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.
A Fistful of Dollars – "Get Three Coffins Ready"
Dir: Sergio Leone
1964 pic.twitter.com/J1aguNZcpB— Steve Reeves 📸🎞️📽️ (@SteveReeves2112) June 20, 2023
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
The extreme heat in Texas will only get worse into July. The whole state may be pushing 105°F actual high temperatures. This might be worse than 1980.
Prepare for the worst in Dallas even if current forecasts only show 105°F. A more intense heat dome could easily push temps… pic.twitter.com/F7glRDu52j— Ryan Maue (@RyanMaue) June 22, 2023
Appraiserville
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
You’re clearly full of insights and ideas as a reader of these Housing Notes. Please share them with me early and often. I appreciate every email I receive, as it helps me craft the following week’s Housing Note.
See you next week!
Jonathan J. Miller, CRE, Member of RAC
President/CEO
Miller Samuel Inc.
Real Estate Appraisers & Consultants
Matrix Blog
@jonathanmiller
Reads, Listens and Visuals I Enjoyed
- Rents for 2 Million New Yorkers to Rise Again This Year [New York Times]
- Distressed US Commercial Property Assets Swell to $64 Billion [Bloomberg]
- There Were Fewer Homes for Sale in May Than Any Other Month on Record [Redfin]
- Existing-Home Sales Edged Higher by 0.2% in May [NAR]
- How WFH worsened the housing shortage [Axios]
- Telecom Pioneer Puts Quarter Billion Dollar Price on Legendary L.A. Estate [Dirt]
- Home Listings Plummet as High Mortgage Rates Tie Owners Down [Bloomberg]
- Rent Board Approves 3% Hike for Stabilized Tenants [The City]
- NYC Tower Targets ‘Renters by Choice’ With $26,000 Apartments [Bloomberg]
- Beware of the Ultimate Golden Handcuffs: Cheaper Housing [Bloomberg]
- May Housing Starts: Record Number of Multi-Family Housing Units Under Construction [Calculated Risk]
- US Homebuilder Sentiment Increases to an Almost One-Year High [Bloomberg]
- The Places Most Affected by Remote Workers’ Moves Around the Country [NY Times]
- What’s Behind the Widening Divide Between New York City and Its Suburbs? [NY Times]
- Why the Gucci Penthouse Has Been on the Market for 8 Years [Curbed]
- Black Real Estate Agent Wins Racial Bias Case Against Hamptons Firm [NY Times]
- Ghost Town that Figured in ‘Tenet’ Sells to Secret Buyer for Nearly $23 Million [Dirt]
- Jim Cramer Has a Hard Left Take on Home Ownership That Needs Some More Context [The Street]
- Rent growth is slowing, but that doesn't mean rents are affordable [Axios]
My New Content, Research and Mentions
- When moving means a higher mortgage rate, why sell? [Marketplace]
- NYC Backs Price Hikes for 1 Million Rent-Stabilized Apartments [Bloomberg]
- UWS tower targets 'renters by choice' with $26,000 apartments [Crain's New York]
- Even NYC Real Estate Brokers Think Fees Have Gotten Bonkers [The Daily Beast]
- WSJ News Exclusive | Tinder Co-Founder Wants Buyer to Swipe Right on $32 Million L.A. Home [Wall Street Journal]
- Tinder Co-Founder Wants Buyer to Swipe Right on $32 Million L.A. Home [Mansion Global]
Recently Published Elliman Market Reports
- Moving from NY to Miami can save $195K in cost of living, taxes [NY Post]
- Elliman Report: Manhattan, Brooklyn & Queens Rentals 5-2023 [Miller Samuel]
- Elliman Report: Colorado New Signed Contracts 5-2023 [Miller Samuel]
- Elliman Report: California New Signed Contracts 5-2023 [Miller Samuel]
- Elliman Report: Normandy Isles/Normandy Shores New Signed Contracts 5-2023 [Miller Samuel]
- Elliman Report: Florida New Signed Contracts 5-2023 [Miller Samuel]
- Elliman Report: New York New Signed Contracts 5-2023 [Miller Samuel]
- Elliman Report: Florida New Signed Contracts 4-2023 [Miller Samuel]
- Elliman Report: Colorado New Signed Contracts 4-2023 [Miller Samuel]
- Elliman Report: California New Signed Contracts 4-2023 [Miller Samuel]
Appraisal Related Reads
- A new homes rebound & avocado toast [Sacramento Appraisal Blog]
- Appraisal Insights firm launches to help combat bias in appraisals [Housingwire]
- Understanding Appraisal Factors That Impact Home Sales: Insights for Real Estate Agents [Birmingham Appraisal Blog]
- Home Appraisal vs. Inspection: Key Differences All Buyers and Sellers Should Know [Bob Vila]
- To fight racial, ethnic bias, home appraisal field looks to diversify [News 13]
- Home Renovating While Black: The Very Real Costs That Nobody Tells You About [Architectural Digest]
Extra Curricular Reads
- OpenAI quietly lobbied for weaker AI regulations while publicly calling to be regulated [Mashable]
- David Pogue Had Suspicions Regarding Missing OceanGate Titanic Submarine [Daring Fireball]
- To make electric vehicle batteries, China must be involved [Flowing Data]
- Humans removed so much groundwater it tilted Earth 31.5 inches [Axios]