acquire BTR homes: Bloomberg link

  • Pretium Partners has secured nearly $1 billion for a new fund focused on buying built-to-rent (BTR) homes. This move underscores the firm's aggressive expansion into the BTR market, with over $2.5 billion already invested and 7,500 homes acquired across 37 cities.

  • The demand for single-family rental units remains high due to elevated mortgage rates and a limited housing inventory. Pretium's strategy aligns with the market's shift towards rental investments as borrowing costs rise, indicating a robust interest in the BTR sector.

  • Significant transactions highlight the growing interest in the BTR space, including Pretium's recent $1.5 billion deal with D.R. Horton. This trend is part of a broader movement by investment firms to diversify into real estate, offering a glimpse into the evolving landscape of housing investment and the importance of the BTR market.

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Adam Neumann makes grand play to take back struggling WeWork link

  • Adam Neumann, co-founder and former CEO of WeWork, is attempting to repurchase the now bankrupt company. He was ousted in 2019 but now seeks to buy WeWork through his new venture, Flow, with financial backing from hedge fund manager Dan Loeb.

  • WeWork, once valued at $47 billion in 2019, declared bankruptcy in November 2023. The company's aggressive expansion did not yield expected returns, especially as demand for office space declined from 2020.

  • Neumann's bid to regain control includes accusations against WeWork's advisors for stalling the sale process. He believes that with the right strategy and team, WeWork can emerge successfully from its challenges, despite ongoing disputes with landlords and financial instability.

Location Specific

Investment sales dropped whopping 45% in Manhattan last year link

  • Manhattan's real estate investment sales plummeted by 45% in 2023, reaching a low of $11.1 billion, marking the worst year in a decade if excluding 2020. The number of transactions also fell by 33% to 280.

  • Development site sales and multifamily building sales both saw significant declines, with development sites dropping 45% to $1.48 billion and multifamily buildings by 64% to $2.71 billion. Office building sales volume decreased by 58% to $2.87 billion, with a notable drop in sales per square foot from $1,088 in 2022 to $848.

  • Despite the overall downturn, commercial properties like hotels and retail spaces experienced a 41% increase in investment sales. This was largely boosted by Prada's $822 million acquisition of 720-724 Fifth Avenue, and hotel sales nearing $2 billion in 2023, driven by rising tourism and supply constraints.

Technology

Zillow Immerse promises 'jaw-dropping' 3D home tours link

  • Zillow launches Immerse, a virtual reality app for home tours, leveraging Apple's Vision Pro headset. This app aims to revolutionize property viewing by offering an immersive, 3D experience of listings.

  • The app is part of Zillow's shift towards an agent services model, enhancing listing marketing with features like 3D tours and CRM tools. Zillow's integration with Apple's technology underscores a significant bet on VR as the future of real estate tech.

  • Consumer demand for 3D home tours is high, with 74% of buyers preferring them over static photos for a better sense of space. Zillow Immerse meets this demand, potentially setting a new standard for online property listings.

That's all, folks.

Cheers,

Vidit

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