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Are More Homes Coming onto the Market?

Plus Investments in Student Housing See Increase and 6 more handpicked RE insights.

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Macro Trends

North American Cargo Volume Nearing Pre-Pandemic Levels link

  • Cargo container volumes at 14 major North American ports are reverting to pre-pandemic levels. After peaking in 2022, there was an 18.6% year-over-year decline in the first half of 2023.

  • Labor challenges emerged as West Coast ports settled on a labor agreement, but Western Canada port workers went on strike in July, notably affecting the Port of Vancouver for 13 days.

  • Economic factors played a role with the U.S. unemployment rate rising to 3.8% in August from 3.5% in July. Meanwhile, the Federal Reserve hiked interest rates to a range of 5.25 to 5.5% in July, the highest in 22 years.

Real Estate Trends

The current office absorption trend is not new…and that may be a good thing link

  • The COVID-19 pandemic in 2020 accelerated several existing trends, including the rise of e-commerce, migration from high-cost cities, and the adoption of remote work.

  • By 2023, many of these accelerated trends began to normalize. For instance, e-commerce sales and industrial & logistics leasing have stabilized, and multifamily vacancies in Manhattan are now the lowest nationally.

  • Office leasing trends have evolved over the decades. Absorption per office worker has decreased due to efficient open-office plans and increased remote work. During the pandemic, net absorption per office worker dropped significantly but has since shown signs of recovery, although it's unlikely to reach the levels of the late 1990s.

Are More Homes Coming onto the Market? link

  • The housing market is currently shaped by the low number of homes available for sale. This scarcity means that houses listed now, especially those priced correctly, will stand out prominently.

  • Recent data indicates an upward trend in new listings, suggesting that more homeowners are deciding to sell. This increase in listings during August is atypical, as the housing market usually cools down during this period.

  • Despite the unusual uptick in August, the overall housing inventory remains below standard levels. Sellers still have a significant advantage, but waiting might lead to increased competition as more homes are listed.

A Change in Homebuyer Expectations Is Slowing the Housing Market link

  • Home sales are at depressed levels, with only 59,000 new pending sales this week. The inventory of unsold homes is growing, with this week witnessing the largest inventory increase all year, adding over 9,000 single family homes.

  • Mortgage rates have been over 7% for some time, but a recent shift in homebuyer psychology is affecting the market. Earlier in 2023, buyers were optimistic about declining mortgage rates, but now there's a growing expectation of rates reaching 8% or higher.

  • Despite the slowdown in demand, home prices remain steady. The median price of single family homes in the US is currently $444,900, which is 1% higher than last year. The market's health is indicated by transaction volume rather than price gains, emphasizing the need for more sales.

Loan Extensions Rise in 2023: CRE's Response to Uncertainty and High Interest Rates link

  • Throughout 2023, the CRE delinquency rates have increased due to rising interest rates and macroeconomic factors. This has led to more distress, decreased property valuations, and stricter capital conditions.

  • Refinancing challenges have emerged. For instance, transitioning from a 4% loan to a 7% loan is not appealing to investors, especially with the decline in property values and cautious underwriting practices.

  • Loan modifications have become a solution to avoid potential losses. In 2023, approximately $5.65 billion in loans underwent modifications with extensions, with most of these extensions ranging from 1-12 months.

Opportunities

Investments in Student Housing See Increase link

  • Recent data reveals that private fixed investment in student dormitories increased by 1% to a seasonally adjusted annual rate of $3.6 billion in Q2 2022. This follows a 6.4% rise in Q1 2022.

  • Although investment in private dorms was 8.7% higher than the previous year, it remains below pre-pandemic levels.

  • With the pandemic officially over, student housing private investment is on the path to recovery. The return of in-person learning has prompted college students to return to campuses, boosting the student housing sector.

Risks

Second Quarter CRE Activity Down 50% Year Over Year link

  • A recent Green Street report highlights Q2 CRE transaction results for 2023, revealing a significant 50% drop in activity compared to the previous year.

  • Daniel Ismail, Managing Director and Co-Head of Strategic Research, points out that broader macro conditions are currently not conducive to CRE transactions. Factors such as tightened credit availability, rising interest costs, and a persistent wide bid-ask spread are hampering deal flows.

  • The downturn in CRE transactions is widespread, with no markets escaping a noticeable slowdown in activity. This trend is in line with the broader industry news and developments.

Insurance Premiums Going Up at a fast pace link

  • Homeowners renewing insurance are facing over 20% premium hikes, with Florida seeing a staggering 35% increase. This surge in insurance costs exacerbates the ongoing housing affordability crisis, demanding homeowners to shell out a larger portion of their income on housing expenses.

  • The escalating risks of natural disasters due to climate change are driving up insurance costs. For instance, State Farm ceased offering new policies in California, attributing the decision to wildfire risks and soaring construction costs, while Farmers Insurance withdrew from California and Florida, citing hurricane risks.

  • Homes with higher insurance costs, primarily due to increased risks from wildfires, floods, storms, or other natural calamities, will likely see subdued price appreciation. A study by Redfin revealed that homebuyers, when provided with flood risk data, tend to make offers on homes with significantly lower risks.

Proptech

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Cheers,

Vidit

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