Understanding the Housing Shortage

As of mid-2023, the National Association of Realtors reported a staggering shortage of 4 million homes in the U.S. The slow construction of new homes and increased buyer competition have increased prices significantly. In the second quarter of 2024, the median sales price of U.S. homes was $412,300, a decrease from earlier highs but still substantial for many potential buyers. The Fed’s data indicates that the peak price reached $442,600 in the fourth quarter of 2022.

Recent Trends in Home Construction

Despite a slight improvement in housing supply, experts assert that it is insufficient to address the long-standing constraints within the U.S. housing market. According to U.S. Census data, single-family housing starts rose to 1,027,000 in September, marking a 2.7% increase from August. Moreover, with more homeowners ready to sell in the fall, there are signs that the market may be stabilizing.

Long-Term Investment Perspective

While the current housing costs can seem daunting, the Property Brothers remain optimistic about homeownership as a long-term investment. U.S. homeowners with mortgages collectively hold over $17.6 trillion in equity, showcasing the substantial financial benefits of homeownership. “You have to think long-term,” Jonathan advised. “It’s okay if you wait a few years.” This perspective encourages potential buyers to consider creative options, such as teaming up with family members or friends to purchase a home.

Navigating the Current Housing Landscape

The ongoing housing shortage remains a significant hurdle for many prospective homebuyers. However, by adopting a long-term view and exploring innovative purchasing strategies, individuals can still find opportunities within the market. As Jonathan Scott stated, “Give it another 20 years, and no young person will be able to afford to purchase a home, period.” This highlights the urgency of addressing the housing shortage, making it crucial for policymakers and industry leaders to prioritize solutions.

The post The Biggest Challenge in Today’s Housing Market: A Shortage appeared first on The Markets Watch.

Sluggish Sales Hit Most U.S. Regions

In September, the seasonally adjusted annualized rate of home sales fell to 3.84 million units—a 1% decline from August and a 3.5% drop compared to the same month last year. Sales dipped across three out of four U.S. regions, with the West being the only exception to show a slight gain. These numbers reflect contracts signed during July and August when mortgage rates hovered around 7% and later dipped to just below 6.5%. 

Yun expressed cautious optimism despite the slow pace: “Factors usually associated with higher home sales are developing.” Still, the market is not out of the woods, as affordability remains a concern.

Rising Inventory Brings Hope to Buyers

Inventory levels improved by 1.5% from August to 1.39 million homes available for sale. This translates to a 4.3-month supply at the current sales pace, offering some relief for buyers. Inventory was up by 23% yearly, providing more options in an otherwise tight market.

“More inventory is certainly good news for home buyers as it gives consumers more properties to view before making a decision,” said Yun. However, he emphasized that distressed property sales remain rare. “The inventory of distressed properties is minimal because the mortgage delinquency rate remains very low,” Yun added, noting that distressed sales made up only 2% of total transactions in September.

Home Prices Continue to Rise Amid Tight Inventory

Despite increased inventory, home prices showed no signs of slowing. The median price of an existing home reached $404,500, reflecting a 3% increase compared to the previous year. This marked the 15th consecutive month of annual price gains, mainly driven by ongoing supply constraints.

Cash Buyers and Investor Activity Shape the Market

In September, 30% of all home purchases were made in cash—a notable increase from the pre-pandemic average of 20%. However, investor activity slightly decreased, with investors accounting for 16% of sales, down from 19% in August. This shift suggests that cash buyers are not limited to investors but include individual buyers looking to navigate the competitive market.

First-Time Buyers Retreat as Homes Sit on Market Longer

Homes are spending more time on the market, with the average listing now sitting for 28 days compared to just 21 days a year ago. First-time buyers also continue to pull back, accounting for only 26% of sales in September, matching August’s all-time low.

A Market in Transition

The housing market remains in flux. Rising inventory provides hope for buyers, but elevated prices and mortgage rates continue to pose challenges. The drop in first-time buyer activity underscores the difficulty many are facing in securing homes. As Yun pointed out, positive trends are emerging, but the road to recovery may still be long. Buyers and sellers alike must monitor conditions closely in the months ahead.

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Interest Rate Cuts Signal Recovery

The Federal Reserve’s decision to lower interest rates by 50 basis points in September marked a turning point for commercial real estate. Wells Fargo analysts described the policy shift as “the most notable green shoot” for the CRE sector. Though not a “magic bullet,” this shift “lays the groundwork for a commercial real estate recovery,” they stated in a follow-up report.

Lower borrowing costs are particularly impactful for real estate, as they reduce the financial burden on buyers and sellers. Alan Todd, head of commercial mortgage-backed security strategy at Bank of America, noted, “Once the Fed starts to cut, they’ll continue along that path, which fosters a sense of stability.” This creates an environment that “incentivizes borrowers to get off the sideline and start to transact,” Todd added.

Sales on the Rise

Following stagnant sales, the CRE market saw its first signs of growth. As Willy Walker, CEO of Walker & Dunlop, explained, “Sentiment around the sector is improving, with refinancing and sales volumes picking up.” 

The second quarter of 2024 marked the first quarterly sales increase since 2022, primarily driven by the multifamily sector. Altus Group reported over $40 billion in transactions, reflecting a 13.9% rise from the previous quarter. Property valuations also started to recover, with the MSCI U.S. REIT Index showing steady gains since the spring. 

However, challenges remain. “The path forward will likely be uneven,” analysts cautioned, as some subsectors face more hurdles than others.

Office Sector Challenges Persist

The office real estate sector continues to face significant headwinds despite a modest improvement in net absorption. Wells Fargo reported a positive net absorption of over 2 million square feet for the first time since 2022. 

“Although modest, this was the best outturn since Q4-2021,” analysts noted. Yet, office vacancies remain a pressing issue, with availability reaching a high of 16.7%. 

The shift to hybrid work has further complicated recovery efforts. In cities like Manhattan, office occupancy in June 2024 reached 77% of 2019 levels, the highest since February 2023. Chad Littell, national director at CoStar Group, stated, “While other property types are finding their footing, the office may have a longer road ahead—perhaps another year or more before prices stabilize.”

Multifamily Real Estate Sees Strong Demand

The multifamily real estate sector, in contrast, has experienced significant growth. Wells Fargo reported that net absorption reached its highest point in three years as households took advantage of better rental availability and manageable rent increases.

Although multifamily rent growth has slowed from double-digit rates in 2021 to around 1% today, demand remains high. RentCafe projects a record 518,000 rental units will be completed by the end of 2024, reflecting robust development in the sector.

High homeownership costs are driving many consumers toward rentals. Wells Fargo data highlighted that the average mortgage payment in the second quarter of 2024 was $2,248—31% higher than the average rent of $1,712. Stabilized vacancy rates, holding steady at 7.8%, also indicate a healthier balance between supply and demand.

Looking ahead, analysts are optimistic. “High homeownership costs should continue to support rent demand,” Wells Fargo noted, pointing to sustained growth in the multifamily sector.

A Recovery in Progress

While some commercial real estate market areas are gaining traction, the overall recovery remains uneven. Multifamily real estate has emerged as a bright spot while the office sector struggles with vacancies and structural challenges. With continued interest rate cuts on the horizon, the market is gradually stabilizing. As Walker said, “The sector’s recovery is underway, but it will take time to regain full momentum.” 

With a renewed focus on growth opportunities, investors should assess their strategies and engage in the shifting CRE landscape now.

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Mortgage Rates Rise, Pushing Borrowers Away  

Interest rates on 30-year fixed-rate mortgages with conforming loan balances jumped to 6.52%, compared to 6.36% the week before. In addition to higher rates, points increased slightly to 0.65 from 0.62 for loans with a 20% down payment. The MBA reported that these higher borrowing costs are deterring both refinancers and new homebuyers.  

Refinancing Takes a Major Hit  

Refinancing applications took the largest hit, dropping by 26% from the previous week. Despite this sharp decline, refinance activity was still 111% higher than the same period last year, reflecting the much higher interest rates of 2023. “Rates at this time a year ago were 118 basis points higher, so anyone who bought a home last year could likely benefit from a refinance now,” explained Joel Kan, an MBA economist.  

While refinancing surged earlier this year, the recent increase in rates has reduced demand, causing the refinance share of applications to dip below 50% for the first time in over a month.  

Home Purchase Applications Slip but Stay Resilient  

Mortgage applications to purchase homes fell 7% for the week, yet they remained 7% higher compared to the same time last year. According to Kan, some buyers, particularly first-time homebuyers using Federal Housing Administration (FHA) loans, are staying in the market thanks to improving inventory. “Demand is holding up to an extent for prospective first-time buyers. FHA purchase applications were little changed despite the increase in rates,” he noted.  

Buyers Shift Focus to the Economic Outlook  

While mortgage rates remain a key consideration, many buyers are focusing more on the broader economy and future uncertainties. The upcoming U.S. election in November has also led some buyers to delay large financial decisions. With the federal holiday on Monday, mortgage rates remained relatively stable at the start of the week, offering some respite for those monitoring market trends.  

Navigating the Housing Market’s Challenges  

The housing market continues to be shaped by fluctuating interest rates and evolving economic conditions. Though rising rates are limiting refinancing activity and discouraging some homebuyers, others are seizing new opportunities opened up by increased housing inventory. As the market shifts, potential buyers and homeowners must carefully weigh their options and monitor both economic conditions and interest rate trends. 

The post Weekly Mortgage Demand Drops 17% Amid Rising Interest Rates appeared first on The Markets Watch.

A Forgotten Path to Low-Interest Mortgages

The concept of mortgage assumptions, once a popular method in the 1970s and 1980s, has largely faded from public awareness. It allows homebuyers to take over an existing mortgage from a seller, locking in the original interest rate. For those able to find these rare opportunities, this can mean securing a mortgage at the much lower rates seen during 2020 and 2021. As a result, Google search queries for “assumable mortgage” saw a notable increase in 2022, continuing into 2023.

Why Mortgage Assumptions Declined

The decline in mortgage assumptions is primarily attributed to the Garn St.-Germain Act of 1982. This law permitted private lenders to enforce a due-on-sale clause, requiring the full repayment of the loan if the property changes hands. This effectively limited the use of assumable mortgages outside exceptional cases such as divorce or property inheritance.

Current Market Opportunities for Assumable Mortgages

Despite the challenges, a subset of mortgages remains assumable today, specifically those backed by the Veterans Affairs (VA), Federal Housing Administration (FHA), and the United States Department of Agriculture (USDA). According to Raunaq Singh, CEO of Roam, “Twenty percent to 25% of the homes on the market will be fully assumable at one time.” However, he notes that “the number of assumption transactions that are happening is far fewer than the number of mortgages which can be assumed.”

Assumptions Are Rising, But Still Rare

Though mortgage assumptions are still relatively rare, they are becoming more common. According to FHA data, there were 4,052 FHA-backed mortgage assumptions completed in 2023, marking a 59% increase from 2021. The VA has seen even more dramatic growth, with a 713% increase in assumptions during the same period. In 2024, both the FHA and VA have already surpassed 5,000 assumption transactions, signaling a potential shift in the market.

While assumable mortgages remain a rare opportunity in today’s housing market, they offer a powerful tool for homebuyers to secure historically low interest rates. The trend may grow as more buyers discover this option, relieving those facing high mortgage rates. For those lucky enough to find them, assumable mortgages could significantly affect their financial future.

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Understanding Loss of Use Coverage

Loss of use coverage is a built-in feature in most homeowners insurance policies, typically amounting to about 20% of the dwelling coverage. As president of Susman Insurance Services, Inc., Karl Susman explains, “I don’t know of any homeowners policy that doesn’t have it already there.” For instance, if your home is insured for $100,000, you could receive up to $20,000 for temporary living expenses while repairs are underway. This coverage can help with costs like staying in a hotel or rental, food expenses, pet boarding, and storage fees.

Shannon Martin, a licensed insurance agent at Bankrate.com, advises policyholders to inquire about this coverage when filing a claim: “If you call your carrier, they might be able to expedite the loss of use claim filing for you and issue a check early so that you’re not stuck trying to figure out how to pay for a separate housing.”

Renters Insurance and Loss of Use

Loss of use coverage is more comprehensive than for homeowners. Renters and condo owners can also benefit from similar provisions. While the primary coverage in these policies focuses on personal property, about 20% of that amount is often allocated for loss of use coverage. Susman notes that this helps tenants handle living expenses during displacement: “You’ll typically get 20% of the personal property coverage for loss of use.”

It’s essential to understand any restrictions associated with this coverage. “Ask your insurer about any policy restrictions. There may be expense-specific dollar caps or time limits to claim loss of use coverage,” Martin advises.

A Short-Term Solution, Not a Long-Term Fix

While loss-of-use coverage can alleviate immediate financial pressures, it is not designed for extended periods. Jeremy Porter from First Street Foundation states, “It’s generally not intended to be a long-term solution. It’s generally insufficient money to carry people through an extended period.” The coverage aims to bridge the gap while homeowners or renters transition to more stable living conditions.

Susman highlights that this short-term nature can be challenging, especially after a disaster when housing availability decreases and temporary accommodations become more expensive. However, this coverage can be crucial support for many during a difficult time.

Navigating Recovery After a Disaster

Recovering from a natural disaster can be lengthy, involving insurance claims and federal aid. As Loretta Worters from the Insurance Information Institute points out, “It takes a long time to recoup and recover.” During this time, homeowners and renters can utilize their insurance coverage and government assistance to meet their needs.

Susman notes that policyholders can seek aid from the Federal Emergency Management Agency (FEMA) alongside their insurance claims. Martin adds, “You might be able to use funds from the government to help you stay in a hotel for a month, then get a place closer to your home and use your loss of use coverage to pay for the difference.”

Planning for Unexpected Displacement

Loss of use coverage is vital to homeowners’ and renters’ insurance, offering temporary relief when natural disasters strike. While it may not provide a permanent solution, it ensures that families can maintain stability as they rebuild their lives. Understanding how this provision works can make all the difference during difficult times, providing the support needed to navigate a challenging recovery process.

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Mortgage Rates Climb, Cooling Down Demand

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances up to $766,550 rose to 6.36% from 6.14%, with points increasing to 0.62 from 0.61 for loans with a 20% down payment. This marks the highest level for rates since August. Mike Fratantoni, chief economist at the Mortgage Bankers Association, commented: “In the wake of stronger economic data last week, including the September jobs report, mortgage rates moved higher.”

Refinance Applications See a Significant Drop

Refinance applications, which had previously shown strong growth, dropped 9% for the week. Despite this, they remained 159% higher than the same period last year when mortgage rates were 131 basis points higher. “Conventional loan refinances, which tend to have larger balances than government loans and hence are more responsive for a given change in mortgage rates, fell to a greater extent over the week,” Fratantoni explained. The decrease in refinancing indicates that the surge in interest rates has cooled down the market’s previous momentum.

Stable Purchase Demand Amid Price and Inventory Challenges

While refinancing declined, mortgage applications to purchase a home remained steady, with a slight 0.1% drop from the previous week. Purchase demand is up by 8% compared to last year, but rising home prices and limited inventory, especially on the more affordable side, continue to challenge buyers. Despite lower rates than last year, the higher home prices make it more difficult for new buyers to enter the market.

Economic Data and Mortgage Rates Outlook

The increase in mortgage rates coincided with stronger-than-expected employment data, leading to a further spike last Friday. A separate survey by Mortgage News Daily noted that rates continued to rise through Monday, with the 30-year fixed-rate mortgage average reaching 6.62%. Matthew Graham, chief operating officer at Mortgage News Daily, noted, “While the worst may be over in terms of the rapid, upward movement, it will take new data to put compelling downward pressure on rates.” This suggests that future rate adjustments will heavily depend on upcoming economic indicators.

A Waiting Game for Borrowers

With interest rates climbing and the mortgage market slowing, many potential homebuyers and homeowners may adopt a wait-and-see approach. As the market adjusts to the higher rates, the potential for stabilization or even a slight decline will be closely tied to economic developments. For those looking to refinance or purchase, the timing of new economic data could be the key to more favorable conditions.

The post Weekly Mortgage Demand Declines as Rates Reach August Highs appeared first on The Markets Watch.

Homeownership Among Older Adults

Older Americans comprise the largest group of homeowners in the U.S., but a growing number are renting. According to the Joint Center for Housing Studies (JCHS) at Harvard University, over 7 million older households are renters, with more than 1 in 5 opting to rent instead of own. While owning a home offers stability, many retirees find the flexibility and reduced responsibilities of renting appealing.

Pros of Renting in Retirement

Renting can be a smart choice for retirees, particularly when avoiding the costs associated with home maintenance. “Renting often offers more amenities, less maintenance, and more accessibility,” said Jennifer Molinsky, director of the Housing an Aging Society Program at the JCHS. 

Renting allows older adults to avoid expensive upkeep, like roof repairs or other costly home improvements, which can become burdensome as they age. Additionally, renting provides flexibility for those wanting to downsize or move closer to family.

Cons of Renting: Rising Costs and Fixed Incomes

Despite its benefits, renting comes with challenges, particularly for retirees living on a fixed income. Rent increases can pose significant financial strain. In 2022, half of all renter households spent more than 30% of their income on housing and utilities, according to the State of the Nation’s Housing report.

“As a retired renter, you are faced each month with a housing expense for the rest of your life. It’s an expense that is not fixed; it is variable by market trends,” said Lazetta Rainey Braxton, a certified financial planner and CEO of The Real Wealth Coterie.

Why Fewer Older Americans Own Homes

The trend of renting among older adults is partly due to the financial challenges baby boomers face. In 2023, according to the National Association of Realtors, older baby boomers made up 45% of home sellers, as many chose to downsize their homes. The homeownership rate among those 65 and older was 79.1% in 2022, down from previous years, indicating a shift toward renting in the retirement years.

This shift reflects the long-term impact of economic events like the Great Recession, which caused many to lose their homes. As Teresa Ghilarducci, a labor economist and professor at The New School for Social Research, explained, “You’re now seeing people who have always been renters coming into their old age.”

Costs of Owning a Home in Retirement

Homeownership has advantages, but it also comes with financial responsibilities. Maintaining a home can be costly, with experts recommending that homeowners budget between 1% and 4% of their home’s value annually for upkeep. For example, a $450,000 home could require $4,500 to $18,000 in yearly maintenance costs.

According to Angi’s State of Home Spending report, homeowners spent an average of $9,542 on home improvements in 2023. While this may not seem significant, these costs can increase over time, especially when major repairs are needed.

Making the Right Decision

Whether to rent or own a retirement home depends on individual financial circumstances and lifestyle preferences. Renting can provide flexibility and relief from maintenance while owning offers long-term stability. However, both options come with costs that retirees must consider carefully. As Jennifer Molinsky pointed out, “It’s important to consider not just the cost of the home, but the care and services you might need to stay in that house.”

Ultimately, the decision should be based on which option best supports your financial health and personal needs during retirement.

In the end, renting and owning both have their advantages and challenges in retirement. While renting may provide flexibility and fewer responsibilities, it can also lead to uncertainty due to fluctuating rent prices. Owning a home offers stability but comes with maintenance costs that increase over time. Whichever route you choose, it’s essential to weigh your options carefully and plan for the long term.

The post Renting vs. Owning a Home in Retirement: Pros and Cons for Older Adults appeared first on The Markets Watch.

A New Competitive Landscape

Under the previous model, the NAR’s multiple listing service (MLS) dictated the commission rates for both buyer and seller agents. Home sellers would negotiate commission with their listing agent, which would then be publicly displayed on the MLS. Often, sellers were unaware of their ability to negotiate, leading to standard commission fees being charged. 

Glenn Kelman, CEO of Redfin, described the shift as follows: “Now, the buyer chooses how much the buyer’s agent makes; the sellers choose how much the seller’s agent makes. It’s a new competitive ballgame.” This change empowers buyers and sellers to have more control over commission rates, fostering competition among agents.

Temporary Confusion Ahead

As agents and consumers adapt to these new rules, inconsistencies are expected in the market. Claudia Cobreiro, a real estate attorney, noted that potential homebuyers might receive different information from agents. “Before August 17, if you called five buyer agents for the same inquiry related to buying a home, four out of five times, you would get the same answer. Now, maybe two out of five times, you’re going to get the same answer,” she said.

This variation arises from different brokerage firms providing various instructions on implementing the changes, leading to potential confusion among buyers and sellers.

The Importance of Offering Commission

Despite the new regulations, educating home sellers about the benefits of offering commissions to buyer agents remains crucial. Cobreiro emphasizes that even if not mandated, offering a commission can stimulate competition among agents eager to show the property, potentially driving up the sale price. She explained, “Explaining those benefits of still offering commission even though the commission is not mandatory is part of the job that now I’m seeing listing agents do.”

Understanding Buyer-Broker Agreements

In the wake of these changes, buyers need to familiarize themselves with buyer-broker agreements. These contracts define the relationship between a real estate agent and a homebuyer, detailing the terms under which the agent is entitled to a commission upon purchasing a property. Cobreiro noted, “The purpose of this form is telling the buyers they are responsible for their commission on the buyer’s side.”

In scenarios where the seller does not offer a commission, buyers must adhere to the terms outlined in their buyer-broker agreements, making it crucial to understand the documents thoroughly. Melcher advised, “The forms are designed to be read by buyers and for buyers to understand them,” underscoring the importance of asking questions about any unfamiliar language.

Embrace the Change

As the real estate market adapts to these new commission rules, buyers and sellers must carefully navigate the landscape. Understanding the implications of the settlement, including the potential for greater negotiation power and the importance of buyer-broker agreements, will be essential for success. Consumers can take full advantage of this new competitive environment by educating themselves and seeking clarity.

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Resignation Sparks Market Response

The company’s shares, listed on the Hong Kong Stock Exchange, experienced a 23% jump after trading resumed on Friday. New World Development had suspended trading on Thursday, pending an official announcement of Cheng’s departure. The company’s statement emphasized that Cheng would devote more time to “public services and other personal commitments.” 

Eric Ma Siu-Cheung, the company’s Chief Operating Officer, has been appointed as the new CEO, marking a historic shift as an outsider takes the helm of the family-run business. This decision surprised many, as family-led companies in Hong Kong typically keep leadership within the family.

Company’s Financial Struggles Amid the Surge

Despite the surge in stock prices, New World Development is facing significant financial challenges. The company recently reported anticipated losses between HK $19 billion ($2.4 billion) and HK $20 billion ($2.6 billion) for the fiscal year ending in June. These losses are attributed to declining sales, investment setbacks, and impairment charges. 

New World is not the only developer dealing with such issues, as Hong Kong and mainland China’s property markets continue to struggle. “This clearly shows that corporate governance does matter,” stated Alicia Garcia-Herrero, Chief Economist for Asia Pacific at Natixis. She added, “Having all these tycoons with their preferred sons or daughters, mostly sons, is not the way to run these companies.”

The Broader Economic Impact

Garcia-Herrero noted that this leadership change is timely, as the Chinese government’s recent stimulus measures also influenced the company’s rally. The central bank’s economic intervention, aimed at stabilizing the property market, has triggered a broader rally across Hong Kong and Chinese equities. 

China’s top leaders emphasized the urgency of addressing the ongoing real estate market decline during a meeting on Thursday. Their policy initiatives span various areas, including monetary support, employment concerns, and addressing the country’s aging population.

Looking Ahead for New World Development

New World Development’s stock price increase, driven by both internal changes and external economic factors, reflects the growing importance of strong corporate governance in the region. As the company navigates financial losses and the pressures of a weak property market, its ability to adapt to new leadership could determine its future trajectory.

With the appointment of Eric Ma Siu-Cheung, New World Development is positioned to move forward with a fresh perspective. As Alicia Garcia-Herrero highlighted, “When markets are tough, it’s tough to do well unless you have the best management.”

The combination of leadership changes and economic stimulus from China has boosted New World Development, but the road ahead will still be challenging. With high debt levels and market uncertainties, the company must continue making strategic adjustments to maintain investor confidence.

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