It's Too Soon To Count Coffins For Housing

It’s Too Soon To Count Coffins For Housing

It’s been a “Fistful of Dollars” for housing during the pandemic era but its too soon to call for its demise.

Did you miss last week’s Housing Notes?
June 16, 2023: Discussing The Benefits Of Three Different Types Of Housing Construction

But I digress…

With Rates Much Higher Than Last Year, Why Sell?

On this edition of Marketplace, I make the point that homeowners’ change in circumstances will eventually overrule the financial motivation to sit tight (assuming no rate cut is in sight).

The Commercial Real Estate Picture Is Getting More Ominous

But I doubt commercial real estate’s troubles will significantly impact the everyday lives of consumers like the residential meltdown did 15 years ago.

One of the biggest problems for landlords today is that most can’t descend to meet market rates because of their debt service obligations. Over the next 5-10 years, many highly leveraged buildings will transfer from weak to strong hands and proceed ahead, unlike the residential meltdown resulting from limited due diligence.

Higher borrowing costs have pummeled the commercial real estate industry, driving prices lower and causing some owners to choose to default. Much of the potential distress is tied to buildings that need refinancing when lenders are tightening credit following the collapse of several regional banks.

Vacancy rates are high and rising (sounds like a movie title).

New Residential Listings Entering The Market Craters

We are seeing this same activity pattern in our newly signed contract reports, and it is occurring within the national data. Why leave a 2.75% 30-year to a 6.75% 30-year unless you have to?

NAR: While Existing Sales Fell 20% Annually, They Are Rising Monthly

NAR just released their May 2023 existing home sale data, showing that prices and sales moved slightly higher year over year.

“Mortgage rates heavily influence the direction of home sales,” said NAR Chief Economist Lawrence Yun. “Relatively steady rates have led to several consecutive months of consistent home sales.”

On those existing sales, if we consider $5.6 million as the pre-pandemic baseline, the rate of sales was supercharged by $1 million to $6.6 million during the pandemic housing boom and is currently $1 million below pre-pandemic levels at $4.6 million. That’s why the YOY results look so bad, with sales down $2 million from the pandemic. It’s essential to recognize the pandemic era as an outlier.

Loving The “WFH Worsening The Housing Shortage” Logic Here

Here is the simple logic to explain the adverse impact of WFH:

When that person works from home, the household is going to feel more cramped than usual unless it expands by about 150 square feet. If the family demands 150 more square feet, that’s a substantial increase in demand, at 15%.

Market Share Of Remote Workers In New York Is More Than A Third But That’s Where A Lot Of Losses Came From

The data on remote migration in this NYT/Upshot report is from 2021, but it’s still fascinating.

First, the higher the income, the higher the chance an employee can work remotely. I’ve been saying this for a couple of years, so it’s nice to see it illustrated clearly.

The rise of remote work meant that many such workers moved into these places, too. But for New York, San Francisco, Washington, and Los Angeles, significantly more remote workers left than arrived.

A Few Visual Reflections On Manhattan Housing Market

The spike in mortgage rates hasn’t significantly impacted overall housing prices…

…but the rate spike has slowed sales significantly…

Yet the drop in sales hasn’t resulted in a listing inventory surge as it typically would…

Getting Graphic

My favorite housing market/economic charts of the week made by others

Apollo’s Torsten Slok‘s amazingly clear charts.

Kastle card swipe data charts

Remember that Kastle charts are overstating occupancy* because their pre-pandemic occupancy benchmark was 100% which is simply incorrect (*measures card swipe activity as a proxy for occupancy).

After all the recent hoopla about crossing the 50% threshold, “occupancy” retreats back below the threshold.

My favorite random charts of the week made by others


June 21st: National Appraiser Day?

I’ve never heard of this day – passed along to me by a colleague – and I couldn’t find a credible source, but I’ll take it. Can someone help find the source for me?

AEI: Appraisal Wavers Are Officially A Way Of Life

OFT (One Final Thought)

While I have characterized 2023 as the “year of disappointment,” this parody clip seems surprisingly realistic, made even better by the insights of a “Professor of Financial Disappointment” at Columbia.

Brilliant Idea #1

If you need something rock solid in your life (particularly on Friday afternoons at 2 p.m.) and someone forwarded this to you, , or you think you already subscribed, sign up here for these weekly Housing Notes. And be sure to share with a friend or colleague if you enjoy them because:

– They’ll have a fistful of dollars;
– You’ll order some coffins;
– And I’ll be financially disappointed.

Brilliant Idea #2

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See you next week!

Jonathan J. Miller, CRE, Member of RAC
Miller Samuel Inc.
Real Estate Appraisers & Consultants
Matrix Blog

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