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Is the Pandemic Housing Boom About to Go Bust? Sep 10, 2022

Show notes

It looks like the pandemic housing boom is coming to an end. More and more sellers are slashing prices as mortgage rates rise and homes become less affordable for potential buyers. Some analysts are predicting that home values will drop by as much as 20% in markets that have gone up the most. And there are five markets at the top of that list.

Hi, I'm Kathy Fettke and this is Real Estate News for Investors. If you like our podcast, please subscribe and leave us a review.

Real estate experts are calling these overvalued markets "zoom towns" because they experienced rapid price growth during the pandemic. According to Rick Palacios at John Burns Real Estate consulting, home prices in Boise, Idaho, will be the first to get slammed. Palacios says: "It is the single market that we anticipate actually getting to price declines in 2022." (1)

The Rise of Zoom Towns

He says Boise attracted a lot of new residents during the pandemic because of its lower cost of living and quality of life, but that drove prices sky high. The other four cities on his list of zoom towns that will see sharp price corrections are Austin, Texas; Nashville, Tennessee; Phoenix, Arizona; and Sacramento, California.

A Redfin analysis shows that Boise home prices increased 60% over the course of the pandemic, and it's now getting hit pretty hard by the market slowdown. Redfin says in July of last year, 30% of the listing prices were cut. That percentage has now more than doubled to 70% in July of this year.

Data collected by John Burns shows that month-over-month prices are falling in Boise. It predicts that Boise will be the first metro to show a year-over-year decline in home prices. But Boise isn't alone.

Top Metros for Home Price Growth

As reported by Fortune, the West is the epicenter of the pandemic housing boom, and is now shifting rapidly. In July, 58% of listings in Denver experienced price cuts along with 56% of listings in Salt Lake City, 55% in Tacoma, Washington, 50% in Phoenix and San Diego, and 47% in Stockton, California. And that's just at the top of the list. (2)

Zonda's chief economist, Ali Wolf, says: "The strong demand over the past two years drove up home prices across the country, and it appears the West hit the pricing ceiling quicker than other markets given the particular supply constraints." In other words, a combination of high demand, bidding wars, and tight inventory pushed prices in this area beyond what homebuyers are willing to pay.

Forecast on Home Price Declines

So the market is cooling the fastest while inventory is rising in what have been pandemic zoom towns. Moody's Analytics is expecting price declines of 0 to 5% during the slowdown. But it expects declines of 5 to 10% in the 187 markets that it says are "significantly overvalued." If we have a recession, the declines will be more like 15 to 20%.

It's good to remember that we're still seeing year-over-year growth nationally, but it is slowing down every month. And depending on when you bought property, that could be a problem if you currently want to sell that same property. For example, if gains are dropping from 20% in January to 10% in July, and continuing in a downward slide, recent buyers could lose equity if they sell right now. It depends on the market and how much home prices have gone up recently.

The markets I previously mentioned are expected to get hit by big price declines, along with others like Miami and Las Vegas. Selling homes in those markets during the current slowdown will likely result in the loss of equity. Those planning to hold on to their homes don't need to worry since they just want a place to live, and values will likely recover over time. The buyers who locked-in low mortgage rates are also in even better shape.

You'll find a link to the articles mentioned in the show notes at newsforinvestors.com. If you'd like to learn more about owning single-family rentals, please hit the join link at the website. And please remember to hit the subscribe button, and leave a review!

Thanks for listening. I'm Kathy Fettke.

Links:

1 -https://nypost.com/2022/09/05/us-zoom-towns-will-get-hit-with-falling-home-prices-expert/

2 -https://fortune.com/2022/09/04/housing-market-map-home-price-cuts-redfin/

Pacaso's New "Good Neighbor" Strategy for Co-Owned Second Homes Sep 09, 2022

Show notes

Proptech startup Pacaso is taking its public relations strategy to the next level. The San Francisco-based company helps people buy the second home of their dreams with a co-ownership model that has sparked a lot of controversy in some places. While the general perception of Pacaso is a belief that it contributes to the housing crisis, Pacaso is showcasing its model as part of the "solution."

Hi, I'm Kathy Fettke and this is Real Estate News for Investors. If you like our podcast, please subscribe and leave us a review.

Pacaso has caused a dust-up in several places as full-time residents fight back against short-term rentals. Many critics see Pacaso through this lens, but it's not a short-term rental operation.

Instead of renting the home out to a stream of different occupants over the days, weeks, months, and years, Pacaso homes are purchased by up to eight buyers and each buyer gets to use the home for a percentage of the year that corresponds to the buyer's percentage of the purchase price. Pacaso manages and maintains the home, but the people who use it are co-owners, who use it on a continual basis. (1)

Pacaso as Part of the Solution

The message that Pacaso is currently trying to convey is that many people own second homes that sit empty and unused for 90% of the year. With the current shortage of available homes, Pacaso points out that the typical second-home approach is wasteful. It says that co-ownership can help reduce that waste by combining the use of up to eight second homes into one home that has as many as eight owners.

As Pacaso's vice president of public affairs, Colin Tooze (tooz), said in a press release: "One significant, but less-discussed, contributor to the housing crisis is a wasteful legacy model of second-home ownership. While no company can solve this complex set of problems on its own, Pacaso offers a sustainable alternative that combines multiple families into one luxury home." (2)

Pacaso also claims that the co-ownership model provides significant benefits to the community in the form of economic activity that is ten times what you'd get with the typical second home. But Pacaso says it is still working on ways to publicize its value, which is why the company recently announced the formation of a bipartisan government advisory board.

Formation of Government Advisory Board

Pacaso says it's a priority to work collaboratively with elected officials, and the board will help the company do that more effectively. Among the inaugural members of the board are current and former elected officials from major metros around the country, including:

1 - Steve Benjamin (Chair), Former Mayor of Columbia, South Carolina, and past President of the US Conference of Mayors

2 - Steve Adler, Mayor of Austin, Texas

3 - Michael Hancock, Mayor of Denver, Colorado

4 - Danny Perez, Member, Florida House of Representatives

5 - Alexis Podesta, Former California Secretary of Business, Consumer Services, and Housing

In a statement issued by the board chairman, Steve Benjamin, says: "Pacaso's innovative second home co-ownership model is a value-add to communities across the United States," said Steve Benjamin, former Mayor of Columbia, SC and past President of the US Conference of Mayors. "Pacaso consolidates second home demand into fewer homes, taking pressure off of housing inventory for first-time home buyers and middle class families. This is the thoughtful and sustainable approach to housing we need right now, and I'm proud to help advise the company as it works to bring this model to more communities." (3)

Pacaso Reached Unicorn Status in Six Months

Pacaso launched in October of 2020 as demand for second homes skyrocketed during the pandemic. As reported by Fortune, it reached unicorn status just six months later. That means it was worth more than $1 billion in just six months! Tooze told Fortune that he wants Pacaso homes to be good neighbors, and the board will help solve any challenges. He says: "If that helps us be more thoughtful in how we approach solutions that address the needs of the company and communities where we operate, everyone wins." (4)

You'll find a link to the Pacaso articles in the show notes at newsforinvestors.com. If you'd like to learn more about owning single-family rentals in growing markets around the country, please hit the join link on our website. And please remember to subscribe to our podcast, and leave a review! It will help make us more visible on podcast platforms.

Thank you! And thanks for listening. I'm Kathy Fettke.

Links:

1 -https://www.pacaso.com/?utm_source=google&utm_medium=Paid_Search&utm_campaign=IV_G_Brand_Search_Trademark_US&gclid=Cj0KCQjwmdGYBhDRARIsABmSEeMLqsfM0Xrakmhe3TXbxXKnbi-9-xd6FMRwUp8NAWa8l6dQ9Ae0dLsaArCzEALw_wcB

2 -https://www.prnewswire.com/news-releases/pacaso-announces-government-advisory-board-301592515.html

3 -https://www.pacaso.com/blog/pacaso-government-advisory-board

4 -https://fortune.com/2022/09/02/modern-board-pacaso-second-homes/

The Real Estate News Brief: Why Rate Hikes Might Backfire, Why We Might See a Big Surge in Inventory, and Elon Musk's Tiny Home! Sep 08, 2022

Show notes

In this Real Estate News Brief for the week ending September 3rd, 2022... why rate hikes might backfire, why economists are seeing a sharp increase in the housing supply, and what Elon Musk is saying about owning a tiny home in Texas.

Hi, I'm Kathy Fettke and this is Real Estate News for Investors. If you like our podcast, please subscribe and leave us a review.

Economic News

We begin with economic news from this past week. A paper released at the Jackson Hole Summit argues that the central bank cannot control inflation by rate hikes alone. Researchers from Johns Hopkins University and the Chicago Fed authored the report, and say rate hikes could make matters worse without a reduction in government spending. The federal debt is currently at 123% of GDP which is down slightly from early 2020 during the beginning of the pandemic, but it's much higher than it has been since the mid-1940's. As interest rates rise, so does the cost of that debt. (1)

The latest reports on the job market, and manufacturing, both show that the economy is still in good shape. It's still growing, but at a slower pace. A report from the Institute for Supply Management shows that new orders and employment increased, and that inflation was down slightly. It says there's one red flag – that some companies have bloated inventories which could put them in a tough spot if the economy slows down any more. (2)

Meantime, initial jobless claims dropped to a nine-week low of 232,000 which means there's no sign of any big layoffs. Economists say this is one of the best barometers for economic health. (3) Job openings also expanded to 11.2 million in July. That's up from 11 million in June. The unemployment rate is currently at 3.5%. (4)

Home price growth was down in July. The S&P CoreLogic Case-Shiller 20-city index deceased from 20.5% in May to 18.6% in June. The national index was up a seasonally adjusted .3%, but that's the smallest increase in two years. (5)

Money spent on residential construction was down .4% in July. Economists expected it to fall because builders have been cutting back on their plans. Year-over-year, construction spending is still up 8.5%. (6)

Consumers are feeling much better about the economy, now that gas prices have gone down. The consumer confidence index jumped from 95.7 to 103.2 in August. That's the first time it's gone up in four months. (7)

Mortgage Rates

Mortgage rates are getting closer to the 6% level. Freddie Mac says the 30-year fixed-rate mortgage was up 11 basis points to an average of 5.66%. The 15-year was up 13 points to 3.98%. (8) Mortgage News Daily reports that the numbers from Freddie are way too low. It says the average is more like 6.23%. (9)

In other news making headlines…

Housing Supply to Increase Sharply

Some economists expect to see a big increase in housing completions in the coming months. The Calculated Risk blog says that even while housing starts slow down, builders will be finishing up many of the homes currently in the pipeline. That includes single-family and multi-family homes. (10)

Bill McBride at Calculated Risk is estimating a 10% increase in completions this year to almost 1.6 million. That's because there's an unusually high number of housing units under construction due to supply chain issues.

FSBO Is Not Very Popular Right Now

A high number of home sellers have decided to go with an agent, instead of doing the deal on their own. The National Association of Realtors says that FSBOs, which stands for "for sale by owner," typically rise during hot markets, but the latest Profile of Home Buyers and Sellers shows the opposite. FSBOs were just 7% of home sales last year. That's the lowest percentage in about 30 years. 15 years ago, 12% of sellers decided to go it alone. (11)

The report says that sellers are finding value in the hiring of real estate professionals. Among the benefits is the competitive pricing of a home, help with marketing to potential buyers, and negotiating the deal.

Elon Musk Does, In Fact, Own a Boxabl Casita

There's been much speculation as to whether Tesla and SpaceX founder, Elon Musk, had downsized into a Boxabl Casita. We did a news story on this modular home several months ago, and there were rumors about Musk living in one near his SpaceX facility in Texas. In a recent interview, he confirmed the purchase of one of these homes, but said he uses it as a guest house, and not as his primary residence.

The basic model is 375 square feet in size and folds up for delivery. It only takes a few hours to set up and costs about $50,000.

That's it for today. Check the show notes for links. And please remember to hit the subscribe button, and leave a review!

If you haven't yet joined RealWealth, just hit the "join for free" button on our website. You'll get access to our rental market data, our investor portal, and our network of real estate professionals including investment counselors, market specific property teams, lenders for investors, 1031 exchange facilitators, and more.

Thanks for listening. I'm Kathy Fettke.

Links:

1 -https://www.cnbc.com/2022/08/29/fed-rate-hikes-wont-curb-inflation-if-spending-stays-high-paper-says.html

2 -https://www.marketwatch.com/story/u-s-factories-expand-again-ism-finds-in-sign-economy-is-still-growing-11662041369?mod=economic-report

3 -https://www.marketwatch.com/story/jobless-claims-tumbled-to-nine-week-low-of-232-000-layoffs-still-historically-low-11662035886?mod=economic-report

4 -https://www.marketwatch.com/story/job-openings-climb-to-11-2-million-and-show-labor-market-still-going-strong-11661869076?mod=economic-report

5 -https://www.marketwatch.com/story/u-s-home-price-growth-continues-to-decelerate-in-june-case-shiller-11661864864?mod=economic-report

6 -https://www.marketwatch.com/story/construction-spending-softens-in-july-11662041467?mod=bnbh_mwarticle

7 -https://www.marketwatch.com/story/consumer-confidence-rises-for-first-time-in-four-months-on-falling-gas-prices-and-slower-inflation-11661868411?mod=newsviewer_click

8 -https://www.freddiemac.com/pmms

9 -https://www.mortgagenewsdaily.com/markets/mortgage-rates-09012022

10 -https://calculatedrisk.substack.com/p/update-housing-completions-will-increase

11 -https://magazine.realtor/daily-news/2022/08/30/fsbos-usually-soar-in-a-hot-market-not-this-time

12 -https://www.autoevolution.com/news/elon-musk-confirms-he-owns-a-50000-boxabl-casita-tiny-home-prototype-195285.html

Orlando Landlords Sue County Over Rent Cap Proposal Sep 07, 2022

Show notes

Orlando landlords are suing Orange County, Florida, to challenge a rent cap proposal that's headed for the November ballot. Attorneys for two major real estate groups filed the lawsuit in mid-August and are seeking an injunction to keep it from going before voters. They say the proposal violates state law which bans rent control under most circumstances.

Hi, I'm Kathy Fettke and this is Real Estate News for Investors. If you like our podcast, please subscribe and leave us a review.

If the measure is approved, it would not apply to single-family rentals or vacation homes. It would only apply to multi-family units, and cap any rent increases to the rate of inflation as determined by the Consumer Price Index. The ordinance would last one year, and would need to be renewed by another vote to continue.

But there's a very high bar that the county must reach to get this approved. According to state law, a city or jurisdiction must prove there's a housing emergency and that rent control would solve the problem before it can impose any kind of rent control.

Ballot Measure Approved by Slim Margin

In a 5 to 4 vote, county commissioners approved the ballot measure about a week before the lawsuit was filed. It was discussed and debated four times before it went to a vote. Both tenants and landlords went before the commission to argue their sides of the situation.

Tenants cited skyrocketing rents that many say they can no longer afford. Landlords argued that higher tax bills, insurance premiums, and other expenses are forcing them to increase rents.

Landlords Say Rent Control Will Make Matters Worse

Florida Apartment Association representative, Amanda White, told the Orlando Sentinel that the proposed ordinance is "fundamentally flawed." She says: "It is unfortunate that a majority of the Orange County Commissioners disregarded (state) law and instead moved to place this measure on the ballot."

The CEO of the Florida Realtors group, Margy Grant, told the Sentinel: "Studies show that rent control has unintended consequences that can make matters worse." She says: "A better solution would be to pursue public-private partnerships that result in more affordable housing units."

Orange County Mayor Jerry Demings voted against the proposal, saying it will probably trigger a lawsuit that would be difficult for the county to defend because of the state law. And he was right. The county now faces a lawsuit, and attorneys representing the plaintiffs want to fast track the case to get the issue resolved before the election.

Tenants Say They Can't Afford Rent Increases

Among the arguments offered by tenants and rent-cap supporters is a 32% average increase in rent over a two-year span, from June of 2020 to June of this year. The average rent went from $1,357 to $1,799, according to rent-tracker CoStar.

Tenant advocates also cited a high level of requests for rental assistance in Orange County. It was reportedly more than $200 million in federal, state, and local rental assistance funds, and the most among all of the counties in Florida.

This is the first time that a local government in Florida has tried to impose rent control since the state law against rent control took effect. Lawyers arguing against the proposal say: "It is extremely unlikely that the shortcomings of the current residential rental market in Orange County… be deemed the type of dire emergency which must exist before a local government in Florida can adopt an enforceable rent control ordinance."

Of course, this lawsuit is being closely watched by other jurisdictions. A headline in another publication asks whether Miami will be next. The city of Miami Beach does have rent control that was implemented back in the 60's and 70's before the state law was passed. (2)

You'll find a link to the Orlando Sentinel article in the show notes at newsforinvestors.com. If you'd like to learn more about owning single-family rentals, please hit the join link on our website. And please remember to hit the subscribe button, and leave a review!

Thanks for listening. I'm Kathy Fettke.

Links:

1 -https://www.orlandosentinel.com/news/orange-county/os-ne-orange-rent-control-lawsuit-20220817-4bmmdtmq5zbq3e4zj5tij4imti-story.html

2 -https://fortune.com/2022/08/20/florida-landlords-try-to-halt-rent-control-initiative/

Tenant Groups Push for Federal Rent Regulation Sep 03, 2022

Show notes

Tenant advocates are asking the White House for help in curbing what they call "rent inflation." A coalition of tenant unions, community organizations, and legal groups is asking the Biden administration to declare a state of emergency and investigate ways to regulate rents. As reported by the Washington Post, these groups want the government to address rent growth with the same urgency as it has with high gas prices. (1)

Hi, I'm Kathy Fettke and this is Real Estate News for Investors. If you like our podcast, please subscribe and leave us a review.

The coalition sent a proposal that would involve six government agencies for an "all-out government intervention" on rent inflation. The Consumer Price Index shows that overall annual inflation hit 9.1% in June, which is a 40-year high. That includes food and energy, which helped drive that number to a record high, along with housing costs.

According to data firm Yardi Matrix, the year-over-year rate of inflation for multi-family rents was 12.6% in July. For single-family detached homes, CoreLogic reports that the annual rate was 12.8% in June. And some hot rental markets have seen much higher rates of rent growth, such as Miami with a June year-over-year reading of 35.5% for single-family homes.

On economist told the Post that it's important that policymakers address the issue of high prices for necessities. He says: "At this point, we're talking about food, gasoline, and housing."

Call for Immediate Action

Just recently, the Biden administration addressed the high price of gas with a release of oil from the national reserve. Congress was also asked to consider a gas tax holiday, but that hasn't materialized. The coalition says the high price for housing is also an economic crisis and needs the same kind of attention.

It wrote in a memo: "We urge the President to act immediately to regulate rents, as part of the Administration's efforts to curb inflation, and as a critical foundation for long term protections to correct the imbalance of power between tenants and their landlords."

The appeal is part of an effort called "Homes Guarantee" which has a website. You'll find a link in the show notes. The main message is: "Everyone living in the United States should have safe, accessible, sustainable, and permanently affordable housing: A Homes Guarantee." It says that "currently, a team of 75 directly impacted tenant leaders representing over 25 organizations are building our federal campaign with a focus on executive and agency actions to regulate rents and address the rent inflation crisis."

Potential Rent Regulations

In addition to the emergency declaration, the coalition wants President Biden to convene a cabinet-level interagency task force to identify possible rent regulations. The document mentions enforceable affordability, quality housing standards, and legal representation for tenants facing eviction.

The agencies it calls upon to help impose these regulations include the Federal Housing Finance Agency, the Federal Trade Commission, HUD, the Securities and Exchange Commission, The Department of the Treasury, and The Consumer Financial Protection Bureau.

High Rents Due to Housing Shortage

Although there are some landlords who impose unreasonable rent increases, it's not just greedy landlords who are at fault. As the Post reports, one of the big reasons for the high cost of housing is the housing shortage. The U.S. needs as many as five million more residential units to meet demand.

The White House has introduced a "Housing Supply Action Plan" which would close the gap in another five years. But that doesn't help tenants right now. The Federal Reserve is the one that is tasked with bringing down inflation, and it's doing that with incremental interest rate hikes which don't target the housing market specifically.

The Value of a Good Tenant

Many of the mom and pop investors we work with at RealWealth know the value of a good tenant and the results of fair rent levels. Although rent increases are often necessary for a rental business to remain in operation, it's not wise or even ethical to impose unrealistically high rents on tenants.

We just put together a Conscious Capitalism statement at RealWealth that addresses that issue. Conscious Capitalism refers to a socially responsible economic and political philosophy. At RealWealth, we believe that landlords need to be sensitive to tenant needs, and that above market rent increases do not show sensitivity.

They can also lead to highly restrictive rent controls which is what this coalition would like to see at the federal level. If you are a landlord, or even a tenant, you must know that rent control is bad for everyone because it limits what landlords can do to maintain their properties for the tenants' wellbeing. And it discourages landlords from wanting to remain in business, which is bad for the housing supply.

As RealWealth Investment Counselor, Joe Torre, said in our Conscious Capitalism statement: "If you try to squeeze every last dollar of rent from them, the good tenants will leave, and you'll be stuck with the tenants who don't have any other options.

You'll find a link to the Washington Post article, and the Home Guarantee website in the show notes at newsforinvestors.com. If you'd like to learn more about owning single-family rentals, please hit the join link at the website. And please remember to hit the subscribe button, and leave a review!

Thanks for listening. I'm Kathy Fettke.

Links:

1 - https://www.washingtonpost.com/business/2022/08/09/rent-inflation-biden/

2 -https://peoplesaction.org/wp-content/uploads/2022/08/Federal-Actions-to-Regulate-Rents_V3a.pdf

The Real Estate News Brief: Fed Chief's Jackson Hole Message, Inflation Dips in July, Hot Market Regrets for Homebuyers Aug 31, 2022

Show notes

In this Real Estate News Brief for the week ending August 27th, 2022... the Fed Chief's Jackson Hole message on rate hikes, the July dip in inflation, and why some home buyers say they have regrets.

Hi, I'm Kathy Fettke and this is Real Estate News for Investors. If you like our podcast, please subscribe and leave us a review. https://podcasts.apple.com/us/podcast/real-estate-news-real-estate-investing-podcast/id1079952715

Economic News

We begin with economic news from this past week. Federal Reserve Chief Jerome Powell shook things up with some hawkish remarks in a speech at Jackson Hole. His comments triggered a major stock market sell-off with the Dow dropping more than 1,000 points.

Powell's speech focused on the central bank's responsibility and resolve to get inflation back down to the 2% level. He said that could include another three-quarter point rate hike at the Fed's September meeting, but Powell said the size of the rate hike will depend on all the totality of the data between now and then. (1)

He also warned that households and businesses will feel some pain because of higher interest rates, slower growth, and softer labor market conditions, but doubled down on the need to continue with tight monetary policy for an extended length of time. Some economists believe that means "no" rate cuts in 2023, even if inflation has settled back down.

The Federal Funds rate is currently between 2.25% and 2.5% which Powell calls "neutral." The Fed committee is expecting that rate hikes will bring it close to the 4% level, and it will remain there through the end of next year. But he says the Committee may offer a new prediction at the upcoming September meeting.

Powell's speech came just after the latest report on the PCE or personal consumption expenditures index. That's the central bank's preferred gauge for inflation. The report shows inflation was down .1% in July, mostly due to lower gas prices. That brings the annual PCE down from 6.8% to 6.3%. (2) Powell responded to the report saying: "A single month's improvement falls far short of what the Committee will need to see before we are confident that inflation is moving down."

Meantime, the government issued an update on the second quarter GDP. It had initially said the economy contracted .9% but the revision shows it shrank .6%. The main reason for the upward revision is that consumer spending and business investment was stronger than previously reported. Business profits were also positive, after a decline in the first quarter. As MarketWatch reports, they were up 6.1% in Q2. That's good news because when companies are profitable, there's little incentive for layoffs. (3)

The weekly jobless report also shows that layoffs remain near record lows. New jobless claims were down to a one-month low of 243,000. They've been as low as 166,000 in March, which is the second-lowest level ever. The summer high point was 261,000, but they've been edging lower since then.

Moving on to home sales and the housing market slowdown. New home sales were down in July to their lowest level since January 2016. They fell 12.6% from an annual rate of 585,000 in June to 511,000 in July. Year-over-year, sales are down 29.6%. (4) Although that sounds bad, the housing market has been way too hot for quite some time. The slowdown will help slow home price growth, and bring the market back toward normal.

Existing home sales are also down. The National Association of Realtors reports that they fell 1% in July compared to June. But that's less than the 3% drop that analysts polled by the Wall Street Journal had expected. Year-over-year, existing home sales are down 19.9%. NAR's chief economist Lawrence Yun says: "In terms of the current housing cycle, we may be at or close to the bottom in contract signings." He says the smaller than expected drop is likely reflecting the stabilization of mortgage rates. (5)

Mortgage Rates

Mortgage rates had been bouncing around a bit near the 5% mark, but this last week, they shot up closer to 6%, which may not sound like they are stabilizing. Freddie Mac says the average 30-year fixed-rate mortgage was 42 basis points higher to a rate of 5.55%. The 15-year was up 30 points to 4.85%. (6) NAR economist, Nadia Evangelou, says that higher mortgage rates are hurting buyers more than higher home prices. She says a one percent increase in the mortgage rate is like a 13% increase in home price. (7)

In other news making headlines…

Homebuyer Regrets

The sizzling hot housing market we've seen in the last couple of years had resulted in a high number of remorseful homebuyers. A survey by Clever Real Estate shows that 72% of buyers have regrets about what they purchased. Of those remorseful buyers, 66% were millennial first-time buyers who were in a rush to settle down and raise a family.

About 1,000 people participated in the survey and had bought a home in either 2021 or 2022. 88% of those people said they were up against stiff competition which had an impact on their buying strategy. Many buyers said they increased their budget, sped up their plans to buy a home, expanded their search area, and even decreased the size of the home they wanted, in order to close on a deal. Some said they delayed their plans to purchase.

The biggest reason for their regrets is having spent too much money. 1 in 3 buyers paid more than asking price. More than half the buyers bought a fixer-upper and about 1 in 4 regret it. There's a lot of data in this survey. If you'd like to see the full report, you'll find a link in the show notes at newsforinvestors.com.

That's it for today. Please remember to hit the subscribe button, and leave a review!

If you'd like to find rental properties that will help you build long-term wealth, please hit the "join" button at our website. As a member, you have access to the Investor Portal where you can view sample properties and connect with our network of resources. We can put you in touch with property teams, lenders, 1031 exchange facilitators, attorneys, CPAs, and of course, our experienced investment counselors.

Thanks for listening. I'm Kathy Fettke.

Links:

1 -https://www.marketwatch.com/story/feds-powell-in-blunt-remarks-at-jackson-hole-says-bringing-down-inflation-will-cause-pain-to-households-and-businesses-11661522428?mod=federal-reserve

2 -https://www.cnbc.com/2022/08/26/feds-preferred-inflation-measure-shows-price-pressures-eased-in-july.html

3 -https://www.marketwatch.com/story/gdp-contracted-at-0-6-annual-pace-in-the-spring-11661431779?mod=inflation&mod=article_inline

4 -https://www.marketwatch.com/story/u-s-new-home-sales-fall-in-july-the-lowest-level-since-january-2016-11661263938?mod=economy-politics

5 -https://www.marketwatch.com/story/u-s-pending-home-sales-slip-again-in-july-11661349838?mod=economic-report

6 -https://www.freddiemac.com/pmms

7 -https://magazine.realtor/daily-news/2022/08/25/economist-mortgage-rates-hurt-buyers-more-than-home-prices

8 -https://anytimeestimate.com/research/american-home-buyers-2022/

Big Squeeze on Buildable Lots for New Homes Aug 24, 2022

Show notes

Buildable lots have been in short supply this year, but data from one real estate company expects that to improve next year. Zonda's New Home Lot Supply Index shows the year-over-year supply has decreased across the U.S. As of Q2, it was down 9.3%, but it doesn't take into account lots under development, which are up substantially compared to last year.

Hi, I'm Kathy Fettke and this is Real Estate News for Investors. If you like our podcast, please subscribe and leave us a review.

Zonda's chief economist, Ali Wolf, says: "While vacant developed lot inventory tightened slightly in the second quarter, the key number to track going forward is lots under development, which are up 28% compared to last year." (1)

10% Year-Over-Year Decline

The New Home Lot Supply Index came in at 38 for the second quarter, which represents a 2.2% decline from the first quarter and a 9.3% decline from the second quarter of last year. Zonda says that "nationally, the 2022 data reflects a significantly undersupplied market" and that most major metropolitan areas are experiencing this tight supply.

The report says that almost all the top major markets are "significantly undersupplied." The three areas where lot supply has declined the most on a year-over-year basis are in Jacksonville, Florida; Miami, and Denver. Jacksonville and Miami are also among the three with the tightest lot supply right now. San Diego is the third metro with the lowest inventory.

Areas where the lot supply grew the most from Q1 to Q2 include Los Angeles and Orange County at 17%. Boise, Idaho, was also up 15%.

Expected Rise in Lot Supply Next Year

Finding buildable lots should be easier in 2023 because of the big increase in lot development. Zonda says that 71% of the upcoming lots are in the excavation stage and should be available for development in the first half of next year.

Over the last few years, homebuilding activity has been impacted by labor and materials shortages, along with a tight inventory of buildable lots. Now that more lots are in the pipeline, it appears that home buyer demand could impact the pace of residential construction.

According to Wolf: "The housing market was moving a mile a minute heading into 2022." She says: "What we've seen is that consumers have responded to higher home prices and mortgage rates by slowing demand. Housing starts are tied to housing demand, and 87% of the builders surveyed by Zonda anticipate slowing new construction in response to the shifting market.

You'll find a link to Zonda's report on lot inventory in the show notes at newsforinvestors.com.

Please remember to hit the subscribe button, and leave a review!

Thanks for listening. I'm Kathy Fettke.

Links:

1 -https://www.prweb.com/releases/new_home_lot_inventory_remains_tight_in_2q22_zonda_reports/prweb18839151.htm

The Real Estate News Brief: Home Sales Plunge, Rent Increase Impact, Airbnb's Party Ban Aug 23, 2022

Show notes

In this Real Estate News Brief for the week ending August 20th, 2022... a big plunge in home sales, rent increase impact on tenants, and Airbnb's new anti-party technology.

Economic News

We begin with economic news from this past week, and a big drop in residential construction activity. The Commerce Department says that housing starts were down 9.6% year-over-year in July to their lowest level since early last year. Building permits also fell in July. They were down 1.3% compared to June. (1) HousingWire Data Analyst, Logan Mohtashami, says that homebuilders are pulling back until mortgage rates fall and home-buying activity picks up again. (2)

One reason that home builders are pulling back is the cancellation rate among buyers. A survey by John Burns Real Estate Consulting shows that the cancellation rate has more than doubled since April to 17.6% in July. The firm's data also shows a 16% cancellation rate for existing home sales or about 63,000 deals that fell through. (3) Some of the highest cancellation rates are in Florida along with Las Vegas and San Antonio.

Why the high cancellation rate? As CNBC reports, there are two main reasons. One is that some buyers no longer qualify for a loan with a higher interest rate. The second is that homebuyers are worried about inflation and the possibility that home values might drop so they are simply walking away from their deals.

The situation has rattled home builder confidence. The National Association of Homebuilders monthly confidence index dropped below 50 in August, which is the midpoint between negative and positive sentiment. The last time it fell below 50 was at the beginning of the pandemic. One year ago, it was 75. (4) Homebuilders are describing the situation as a "housing recession."

Existing home sales were also down again, for a sixth straight month. The National Association of Realtors says that sales fell 5.9% in July to a seasonally adjusted annual rate of 4.81 million. If you exclude the pandemic, that's the weakest sales activity since November 2015. Although inventory was up 4.8%, there's still just a 3.3 month supply of homes, and with an average 14 days on the market. (5)

The job market remains stable. Initial jobless claims were down a few thousand to a total of 250,000. Economists say the economy has slowed down because of rising interest rates, but there's no surge in lay-offs because the economy is still growing, and companies want to hold on to their employees.. (6)

Mortgage Rates

Mortgage rates dipped a little. Freddie Mac says the average 30-year fixed-rate mortgage was down nine basis points to 5.13% The 15-year was down 4 points to 4.55%. (7)

In other news making headlines...

Building Material Prices Move Higher

The cost of building materials moved higher in July led by a surge in concrete prices. The National Association of Home Builders says that building materials were up .4%, while concrete prices shot up 2.5%. (8)

The NAHB says that ready-mix concrete prices have gone up in 17 of the last 18 months and now costs about 35% more than it did before the pandemic. That's similar to the total price increase for all building materials combined during the same time period.

Rent Increase Impact on Tenants

Inflation is making it difficult for tenants to keep up with their rent payments. Freddie Mac conducted a survey that shows almost all of them have been impacted by higher prices, and that 60% of them have experienced a rent increase in the past year. 40% of those tenants say they are somewhat likely to miss a rent payment while 20% say they are extremely likely to miss a payment. (9)

The survey also asked about the size of the rent increases. About a quarter of the survey participants said that rent went up 10% or less. 15% said it went up 10% or more. 11% said rents were more than 20% higher. 6% said the increase was more than 30%.

Airbnb's New U.S. Anti-Party Technology

Airbnb has launched new anti-party tools in the U.S. and Canada. The tools will help identify users who appear to be organizing a party. The technology will look for red flags including any negative reviews on Airbnb, whether the user is local, the length of the reservation, and whether it's a weekend or a weekday. (10)

Airbnb has been testing these tools in Australia since October of last year, and has found that they are very effective. The company says there was a 35% drop in unauthorized parties while the pilot program was in effect.

The company says this new system is more robust than the "under-25 system" that is currently in place in the U.S. That program is mostly focused on people under the age of 25 without any positive reviews and are booking an Airbnb locally, indicating a possible desire to hold a party with their friends.

That's it for today. If you'd like to read more about any of these topics, check the show notes (below) for links at newsforinvestors.com. And please remember to hit the subscribe button, and leave a review!

If you haven't yet joined RealWealth, please sign up. It's free and will give you access to our members-only Investor Portal where you'll find data on specific markets, the property teams that we work with, and other resources.

Thanks for listening. I'm Kathy Fettke.

Links:

1 -https://www.census.gov/construction/nrc/pdf/newresconst.pdf

2 -https://www.housingwire.com/articles/homebuilders-are-done-until-mortgage-rates-fall/

3 -https://www.cnbc.com/2022/08/16/homebuyers-are-backing-out-of-more-deals-as-recession-fears-linger.html

4 -https://www.marketwatch.com/story/home-builders-see-housing-recession-as-builder-sentiment-index-drops-further-in-august-11660572142?mod=economic-report

5 -https://www.marketwatch.com/story/july-existing-home-sales-fall-for-the-sixth-straight-month-realtors-see-housing-recession-11660831837?mod=economic-report

6 -https://www.marketwatch.com/story/jobless-claims-fall-to-250-000-and-signal-labor-market-is-still-strong-11660826638?mod=economic-report

7 -https://www.freddiemac.com/pmms

8 -https://eyeonhousing.org/2022/08/building-materials-prices-increase-in-june-as-concrete-surges/

9 -https://www.multihousingnews.com/60-of-residents-saw-rent-increases-freddie-mac/

10 -https://news.airbnb.com/airbnb-introduces-new-anti-party-technology-in-us-and-canada/

The Real Estate News Brief: Surprise Inflation Report, Mortgage Rate Prediction, Housing Crisis Solution Aug 18, 2022

Show notes

In this Real Estate News Brief for the week ending August 13, 2022… a surprise inflation report, how that might impact mortgage rates, and a solution for the housing crisis involving women and immigrants.

Hi, I'm Kathy Fettke and this is Real Estate News for Investors. If you like our podcast, please subscribe and leave us a review.

Economic News

We begin with economic news from this past week. The report on the Consumer Price Index, or CPI, shows a bigger-than-expected decline in July. According to the Labor Department, the annual rate of inflation dropped from 9.1% to 8.5%. Economists surveyed by Dow Jones had expected a reading of 8.7%. The decrease was mostly due to a big drop in gas prices. The core rate, which omits prices for fuel and food, was also better than expected at 5.9%. (1)

Producer prices also put on the brakes in July. That index was down .5% after a 1% jump in June. As reported by Market Watch, it's the first drop in producer prices since April of 2020. (2)

Jobless claims were up by about 14,000 to a total of 262,000 new claims for the week. There's been a slow increase in applications as the Fed tightens its monetary policy and companies tighten their belts, slightly. Stuart Hoffman at PNC Financial told CNBC: "The rise in initial claims since early April is a cool breeze blowing over a hot labor market." Continuing claims also rose to a total of about 1.43 million. (3)

Consumers are feeling a little better about the economy because of falling gas prices. The University of Michigan's Consumer Sentiment Index was up four points to 55.1 in August. MarketWatch reports that lower gas prices have put consumers in a better mood but they are still concerned about the cost of things like food and rent. (4)

Mortgage Rates

Mortgage rates also jumped back over 5% last week. Freddie Mac says the average 30-year fixed-rate mortgage rose 21 basis points to 5.22%. The 15-year was 4.59%.

Freddie says: "Although rates continue to fluctuate, recent data suggests that the housing market is stabilizing as it transitions from a surge of activity during the pandemic to a more balanced market." (5)

In other news making headlines…

NAR: Mortgage Rates May Have Topped Out

The latest inflation reports have led some economists to believe that we won't see mortgages go much higher than they are now. The Chief Economist for the National Association of Realtors, Lawrence Yun, believes that the worst of the situation is now behind us. (6)

He said in a realtor.com blog: "If there is a sustained decline in gasoline prices and more production of apartments and single-family homes, consumer prices will pull back, encouraging the Federal Reserve policy to be less aggressive." And that: "Mortgage rates will fall."

Auction.com: Foreclosure Spike Expected

Foreclosure activity is expected to increase over the next 12 months, as pandemic-related protections expire for seriously delinquent homeowners. The information comes from a survey by Auction.com with dozens of clients. (7)

The survey shows that nine in 10 mortgage servicers are expecting more foreclosures. 74% expect a "slight increase" while 15% expect a "substantial increase."

The expected foreclosure rate is below historical averages nationwide but some clients expect 30% or more of their delinquent inventory to end up in foreclosure. The survey shows that the loans most likely to foreclose are government-insured loans and properties in the Midwest.

Women & Immigrants to the Rescue!

Getting more women and immigrants interested in the construction industry could help solve the housing crisis. Home builders have been dealing with a severe labor shortage, and a Harvard researcher told members of Congress recently, that the industry could expand its workforce by promoting the industry to women and immigrants. (8)

Harvard's Christopher Herbert says the industry is "overwhelmingly male" and needs more women on the job. He also pointed out that 20 years ago "we built two million homes a year… and a lot of that was through immigration." Currently, about 25% of workers are immigrants although some states, like California and Texas, have a much higher percentage. About 11% of construction workers are women.

Thanks for listening. I'm Kathy Fettke.

Links:

1 -https://www.marketwatch.com/story/coming-up-u-s-july-cpi-data-due-at-8-30-am-eastern-11660132986?mod=mw_latestnews

2 -https://www.marketwatch.com/story/u-s-producer-prices-moderate-in-july-11660221842?mod=bnbh_mwarticle

3 -https://www.marketwatch.com/story/u-s-jobless-claims-move-higher-in-latest-week-continuing-recent-trend-11660222483?mod=economic-report

4 -https://www.marketwatch.com/story/falling-gas-prices-buoy-consumer-sentiment-temper-inflation-expectations-11660313127?mod=newsviewer_click

5 -https://www.freddiemac.com/pmms

6 -https://magazine.realtor/daily-news/2022/08/11/yun-slowing-inflation-suggests-mortgage-rates-have-topped-out

7 -https://www.housingwire.com/articles/expect-a-foreclosure-spike-in-the-coming-months/

8 -https://www.marketwatch.com/story/the-solution-to-the-labor-shortage-in-construction-more-women-and-immigrants-says-harvard-researcher-11657823746?mod=real-estate-construction

Construction of New Homes Stalls in July Aug 17, 2022

Show notes

New home construction plunged in July, according to the Commerce Department. The reports shows that housing starts fell 9.1% in July to a seasonally adjusted annual rate of 1.45 million. That's down from a revised 1.6 million in June, and the lowest level of new home construction since the start of the pandemic in 2020. (1)

I'm Kathy Fettke.

Single-family construction was down even more, at 10.1%. Permits for new homes were also down 1.3%. But the regional numbers are wildly different, with the Northeast seeing a 65.6% increase in total housing starts. The other three regions account for the big drop.

Builders say more homebuyers are canceling contracts because of high prices for homes, mortgages, and the cost of living in general. One in five says they have reduced their home prices in the past month to limit contract cancellations.

The Commerce Department says the average cost to build a home has gone up almost 38% since January of 2020. That, along with rising mortgage rates, and supply-chain issues that cost both time and money, are discouraging many homebuyers.

The National Association of Home Builders Chairman Jerry Konter describes the current market as a "housing recession." But Chief Economist for the National Association of Realtors, Lawrence Yun, says there is a silver lining. With inflation showing signs of a peak, and mortgage rates potentially stabilizing around 5%, he expects renewed buyer activity – especially given the demand for housing and the shortage of homes. (2)

Yun says: "Homebuilders are naturally very cautious about rising unsold inventory during the construction phase. But those completed homes are finding buyers within three months."

He also sees less uncertainty in the housing market as supply chain issues ease up for things like lumber and appliances. Rapidly rising rents are also providing strong incentives for the construction of rental housing.

You'll find a link to the Commerce Department report in the show notes at newsforinvestors.com.

Please remember to hit the subscribe button, and leave a review!

Thanks for listening. I'm Kathy Fettke.

Links:

1 - https://www.census.gov/construction/nrc/pdf/newresconst.pdf

2 - https://magazine.realtor/daily-news/2022/08/16/builders-concerned-about-sudden-pullback-in-new-home-market