March Newsletter
March Newsletter
The Madness Continues!
Are Home Prices Already Done Falling?
Some people might like the idea of perpetual appreciation in the housing market, but others know that the industry was badly in need of a cool-down after values surged at an unprecedented pace post-pandemic. While the interest rate spike of 2022 wasn’t entirely unprecedented, it was the fastest in decades and it left no doubt as to when home prices should embark on the much-needed correction. Two of the most official methods to track home price progress are the FHFA and Case Shiller Home Price Indices (HPIs), released concurrently once per month. January’s update just came out this morning and the results are mixed. In annual terms, price appreciation continues to decline rapidly. Based on price trends over the past 12 months, it would be almost impossible for the annual pace to avoid dipping into negative territory in the coming months. That will be more a reflection of how high prices were a year ago than an absence of resilience in the present. In fact, the most recent trends in prices are more resilient than expected–especially when viewing the broader FHFA data set. FHFA’s monthly HPI moved back into positive territory in January. Case Shiller was down 0.4%, but that’s an improvement from December’s drop of 0.5%. Both are well off their sharpest months of depreciation late last year. So yes… home prices are declining from last year and depending on the metro area, prices are still declining month-over-month to a small extent. But the declines were expected. The surprise is how shallow they’ve been and how quickly the resilience seems to be stepping in. The extent to which recent resilience continues will depend on several factors. The most notable is likely the mortgage rate environment, and that will depend on the course of inflation and other economic data. Recent banking drama has some investors thinking that inflation could fall back to friendlier levels sooner than expected, but the market needs to see proof in the data before we see bigger changes in rates. For now, rates have managed to level off without jumping back up to the higher range seen in 2022. Big-ticket reports like the Labor Department’s jobs report and the Census Bureau’s Consumer Price Index (CPI) will do more than others to set the tone. Any additional bank failures would almost certainly put downward pressure on rates, but an absence of additional drama would push back in the opposite direction–especially if the economy manages to remain resilient.
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NAR: Existing-home sales jump in February, ending a year of declines – by John Yellig March 21, 2023 – Existing-home sales broke a 12-month streak of declines in February, surging 14.5% compared to January and posting the largest monthly increase since July 2020, the National Association of REALTORS® said. The annual rate of 4.58 million sales was above analyst expectations but down 22.6% from the February 2022 rate of 5.92 million. Sales were up in all four major U.S. regions on a monthly basis but down on an annual one the longest on record. “We continue to expect large year-over-year declines in home sales for the first half of this year,” Keller Williams Chief Economist Ruben Gonzalez said. “We also expect to see year-over-year declines in home prices for the next several months. The recent bank failures are likely to weigh on home sales in coming months despite the recent decline in mortgage rates.” The 30-year fixed-rate mortgage averaged 6.60% as of March 16, down from 6.73% a week before but up from 4.16% a year earlier, according to Freddie Mac. “Conscious of changing mortgage rates, home buyers are taking advantage of any rate declines,” NAR Chief Economist Lawrence Yun said in a press release. “Moreover, we’re seeing stronger sales gains in areas where home prices are decreasing and the local economies are adding jobs. Inventory levels are still at historic lows. Consequently, multiple offers are returning on a good number of properties.” Total housing inventory at the end of February was 980,000 units, flat with January and up 15.3% on a year-over-year basis. At the current sales pace, unsold inventory represented a 2.6-month supply, down 10.3% from January but up from 1.7 months in February 2022. Properties typically remained on the market for 34 days in February, up from 33 days in January and 18 in February 2022. Fifty-seven percent of homes sold in February were on the market for less than a month. By property type, single-family home sales in February jumped 15.3% month over month to 4.14 million. The median existing single-family home price was $367,500, down 0.7% on a year-over-year basis. Existing condominium and co-op sales also increased, coming in at a seasonally adjusted annual rate of 440,000 units in February, up from 410,000 in January. The median existing condo price rose 2.5% year over year to $321,000.
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HOUSTON HOME SALES COMPARE FAVORABLY TO PRE-PANDEMIC FEBRUARY – HOUSTON — (March 8, 2023) — As the Houston housing market continues to transition to pre-pandemic conditions, positive indicators are beginning to blossom. While February sales were down year-over-year, they were up compared to the last pre-pandemic February, in 2019. In addition, year-over-year pricing fell for the first time in more than two years and more homes were listed for sale. These are among the signs that would-be homebuyers have anticipated after moving to the sidelines last year when mortgage interest rates began to rise. According to the Houston Association of Realtors’ (HAR) February 2023 Market Update, single-family home sales fell 23.0 percent, with 5,723 units sold compared to 7,430 in February 2022. That marks the 11th consecutive monthly decline. However, when compared to the last February before the pandemic – February of 2019, with sales volume of 5,339 units – sales were up 7.2 percent. All housing segments saw year-over-year declines in February. By contrast, both single-family and townhome/condominium rentals had solid gains, with buyers pivoting to the rental market until mortgage rates ease and inflation subsides. HAR will issue its latest report on rental trends in the February 2023 Rental Home Update, to be released next Wednesday, March 15. “For a true apples-to-apples comparison of the Houston housing market, you have to examine where we were before the pandemic, in 2019, and by that standard, we are in similar territory,” said HAR Chair Cathy Treviño with Side, Inc. “The traditional year-over-year comparison shows a market slowdown, but even then, there are positive trends in the form of moderating prices and growing inventory that bode well for spring homebuying.” Single family home prices fell for the first time since the spring of 2020. The average price dropped 2.4 percent to $385,103 and the median price declined 1.6 percent to $320,000. That is in sharp contrast to when prices reached record highs of $438,294 (average) in May 2022 and $353,995 (median) in June 2022.
Commercial Real Estate Highlights: Courtesy of BISNOW. Please click on the logo to learn more.
March 29, 2023 – WeWork CEO: Traditional Office Is The New Retail, And We’re E-Commerce – WeWork CEO Sandeep Mathrani is out with a new message to shareholders: “This is WeWork’s moment.” In an investor letter released Wednesday, Mathrani positioned his company as a solution to the uncertain future — and some say the dire state — of office real estate. WeWork released data showing its occupancy ended the year up 17%, and it highlighted how its leasing activity in some major cities outpaced that of the traditional office market. Still, the company is losing hundreds of millions of dollars per quarter and its stock price has dipped below $1 per share, leading investor SoftBank to consider a financial restructuring plan. As part of its efforts to entice stock market investors, Mathrani argued that his company is meaningfully differentiated from the traditional office real estate sector by drawing an analogy: If the conventional office is brick-and-mortar retail, WeWork is e-commerce. He pointed to the exponential growth of e-commerce over the last two decades, growing from 1% of retail sales in 2000 to 21% in 2021. “Just as we saw the brick-and-mortar retail industry transform with e-commerce, we believe a seismic behavioral shift is transforming the traditional commercial office landscape — putting WeWork front and center as the flexible solution,” Mathrani wrote. The picture painted of WeWork as a disrupter in the office real estate space isn’t a new argument for the company, but it is one that comes at an especially turbulent time for the sector. As of last week, the return to office stood at about 48% of what it was prior to the pandemic, according to Kastle Systems’ weekly report. In the letter, Mathrani noted the differentiators between WeWork spaces and traditional office space: flexible payment structures, immediate starts to memberships and ready-to-go workspaces. It’s a model the company claims is working: WeWork said its occupancy at the end of 2022 was 75%, up 17% from one year earlier, adding that its global membership total of 682,000 was the highest in the company’s history. WeWork also provided data on its leasing activity in select cities and compared it to the overall office market. With an average of 60 SF per workstation, WeWork said it filled 950K SF of its New York City coworking spaces in the fourth quarter, equivalent to 23% of the total amount of office space leased in the city during the quarter. It said it leased 240K SF in San Francisco, or 13% of the market’s overall leasing activity. And it reported 170K SF of leasing in Chicago, equivalent to 19% of the market’s overall activity. “The growth pace of our market share accelerated during the fourth quarter in many of our largest markets,” Mathrani said in the letter. Despite its spaces filling up, WeWork has closed dozens of locations in recent months as it tries to cut costs and reduce its quarterly losses. WeWork lost roughly $2.3B last year, down from its $4.6B loss in 2021. The company exited 40 leases in November, and in January it announced 300 job cuts globally. Its share price dropped below $1 this month and was trading at $0.73 per share at 2 p.m. ET Wednesday. Since 2020, WeWork has fully exited 250 leases, a statistic the company positions as a move toward its “optimization” effort — planting locations where it sees the most value. WeWork says it doesn’t have public information for how many locations have opened in that time, but pointed to recent expansions in Paris, Atlanta and Singapore. As of December, WeWork had 779 open locations across 39 countries.
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Texas Farm & Ranch News and Information: Courtesy of the Texas A&M Agricultural Law Blog. Please click on the logo to learn more.
March 2023 – *Transparency key when splitting the farm between multiple children. Kelly Wilfert with Ruder Ware wrote a blog post discussing the importance of transparency in the agricultural estate planning process when multiple children are involved. She also offers three topics that should be included in these discussions. [Read blog post here.]
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