U.S. HOUSING MARKET REMAINS AT FEVER PITCH. For the first time, the average U.S. home is selling above its list price, data firm Redfin reported.
In Austin, Texas, possibly the liveliest real estate market in the country, the average sale fetches 107 percent of the asking price, the company said.
Housing prices will rise another 6.8 percent this year, according to a new research report by Goldman Sachs.
Of the 429 counties Redfin monitors, 310 showed at least a 10-percent yearly price jump in February, the company noted.
Home prices in March averaged 17 percent higher than a year earlier, the largest year-on-year leap in at least nine years, in part because building materials are scarce and builders have to pay more to get them.
Seventeen counties showed price declines, including San Francisco’s urban core, with Manhattan’s prices falling most of all.
However, prices rose in the suburbs surrounding those city centers.
Almost half of U.S. homes listed for sale are now snapped up within a week, according to Redfin.
“If you don’t put in an offer five days after [a home] is listed, you’re not going to be considered at all,” Redfin chief economist Daryl Fairweather told Bloomberg.
Many real estate agents now stop accepting offers after a few days and then set prospective buyers to bid against each other, he said.
The home-buying frenzy is driven by a year of savings from people who had jobs but fewer ways to spend what they earned.
With the launch of the COVID War and companies telling employees to work remotely from home, many of the former city dwellers have sought bigger, cheaper dwellings farther from urban centers.
Near record-low interest rates and a reviving economy also are sending people in search of new homes.
The number of homes on the market has reached a 40-year low, in part because potential sellers are unsure if they can afford a new home equivalent to, or better than, their current one.
The boom is likely to wind down as fewer buyers are able to afford the market’s lofty prices, rising interest rates, or meet increasingly stringent qualifications for mortgages.
TREND FORECAST: We had forecast this trend last year when the media and politicians launched the COVID War. The two factors: remote working and that people leaving expensive, large urban centers for suburban and ex-urban locations are unprecedented and would not have been possible prior to the advances of 21st-century technology.
Thus, there will be a steady decline in overbuilt urban areas. Despite moves to change zoning laws to turn empty commercial buildings into residential ones, it will not replenish the loss of rental income from commercial tenants and economic loss for retail, restaurant, tourism, and hospitality businesses that thriving commercial cities generated.
U.S. MORTGAGE MARKET TIGHTENS. Mortgage credit availability, a gauge of lenders’ willingness to grant mortgages, is at its lowest since 2014, the Mortgage Bankers Association (MBA) has reported.
The mortgage market is a busy place, despite the interest rates on fixed-rate loans having risen 15 percent in recent weeks.
What explains the difference: borrowers with sterling credit and large down payments are virtually guaranteed a loan, while anyone shy of those near-perfect qualifications is increasingly shut out.
Many borrowers who would have qualified for a mortgage in February 2020 now would find their applications rejected, the Wall Street Journal reported, even though their incomes, savings, or credit rating hasn’t changed.
In 2020, about 70 percent of mortgages were given to borrowers with credit scores of 760 or higher, compared to 61 percent in 2019, the Federal Reserve Bank of New York reported.
In 2020’s final quarter, the median credit score of successful mortgage borrowers was 786; a year earlier, the median number was 770.
Federal Housing Administration mortgages typically require smaller incomes and down payments; however, the agency also tightened its requirements, with borrowers showing an average credit score of 672 in fiscal 2020, compared to 666 in the previous year, according to agency figures.
The tight mortgage market is a reflection of the real estate market: fewer homes are for sale as homeowners sit tight and wait for the economy to recover. As a result, fewer homes are available, pushing prices up at the fastest pace since 2006, according to Goldman Sachs.
Last summer, the median home price topped $300,000 for the first time; in 2020’s fourth quarter, the average price of homes sold was $346,800, according to the U.S. Census Bureau and Department of Housing and Urban Development.
In an economy and jobs market still trying to right themselves, and with home prices at or near record highs, lenders are pickier about who they trust to keep up payments.
“Because mortgage credit is difficult to obtain, it is a more competitive environment overall,” Lawrence Yun, MBA’s chief economist, told the WSJ.
TREND FORECAST: The “Biden Bounce” will generate a sharply booming economic recovery that will last as long as interest rates remain low and Washington and the Federal Reserve continue to pump cheap money into the economy and equity markets. Thus, for the short term, the housing boom in hot areas will be maintained, and even when the “Greatest Depression” hits, while real estate prices in those sectors will decline, they will not fall as fast or sharply as those in middle-income sectors.
OFFICE VACANCIES REACH TEN-YEAR HIGH. As we had forecast a year ago when employers closed their offices to fight the COVID War and allowed employees to work remotely, there would be a big selloff in the commercial sector.
Across the U.S., the office vacancy rate has climbed to 16.4 percent, the highest in about a decade, according to Cushman & Wakefield (C&W), a real estate services firm.
In Manhattan, the rate is 17.3 percent, the highest since at least 1990.
Office blocks were emptied by the fear of not being socially distanced, and government-imposed economic lockdowns forced many businesses to close.
JPMorgan Chase will need only about 60 seats for every 100 office employees when social distancing and other strictures are abolished, CEO Jamie Dimon wrote earlier this month in his annual letter to shareholders.
Citigroup has said its office staff will need to be in a central location only two or three days a week.
Twitter has loosed all of its 5,200 employees to work at home permanently; Facebook says up to half of its staff may never return to a central office.
Businesses also are now leasing an average of 10 percent less space, C&W found, as more companies are setting policies that allow employees to work at home several days a week.
Investment firm Loomis Sayles leased 230,000 square feet in February, about a third as much as previously.
“We are capitalizing on our ability to support more work from home,” CEO Kevin Charleston told the Wall Street Journal.
The new work-from-home office culture is weighing heavily on property owners, builders, lenders, and cities.
Allowing the nation’s office workers to spend a day and a half at home each week would reduce office space needs enough to cut landlords’ profits 15 percent, Fitch Ratings has calculated; three days a week would slash 30 percent from profits, Fitch said.
Office rents for leases of four years or longer in Chicago, Los Angeles, New York, San Francisco, and other major urban centers are averaging 13 percent less than during 2020’s first quarter, according to a study commissioned by the WSJ.
In Manhattan, the average rate slid from $82 a square foot to $74.
Those rental rates will be squeezed even more by the 124 million square feet of new office space the WSJ reported to be under construction, enough to accommodate 700,000 workers.
Much of the new building was underway before the virus pandemic began.
Manhattan’s office towers have lost 25 percent of their market value in the last 12 months, New York City’s budget office estimates, contributing to the city’s $1-billion loss reduction in property tax revenues this year.
Commercial construction has lost almost 10 percent of its business over the last 12 months, compared to 2019, the Associated General Contractors of America has reported. (See related story.)
During the first three months of this year, 1,302 companies began looking for office space in the top seven U.S. markets, about 40 percent less than in 2020’s first quarter, according to the WSJ study, which was conducted by VTS, a data firm that monitors lease negotiations.
TREND FORECAST: Many commercial landlords, especially smaller ones, will find it hard to pay property taxes, which will rob cities of desperately needed income to maintain services. As we have forecast and is now a reality, as people lose everything and have nothing left to lose, crime rates will rise… and, as we have detailed in the Trends Journal, they have surged in many large cities. Thus, the higher crime rates climb, the more people will want to escape to suburban and ex-urban areas.
While there will be an urban bounce back, it will take several years. During that time, as the small commercial landlords go broke, private equity groups, hedge funds, and major commercial real estate firms will buy up what is being lost, thus controlling yet a greater percentage of global assets.
OFFICE SPACE AVAILABLE FOR SUBLEASE HITS 18-YEAR RECORD. At the end of 2020, 137 million square feet of empty office space was available for sublease across the U.S., 40 percent more than a year earlier and more than at any time since 2003, according to CBRE Group, a real estate services and investment firm.
JPMorgan Chase has listed 700,000 square feet available in Manhattan, the island’s largest single block of space up for sublet, real estate services firm Savills noted. PriceWaterhouseCoopers and Yelp also have sizeable space open in Manhattan.
Salesforce, Uber, and Wells Fargo are offering large amounts of square footage in San Francisco, the Wall Street Journal reported.
Dropbox recently sublet a large amount of its 700,000 square feet in San Francisco to two biotech companies at deep discounts. In an earnings call, the company reported it will earn $800 million from the subleases but still will write down $400 million from its leases because the income for subleases fails to cover the rent Dropbox pays for the space.
In Chicago, AMITA Health has put its headquarters on the sublease market because employees like working from home, a company spokesman told the WSJ.
Companies in financial distress often seek to fill unused spaces to raise cash, but many firms now looking to hand off leases are doing well, the WSJ noted; they simply need less space because the economic shutdown accelerated the trend to send employees home to work, an arrangement that will endure for many companies and workers after the pandemic ends.
That means a permanent reduction in demand for office space and a resulting reduction in rents, which fell 17 percent in New York and San Francisco and 13 percent nationally over the past 12 months, the WSJ reported.
TRENDPOST: Large companies have tended to sign leases lasting a decade or more to lock in rental rates. As a result, with employees staying home, the businesses have little recourse other than trying to find subtenants to help pay the rent.
