Bay Area home prices are falling as mortgage rates climb to their highest levels in more than two decades, squeezing many house-hunters out of the market and keeping would-be sellers on the fence.
The median price of existing single-family homes dropped 5.2% to $1.26 million across the region from June to July, according to the California Association of Realtors. The decline followed steady price gains most of the year as sales picked up during the traditionally busier spring and early summer home-buying seasons.
But now, spiking mortgage rates are slamming the brakes on an already challenged local real estate market. On Thursday, Freddie Mac reported the average rate for a typical 30-year fixed mortgage rose to 7.09%, up from 6.96% last week, reaching the highest peak since 2002.
“People are just not jumping into buying a home right now at these interest rates,” South Bay real estate agent Ramesh Rao said.
Meanwhile, a 30-year fixed “jumbo” home loan — which is common for more expensive houses — averaged 7.65% on Thursday, according to Bankrate.com. In the Bay Area, a jumbo loan is a mortgage that exceeds $1,089,200.
Mortgage rates have been on a sharp upward trajectory since last year when the Federal Reserve began raising the cost of borrowing to rein in inflation. Rates have more than doubled their recent sub-3% lows, in turn boosting monthly home payments for new mortgages by thousands of dollars and squashing a record-setting pandemic real estate boom.
In November, rates briefly topped 7% before falling to around 6% in February. They’ve been trending up again since.
Despite slowing inflation, Oscar Wei, an economist with the realtors association, said rates could reach as high as 7.5% in the coming weeks before dropping to around 6.5% by the end of the year.
That will likely put more downward pressure on home prices in the near term. And even if rates decline in the months ahead, fewer people typically look for homes during the second half of the year, meaning prices should continue to soften in line with seasonal trends.
“For buyers who are interested in buying in the fall and winter, there could be some opportunities because it might not be as competitive,” Wei said. “There may be a little more negotiation power for buyers.”
From June to July, median home prices dropped 8.5% in San Francisco to $1.46 million, 3.4% in Alameda County to $1.26 million, 3.2% in Contra Costa County to $900,000, 2.7% in San Mateo County to $1.98 million and 1.4% in Santa Clara County to $1.8 million.
For more than a year now, buyers who’ve been able to stomach the steeper rates have been left with few homes to choose from. That’s partly due to the Bay Area’s chronic housing shortage. But many homeowners who might otherwise be willing to sell have also been unwilling to give up the lower rates they locked in before the recent spike.
Sellers now putting houses up on the market are often doing so reluctantly.
“It’s definitely more so out of necessity, and they’re doing so unhappily because they have a direct comparison point to just a year and a half ago,” said Montana Gabrielle Hooks, an Oakland real estate agent.
Hooks said some of her clients have been forced to sell as their employers put an end to full-time remote work. One is stuck selling a recently purchased, spacious new-build in suburban Fairfield after being required to show up to the office in San Francisco.
“They would have never have purchased it if there was even a decent chance that they had to come back to the office so soon,” she said.
I mentioned yesterday that the National Association of Home Builders was in Washington looking for their own bailout, and now we have some more details, startling ones at that.
The NAHB wants mortgage rates reduced (subsidized) to as low as 2.99 percent on 30-year fixed-rate conventional mortgages purchased between January 1 and June 30 of this year, followed by rates of 3.99 percent for the latter half of the year.
Additionally, they want the current $7,500 home buyer tax credit bumped up to 10 percent of the home’s purchase price, capped at 3.5 percent of local FHA loan limits.
That would result in a range between $10,000 and $22,000, available to all purchasers, and would come with the elimination of the recapture provision.
The whole plan is being coined as “Fix Housing First,” with the hope it becomes the main focus of the pending stimulus plan bouncing around Washington.
And now for the shocking part: “The excess housing inventory in today’s market is the result of unprecedented foreclosures, not overbuilding. That’s why we support Sheila Bair’s foreclosure relief plan and any common-sense proposal to alleviate the foreclosure problem,” NAHB chief Jerry Howard said in a statement.
So the excess supply of housing inventory is not the result of overbuilding? Hmm…
If I recall, the foreclosures came after years of overbuilding that eventually led to an oversupply and subsequent price depreciation.
Face it; you can’t take a drive for more than 20 minutes in a metropolitan area without coming across a new, sprawling development full of vacant cookie-cutter homes.
And it’s near impossible not to pass a corner where a young sign-spinner is urging you to check out the latest, new development full of “luxury” condos and single-family homes.
So what’s the big plan for the homebuilders? Lower rates to fill up all their vacant, new properties with more families so they can cut their losses and run? How long before that backfires and we’re in an even bigger mess?
Mortgage rates only kept climbing in the last week. Buyers in this real estate market notice these affordability changes, and so we can see in the data fewer home purchase offers, slightly climbing unsold inventory, and slightly more price reductions for the homes that are on the market. This is the same pattern as we talked about last week. The first half of the year had surprisingly resilient sales, but that is slowing again. Mortgage rates are at their highest level in 20 years because the economy just keeps reporting strong data. And every uptick in mortgage rates leads to a downtick in the number of home buyers in the market.
Rising rates make more inventory. So how much inventory will we add this fall? Well as of now, these slowing signals are subtle. This housing market is much different from last year at this time. Last year, rates climbed dramatically and so did inventory. Now rates are inching up, and so is inventory. If mortgage rates jump to say 8%, that’s when we’d see big changes in inventory and home prices. Keep watching these numbers here.
Inventory
Inventory of unsold homes on the market is ticking up. It now doesn’t look like next week will be the peak of inventory for the season. It looks like inventory will keep climbing into September. There are now 495,000 single-family homes unsold active on the market. Inventory rose by just under 1% again this week.
This inventory climb at the end of August is not unusual. It’s not a rapid rise, but it also doesn’t appear to be leveling off. Inventory often peaks the last week of August, the fall has fewer sellers and it keeps shrinking through the holidays. Now because mortgage rates have been notably climbing for the last several weeks, we also expect inventory to keep climbing into September as fewer buyers make offers on the existing inventory.
There are 10% fewer homes on the market now than last year at this time. Last year inventory spiked from March through July with spiking mortgage rates. Then it leveled off a bit. So this week inventory lost ground on last year. The inventory gain week to week was more than it was last year at this time. That’s the first time this happened in many months. Last week there were 10.5% fewer homes on the market, this week that’s only 10% fewer. This is one of the subtle signals that higher mortgage rates have slowed this year’s home buyers again.
To understand the future of housing inventory in this country remember the Altos Rule. The Altos rule says that the more available inventory of homes to buy is the result of higher mortgage rates. If rates climb, so does inventory. If rates fall, inventory will fall.
There are 365,000 single-family homes in contract now. That’s up a fraction from last week and 10% fewer than last year at this time. New pending sales of single-family homes going into contract this week came in at 63,000 vs 70,000 last year. In this chart, the height of each bar is the total number of homes in contract that week. The light red portion of the bar represents those newly in contract. The sales rate has slowed since rates did their latest jump of over 7%. In fact, I’d expect the NAR headlines to keep falling on the pending sales measure as well. We could see the sales rate tick down to four million annually on their seasonally adjusted annual rate in the next couple of months.
I’m looking forward to the time when the real-time data starts to grow and the sales rates look more bullish than the headlines, but that’s not happening yet. As we watch the new pending home sales data each week, the next trend we’ll be looking for is how quickly the new pending sales rate shrinks this autumn. See in the chart how the light red portion of each bar shrank so quickly last fall. We had some recovery in the first half of this year. We started the year with 30% fewer homes in contract.
That gap narrowed to just 10% fewer. But we’ve been unable to get closer than that. The market was accelerating this spring, but it is not doing so now. I suppose these negative swings are the other side of the coin for what I’ve called a soft landing in housing. Housing demand cratered, but home prices didn’t crash. Home prices declined in July and September last year, and recovered a bit in the first half of this year. Now demand is softening again and that will keep home prices from appreciating much from here.
American homebuyers are very sensitive to mortgage interest rates. And while higher mortgage rates have hurt affordability for so many, it’s really the change in rates that spur changes in demand. Early this year we had more home buyers than sellers, even with rates in the six-percent range. When rates jump to 7.2% that’s when we see the demand data react accordingly. So it’s not the absolute level, it’s the change in rates that we should be paying attention to.
Price
And we can see it in the home price reduction data too. Price reductions are about to inch above 2018 and 2019 again. 35.5% of the homes on the market have had price reductions. Price cuts always tick up late in the summer, and this year’s seasonal increase is speeding up just a bit with the recent higher mortgage rates. Each week we have slightly fewer buyers, making slightly fewer offers, so slightly more sellers cut their asking prices.
Watching this price reduction curve has been so valuable lately. So insightful. In this chart, each line is a year. You can see last year’s light red line started climbing in March. That told us the pandemic frenzy was over. In September last year, price reductions spiked again with mortgage rates. This year, the dark red curve showed us how rapidly the market was recovering. That told us there was a floor on how far home prices could fall. It really highlights how effective this stat is for understanding the future of home sales prices. Right now 35.5% of the homes on the market have had a price cut.
This is a totally normal level. It is rising, not rising fast, it’s not a strong signal, but it is rising faster than in recent years for August. That tells us that sellers are seeing fewer buyers than they anticipated. This buyer slowdown means any home price appreciation we’ve had year over year is weakening and may be in jeopardy.
Tracking price reductions on the listed homes on the market is really insightful at the local level too. Right now we can see for example that Austin Texas has the most price reductions of any big market and that seems to be climbing. You can use the Altos data to understand local differences which are so important right now.
The median price of single-family homes right now across the country is $449,900. That’s basically unchanged from last week and from last year. Prices tend to cluster around the big round numbers, in this case, $450,000, with a big group priced just under that for search purposes. So home prices are at this $450,000 plateau for a while. That’s the dark red line on this chart. See at the far right end the little plateau. Home sales prices in the future are falling because we can see the ask prices are very stable. Much more stable than they were last year at this time.
The median price of the newly listed cohort this week is $399,000 again that’s also unchanged from last week. That’s the light red line on this chart. The price of the newly listed homes is 1.3% higher than last year at this time. This is when homes go on the market, the sellers and the listing agents know where the demand is, where the buyers are and they price accordingly. So the price of the new listings is an excellent leading indicator of where home sales prices will be out in the future.
We’re in this tricky space looking at year over year home price changes now. Last year the market was slowing so quickly that the comparisons now to last year start to look easier. Prices were falling last year with frozen demand. This year the market is slowing gradually. You can expect that the annual home price appreciation would continue to improve even though the momentum is a bit negative right now. It looks like we’ll end 2023 with home prices up a few percent over where 2022 ended.
And when we look at the price trends for the homes going into contract, we can see the earliest proxy for the sales which will actually close and get recorded in September and October. You can see that the last several weeks have put a little downward pressure on what home buyers are willing to pay. See how the dark red line was above last year for a few months and then in recent weeks, the dark red line is compressing closer to the light red line. That’s sales prices giving up their annual gains with higher mortgage rates.
The median price of the homes that went into contract this week is $378,000. That’s up a tick from last week and over last year, but you can see in the chart the dark red line is drifting lower. Now, the sales comparison gets a lot easier in September when we had that big rate spike in 2022. So assuming we don’t have another mortgage rate spike, the annual price appreciation will continue to improve. On the other hand, if we see 8% mortgage rates, there’s no reason to believe that home prices can’t gap down again like they did last year.
Again this is a very clear reaction to the latest surge in mortgage rates. We have fewer buyers and those buyers are willing to pay just a little bit less. The opposite is true too. If rates were to drift lower, you can expect more buyers, less inventory, fewer price cuts and higher prices in data measures like this one the price of the newly pending sales each week. The data is very clear right now.
LibreMax Capital’s main fund notched returns of roughly 6% through July this year, according to a person familiar with the matter, after betting on asset-backed securities and rotating out of commercial and residential mortgage debt and collateralized loan obligations.
The LibreMax Partners Fund, which totals about $1 billion, invests in structured products tied to both corporate and consumer debt. The fund gained about 4% in the first half of last year, as previously reported by Bloomberg. Separately, LibreMax has raised $1 billion across two other funds, namely the LibreMax Core Fund and LibreMax Dislocation Fund, added the person, who declined to be identified as the details are private.
LibreMax believes that structured bonds, which repackage debt into securities of varying risk and size, will outperform junk debt, citing “historically high yields” and fundamentals underpinned by strong consumer finances and record-low unemployment, Chief Investment Officer Greg Lippmann wrote in a July 27 letter to investors, obtained by Bloomberg.
In that vein, the firm increased its ABS exposure while lowering its allocations to commercial mortgage debt, CLOs and residential mortgages. Within ABS, it invested across subprime auto bonds, consumer unsecured, aircraft, solar and credit card securities, the letter details.
The Dislocation Fund, launched earlier this year, capitalizes on market volatility by buying stressed structured bonds at a discount, which are likely to appreciate once the market normalizes, added the person close to the matter.
A LibreMax representative declined to comment.
The New York-based hedge fund anticipates more volatility over 2023 and into the first half of 2024, as persistently high inflation or a recession seem more likely than a soft landing, Lippmann wrote. Lippmann, a former Deutsche Bank AG trader, famously bet against subprime mortgages before the 2008 financial crisis. He appeared in Michael Lewis’s book “The Big Short” in 2010.
Boosting Credit Returns
The fundraising comes during a tough year for US credit markets, which have been roiled by aggressive interest rate hikes from the Federal Reserve and the collapse of multiple US regional banks. The banking tumult that started in March led to corporates postponing or pulling financings across the ABS market, while delinquencies in debt like subprime auto bonds and credit card-backed notes are expected to rise.
LibreMax sees opportunities in whole business debt in particular. It participated in a $90 million advance to Coinstar LLC, giving the coin kiosk operator flexibility to restructure about $1 billion in whole business securitization deals that reached a key repayment date in late April, as reported by Bloomberg.
“We will look to source similar investment opportunities going forward,” Lippmann wrote.
CLOs have had a slower 2023 compared to ABS. Issuance is down about 24% year-over-year at around $69 billion, while ABS sales are 7.6% lower year-over-year at $191.4 billion, data compiled by Bloomberg News shows. LibreMax moved away from lower-quality US CLO debt and equity, selling around $90 million in market value, according to the letter. Those proceeds were used to move up the capital stack with the purchase of about $75 million of US investment-grade debt. Still, the bulk of LibreMax’s activity was in Europe, where it invested in short-duration tranches, including equity, the letter noted.
Meanwhile, the CMBS market rout continues as landowners default on mortgages and credit risk spikes. LibreMax bought short-duration investment-grade bonds that may present low double-digit yields, where it believes “the market mispriced the extension likelihood and where returns are still attractive to moderate extensions.”
In residential mortgage bonds, LibreMax moved down the capital stack based on certain borrowers’ performance, reads the letter. The firm is also seeking out opportunities in single-family rental bonds, where companies have struggled to raise rents amid higher expenses.
Lippmann is also “concerned” about the unsecured private credit market, which he says may become “troublesome” if rates stay higher and economic growth slows. He also notes that LibreMax has increased the investment-grade portion of its portfolio to 28%, from 12% in December 2021.
LibreMax and its CLO platform Trimaran Advisors, which it acquired in 2018, collectively had about $9.6 billion of assets under management as of the end of June, according to the note.
The past year hasn’t been particularly good for tech or housing. As a consequence, the number of real estate, mortgage and general housing tech firms to make the annual Inc. Magazine list of the 5,000 fastest growing private companies in America declined in 2023. In all, 37 companies made the cut this year, down from 53 a year ago.
The self-reported list ranks U.S. based firms on percentage revenue growth from 2019 to 2022. To qualify, companies must have been founded and generating revenue by March 31, 2019. They must be U.S.-based, privately held, for-profit, and independent–not subsidiaries or divisions of other companies–as of December 31, 2029. The minimum revenues required are $100,000 for 2019 and $2 million for 2022.
The fastest-growing housing tech firm in 2023 was OptiFunder, which claims to produce the mortgage industry’s only optimization software built to systematically decision warehouse funding allocations and automate the complicated process of funding through loan sale. Based in Missouri, OptiFunder had a three-year growth rate of 4,767%. It was ranked the 98th-fastest growing private company in America in 2023.
Transactly, a real estate transaction platform that provides automation, integrations and tech-enabled services that significantly reduce process time, placed 126th in 2023. Another Missouri-based company, Transactly had a three-year growth rate of 3,852%.
Also appearing in the top 200 list was CertifID, an Austin, Texas-based company that makes software to cut down on wire fraud in the real estate industry. The company, led by Tyler Adams, raised $12.5 million in a Series A funding round in 2022.
Interestingly, none of the top three companies on the 2023 list made the cut in 2022. But several well-established housing tech companies made consecutive appearances in this year’s Inc. 5000 edition.
Homelight, a platform for homebuyers and sellers, was No. 403 in this year’s ranking with a 1,444% three-year growth rate. The company was ranked 351 last year.
LoanStar Technologies, which connects lenders with borrowers who are traditionally underbanked or unbanked, also made the list again. The company was No. 469 in this year’s ranking, up from 958 last year. Its three-year growth rate was 1,241%.
Mortgage origination platform Maxwell, which was in the top 200 last year and a HW Tech 100 award winner in 2021, was ranked No. 658 in the 2023 Inc. 5000 list.
Other established names to make the Inc. 5000 list in 2023 include home equity investment firm Point; co-living platform PadSplit; one-time unicorn Orchard, which operates a digital home buying and selling marketplace and was a 2023 HW Tech 100 award winner; single-family investment property marketplace Roofstock; RentSpree, a rental software platform that connects real estate agents, owners and renters; Curbio, one of leading tech-enabled pay-at-closing home improvement solutions; EasyKnock, a real estate firm that offers homeowners a way to access their home’s equity using a sale-leaseback program; and New Western, a marketplace that serves over 150,000 real estate investors across the country.
Two companies on the list have been on the Inc. 5000 list an impressive five times: Total Expert, which offers CRM and data-driven customer engagement solutions, turning customer insights into actions to increase loyalty and drive growth; and FirstClose, a tech solution provider for HELOC and home equity lenders.
Here’s the complete list of tech firms:
Rank
Company
Growth (3-yr Avg.)
Year Founded
Description
98
OptiFunder
4,767%
2018
Finance company helping independent mortgage lenders choose among funding options and streamline the process.
126
Transactly
3,852%
2017
Real estate transaction platform providing automation, integrations and tech-enabled services that significantly reduce process time.
193
CertifID
2,807%
2017
A company dedicated to fighting wire fraud for the real estate industry.
403
Homelight
1,444%
2012
Providing a platform that helps deliver better outcomes for homebuyers and sellers.
469
LoanStar Technologies
1,241%
2016
Enabling lenders to connect and lend to customers who are traditionally underbanked or unbanked.
487
LiveEasy
1,204%
2013
Real estate software company changing the way people manage their move and their homes.
497
BOSSCAT
1,175%
2018
Digitizing home inspection data to create instant repair estimates for homeowners and real estate professionals.
510
PadSplit
1,152%
2017
Creator of a co-living market platform enabling workers to live in the communities they serve.
533
ReBuilt
1,096%
2015
Vertically integrated marketplace helping homeowners sell their unwanted property and real estate investors find great off-market deals.
545
BatchService
1,081%
2018
A real estate data and SaaS provider using real-time intelligence to help businesses identify opportunities.
658
Maxwell
890%
2015
Digitizes the mortgage-origination process for small to midsize banks, credit unions, and independent mortgage lenders.
678
TriusLending
869%
2003
A mid-Atlantic real estate investment firm and financing lender focused on short-term private lending and long-term rental loans.
744
Point
791%
2015
Home equity investment firm that has enabled more than 10,000 homeowners to unlock their home’s equity without additional monthly expenses.
769
InstaLend
766%
2015
A tech-enabled real estate loan lender providing fast and affordable capital to residential developers through streamlined technology and automated workflow.
933
Coviance
630%
2015
Cloud-based financial firm enabling lenders to scale home equity loans and deliver a clear to close for borrowers in hours.
984
Orchard
602%
2017
Making home buying and selling stress-free, fair and simple with a focus on helping homeowners unlock their equity.
992
RentSpree
598%
2016
Rental software platform that connects real estate agents, owners and renters to simplify the rental process from listing to lease.
997
American Mortgage Mortgage
594%
2019
A 100% employee-owned company providing solutions to mortgage industry challenges, which benefit clients and employees.
1,032
Realync
575%
2013
A real estate video engagement platform unlocking authentic experiences that connect and convert across the prospective renter and resident lifecycle.
1,068
Fund That Flip
555%
2014
An end-to-end real estate investing solution for serious, experienced investors, including Saas products and financing for residential redevelopers and builders.
1,375
Roofstock
425%
2015
End-to-end investing platform for the single-family rental home sector providing integrated, data-driven technology and curated investment recommendations for investors.
1,403
SavvyMoney
417%
2009
A leading provider of credit score solutions, serving over 1000 financial institutions by combining real-time data with digital personalization tools.
1,467
Curbio
393%
2017
Helping real estate agents prepare homes before they go to market so they sell quickly and for the best price.
1,486
Yoreevo
386%
2017
Offering streamlined, stress-free home shopping by providing a technology-driven approach executing transactions more efficiently and saving customers money.
1,522
MIOYM
377%
2008
Real estate firm that identifies and rehabilitates distressed single-family residential properties, later selling them to first-time home buyers nationwide.
1,532
EasyKnock
375%
2016
Real estate firm offering homeowners an innovative way to access their home’s equity using a sale-leaseback program.
1,588
Leverage Companies
358%
2019
Real estate investment firm that uses a proprietary, data-driven platform to source premium opportunities for investors.
1,943
EmpowerHome
289%
2006
A partner to real estate teams and agents, offering exclusive programs to ensure sellers get top dollar for their properties.
1,971
Mobility Market Intelligence
285%
2010
A market leader in data intelligence and market insight tools for the mortgage and real estate industries.
1,985
Keeping Current Matters
282%
2007
Helps real estate agents save time and build confidence with easy-to-deliver marketing content powered by the latest market insights.
2,669
LodeStar Software Solutions
197%
2013
Firm offering software that saves mortgage lenders and professionals time and money by automating their closing cost disclosure.
2,824
MoxiWorks
189%
2012
Firm offering cloud-based, real-estate-productivity technology helping brokerages and agents thrive in the residential real-estate space.
2,936
Lender Toolkit
179%
2015
Provider of automated, innovative and comprehensive AI-powered mortgage technology solutions that streamline the mortgage origination process for mortgage lenders.
3,370
Total Expert
149%
2012
CRM and data-driven customer engagement solutions for financial institutions, turning customer insights into actions to increase loyalty and drive growth.
4,105
FirstCloseFirstclose.
110%
2000
Technology solution provider for HELOC and home equity lenders nationwide, helping lenders increase profitability and reduce cost.
4,196
NewWestern
106%
2008
Real estate marketplace that connects more than 100,000 local investors looking to rehab houses with sellers.
4,423
Down Payment Resource
96%
2008
A technology provider helping the housing industry connect homebuyers with homebuyer assistance, to make affordable home financing opportunities more accessible.
Source: Inc. 5000 – 2023
Additionally, two appraisal firms were named to the Inc. 5000 list in 2023: Kairos Appraisal Services, a national appraisal management company implementing technology to expedite the appraisal process through data, geocoding, scheduling and interactive communication tools. Kairos was No. 1,283 on the Inc. 5000 list with a three-year growth rate of 457%. Miami-based Marketwise Valuation Services, another AMC, was No. 2,629 overall with a three-year growth rate of 205%.
Rank
Company
Growth (3-yr Avg.)
Year Founded
Description
1,283
Kairos Appraisal Services
457%
2015
National appraisal management company implementing innovative technology to expedite the appraisal process through data, geocoding, scheduling and interactive communication tools.
2,629
Marketwise Evaluation Services
205%
2017
Appraisal management company for the lending industry, dedicated to providing the highest quality appraisal management services and property condition inspections.
The increasingly popular Federal Housing Association is in need of reform, according to testimony from James Heist, assistant inspector general for audit with the Department of Housing and Urban Development.
While testifying at a House Financial Services Committee meeting Friday, Heist noted that the FHA’s large share of the loan origination market calls for increased personnel, training, and oversight.
FHA market share has grown considerably of late, accounting for 12.55 percent of all single-family home loan originations in fiscal 2008, up from 4.12 percent a year earlier.
As of September 2008, market share reached a hefty 21.13 percent, up from 6.35 percent in October 2007.
Meanwhile, roughly 6.5 percent of FHA loans are in default, putting strain on the agency’s insurance fund to cover related losses.
To manage the influx of loan activity, Heist called for improved internal control for assessing risk and updated information technology systems, which he said have been obsolete for nearly twenty years.
Additionally, he warned that the collapse of the subprime lending market has pushed more unscrupulous lenders into the FHA lending space, increasing the need for more thorough oversight.
Higher loan limits are also opening up new metropolitan areas to FHA lending, presenting new “unknown hazards” to the agency.
Last summer, FHA commissioner Brian D. Montgomery said his organization realized $4.6 billion in unanticipated long-term losses thanks to seller-financed down payment assistance loans.
He said the loans were three times more likely to end in foreclosure and warned that their availability put the future of the FHA at risk, leading to a ban of the controversial loans months later.
In October, the FHA raised upfront premiums to deal with rising demand and associated costs.
New homes made up close to one-third of for-sale units in the second quarter, as an ongoing scarcity of existing inventory helped keep the level near a record high, Redfin reported.
New construction accounted for 31.4% of the market, the largest portion in the quarterly period on record. The number increased from 30.3% between April and June last year, but was down from the first-quarter all-time record of 33.6%.
By comparison, new homes represented just 17% of for-sale inventory in the second-quarter of pre-pandemic 2019.
A combination of pandemic-related factors are propping up new-home numbers, even as builders are producing a smaller number of units compared to a few years ago. Surging interest rates, which are almost 4% higher today from their level in early 2022, resulted in a lock-in effect, where homeowners are now hesitant to move to take out a new mortgage at current levels, leaving the existing-sales market sluggish.
Meanwhile, outstanding inventory remains from a pandemic-fueled building rush in 2021 and early 2022, providing some potential opportunities for aspiring buyers while resale-home availability remains low, Redfin said.
“Builders are still building but homeowners aren’t selling, so new construction is the only option for many buyers,” said Shauna Pendleton, a Redfin agent in Boise, Idaho.
In June, the total amount of for-sale inventory fell 15% on an annual basis to an all-time low, the real estate brokerage said. The existing-home market fueled the drop, with an 18% decline year-over-year. The number of newly built single-family homes for sale, though, increased 4.5% by comparison, leading builders to offer a number of concessions to buyers in order to move units off the market.
Redfin’s quarterly data coincides with similar recent findings by other housing researchers. Online listing service Realtor.com said overall home selling trends were pointing to the potentially lowest sales numbers this year in over a decade.
At the same time, new-home buying activity is showing hints of resilience in the overall housing market. Consumers are still willing to consider purchasing even amid elevated rates, economists have noted. The volume of loans taken out to purchase newly built units is consistently higher in 2023 compared to year-ago levels, according to the Mortgage Bankers Association, which also recently said the segment would be “key to the housing market recovery in 2023.”
The market with the highest share of new homes for sale relative to total numbers was El Paso, Texas, at 52.1%; followed by Omaha, Nebraska; Raleigh, North Carolina; and Oklahoma City, at 45.5%, 42.1% and 39.3%, respectively.
While builder-constructed homes in Boise made up a 38.3% slice of inventory in the second quarter, landing the city fifth on the list of metropolitan areas ranked by total market share, it also experienced the largest annual decline in new houses put up for sale. The share decreased by almost 11 percentage points from 49% one year earlier.
The city that experienced the second largest decline was Austin, Texas, where new homes on the market decreased to 30.4% of inventory compared to 34.5% in the second quarter of 2022. Honolulu, which ranked third in this category, saw its new-home share drop to 2.8% from 6.4%.
Renters are accusing Invitation Homes Inc., an investment firm that owns the most single-family homes in the U.S., of not properly maintaining their properties.
The allegations came via a Reuters investigative report, and pertain to problems such as insect infestations, unfixed water leaks, toxic mold, broken appliances and even raw sewage seeping into crawl spaces.
Renters told Reuters they’ve filed numerous complaints to Invitation Homes, which is owned by the private equity giant Blackstone Group. However those requests have been largely ignored. In one complaint, a renter told Reuters that they’d complained to the company of an infestation of black widow spiders as well as water leaks in the property, only to find that the matter was not handled in a timely fashion. As a result, the situation actually got worse, with roaches and ants also infesting the property.
Invitation Homes responded to Reuters by saying it offered the tenants $887.30 to cover maintenance and utility billing issues caused by a plumbing leak, in addition to two week’s rent. The black widow spider infestation was referred to as a “housekeeping issue”.
Besides the infestations and leaks, several tenants have also complained of “excessive rent increases and fees”, which add up to hundreds of dollars a year in extra costs. The issue prompted several tenants of the compant to file a class-action lawsuit in the U.S. District Court for Northern California, in which Invitation Homes is accused of “fee stacking”. The litigants claim that Invitation Homes charges them $95 if their rent is just one minute late – even if the delay is the fault of the company due to problems with its payment portal. As well as the fine, Invitation Homes also files an eviction notices, and threatens more fees, penalties and legals costs if they wish to remain in the property.
Invitation Homes on July 20 filed a motion to dismiss the case against it, saying the complainants failed to prove its fees are “unfair”.
Blackstone is one of the leading single-family home rental companies in the U.S. Through Invitation Homes, it snapped up thousands of low costs properties that had been foreclosed on during the last recession, before doing them up and offering them as rentals. Invitation Homes reportedly manages 82,000 homes in the U.S., including thousands of three and four bedroom entry-level homes in 17 metros areas across the Sun Belt.
But real estate experts told Reuters that Invitation Homes may have overstretched its push into the rental market, as the growing number of complaints suggests it cannot maintain its enormous portfolio of homes.
In response, Invitation Homes says it’s committed to operating in accordance with federal, state and local housing laws.
The company’s chief operating officer Charles Young insisted that it does not skimp on repairs or maintenance costs, telling Reuters: “We ultimately are trying to do the right thing by our communities and for our residents to provide the service we can live up to.”
Young also claimed the company’s investments in renovations and property upkeep have helped foreclosure-ravaged neighborhoods to recover since the Great Recession. He also notes that 70 percent of its tenants renew their leases.
Mike Wheatley is the senior editor at Realty Biz News. Got a real estate related news article you wish to share, contact Mike at [email protected].
The Federal Housing Administration (FHA) published a new draft version of a Mortgagee Letter (ML) on Thursday that would update the mortgage insurance requirements on single-family homes with accessory dwelling units (ADU). The proposal is designed to offer additional flexibility for calculating market rent and using ADU rental income to help qualify for FHA-insured mortgage financing.
“If finalized, these updates would allow more borrowers to qualify for FHA financing for properties with ADUs, including 203(k) renovation loans,” the FHA said in its announcement. “FHA’s action today advances the goals of the Biden-Harris Administration’s Housing Supply Action Plan.”
While FHA policy does permit the purchase, rehabilitation or refinance of properties with ADUs, current policy does not allow for the inclusion of rental income from an ADU in a potential borrower’s qualifying income, FHA explained.
“This [ML] establishes protocols for the Appraiser’s analysis and reporting of [ADU] market rent on appraisals and for consideration of this rental income in underwriting forward mortgages and performing the financial assessment for Home Equity Conversion Mortgages (HECM),” the draft ML reads.
HECM is the FHA-sponsored reverse mortgage program, and the related financial assessment requires lenders to assess a borrower’s financial and credit history to determine their ability to cover a reverse mortgage loan’s monthly obligations. The related financial obligations for HECM loans include property taxes, homeowner’s insurance and homeowner’s association fees, if applicable.
In addition to adding more loan flexibility, the proposal would help to address issues with housing availability and affordability, according to FHA Commissioner Julia Gordon.
“FHA is at the forefront of the Administration’s efforts to increase housing supply and affordability,” Gordon said in a statement. “At a time when housing supply is constrained and ADUs are gaining popularity nationwide, an updated policy has the potential to expand opportunities for low- and moderate-income homeowners to benefit from the wealth-building potential of ADUs while supporting the affordable housing needs of their communities.
The popularity of ADUs has increased in recent years. On the West Coast, Seattle saw a 250% ADU construction increase from 2019 to 2022. In California, demand for ADUs is quickly outpacing supply, according to reports.
Washington state’s Senate also recently passed a bill that would lift restrictions on the construction of “middle housing,” which refers to duplexes, fourplexes and ADUs.
The draft ML has been posted to FHA’s single-family “drafting table,” which includes instructions for stakeholders to submit comments on the proposed guidance.
Sure, short sales have come to a relative crawl after carving out a decent slice of the real estate market over the past couple years, but there are still some stragglers gaining bank approval and closing.
One of the more notable short sales to sell this week was in Greenwich, Connecticut. I say notable because it also happened to be the nation’s most expensive single-family home sale on record as well.
The so-called “Copper Beech Farm,” the only 50-acre estate located along Greenwich’s waterfront, sold this week for a reported $120 million.
Prior to the sale, the 12-bedroom, 7-bathroom (and two half-bathrooms) Colonial/Victorian residence was “enjoyed” by the Lauder Greenway family, who purchased it all the way back in 1904.
I guess that makes it the world’s oldest short sale too…
Original Asking Price Was $190 Million
The seller originally listed the sprawling property for $190 million last spring, earning it the distinction of the most expensive single-family home to come to market in the United States.
However, most realized it wouldn’t actually fetch that price, and after falling flat during its debut, the agent decided to get aggressive.
The asking price was dropped twice, including an initial $50 million price cut, followed by another $10 million price reduction.
That pushed the price down to $130 million, enough to garner a bite from a very rich buyer, who eventually paid $120 million.
It had plenty of room to fall and still snag the record, seeing that the next most expensive property to sell was a nine-acre Silicon Valley estate that went for $117.5 million.
That doesn’t include the $132.5 million sale of Montana’s Broken O Ranch, which is considered a working farm, not a SFR.
The 13,519 square-foot Greenwich property is actually zoned two-acre residential and subdivided into two tax lots of 20 and 30.6 acres, which could eventually be divided further.
The sales price of $120 million means it may have been sold short because property records indicated that the house was carrying at least $124 million in mortgage debt.
Of course, the owner may have paid the mortgage early since those numbers were reported, or simply brought in cash to make the deal happen.
It Is Located 40 Feet Above Mean High Water
Ironically, the property is situated “40 feet above mean high water” so you’ll never have to worry about it being underwater again. Well, until Greenland melts.
But if you like the water, you’ll love its 75-foot pool with spa (good thing because I hate when people skimp on spas!), along with its (almost) mile of shorefront and two private islands.
There’s also a grass tennis court if clay and hard court aren’t your thing, as well as a massive greenhouse, a stone carriage house with clock tower, a shingle cottage, a wine cellar, an elevator, and six garages.
Now that Copper Beech has sold, the next most expensive single-family residence on the market is a mansion occupied by Florida Panthers owner Vincent Viola, which is currently going for $114,077,000.
The property, which is located close to Central Park on the Upper East Side of Manhattan, was purchased for a mere $20 million back in 2005. It spans some 20,000 square feet.