According to a new report from Redfin, investors purchased 18% of all homes sold in Q4 2023, an 11% drop since last year. “Investor purchases of U.S. homes fell 10.5% year over year in the fourth quarter to 46,419—the lowest fourth-quarter level since 2016. Overall U.S. home purchases posted a slightly larger decline, falling 12.2% to 251,462—the lowest fourth-quarter level since 2012.”
Source: Redfin (March 2024)
Another report from CRE Daily notes that 66% of commercial real estate investors this quarter chose a wait-and-see approach to acquisitions, an increase from 49% last quarter. “Despite this caution, there’s a prevailing optimism, with more investors planning to increase their CRE exposure in the coming six months across all sectors, except for Office. The Federal Reserve’s recent signals towards potential rate cuts in 2024 have been a catalyst for this optimism, suggesting a possible influx of investment capital if these cuts are realized.”
Regarding investment locations, Katie Peralta Soloff of Axios reports on CBRE data showing that Charlotte and Raleigh are among the nation’s most attractive commercial real estate investment markets. Dallas/Ft. Worth was also on the top of the list for the third year in a row.
Blackstone’s massive $60 billion REIT flashed the strongest signal this year that “investor pressure for cash is abating,” according to Dawn Lim and John Gittelsohn of Bloomberg. The firm’s real estate trust now allows for redemptions, which were paused due to market concerns.
Home prices
CoreLogic released its monthly housing price data revealing that home prices showed resilience against borrowing costs and housing supply shortages in 2023, with a 2.4% increase compared to 2022. December’s CoreLogic S&P Case-Shiller Index rose by 5.5% annually, marking the sixth month of annual increases after two months of declines. Overall, home prices are up by 0.6% compared to the June 2022 peak and up by 6.1% from the January 2023 bottom.
Source: CoreLogic (March 2023)
“Miami and Las Vegas posted the nation’s largest monthly gains, 0.3% and 0.2%, respectively. Detroit, which saw strength in home price growth in recent months, cooled off in December and posted a 0.7% decline, which was a larger decrease than seen in this period in Detroit prior to pandemic. In general, high mortgage rates in October and November of 2023 had an increasingly depressing impact on home prices in December before rates took a downward turn at the very end of the year.”
Orphe Divounguy of Zillow reports on new home sales, noting that there were 661,000 new single-family home sales in January, which is 1.5% higher than December’s rate and 1.8% higher than January 2023. The median sales price for new homes sold in January was $420,700. The number of new houses for sale at the end of January was 456,000, an 8.3-month supply at the current sales rate.
Lily Katz and Chen Zhao of Redfin highlight that home values gained $2 trillion in the past year, a 5% gain, as a shortage of homes for sale prop up prices. Zhao comments on the data:
“America’s homeowners are sitting pretty. They’re holding a massive amount of housing wealth, despite lackluster demand from buyers, because home values skyrocketed during the pandemic and now a supply shortage is preventing those values from falling…Prospective buyers aren’t as lucky. The combination of elevated mortgage rates, high home prices and a limited pool of homes for sale means homeownership is about as unaffordable as ever. One bright spot for buyers is that mortgage rates should start declining before the end of 2024.”
Source: Redfin (March 2024)
Spencer Lee of National Mortgage News (subscription required) reports on Fitch Ratings data showing that 90% of US housing markets were overvalued as of Q3 2023. According to Fitch, current price increases are unsustainable.
That said, a panel of experts surveyed by Fannie Mae shows that home prices are expected to continue rising. According to Fannie Mae’s Q1 2024 Home Price Expectations Survey, the panel predicts annual national home price growth of 3.8% in 2024 and 3.4% in 2025. These estimates are higher than last quarter’s expectations of 2.4% for 2024 and 2.7% for 2025.
7% interest rates
Jiayi Xu of Realtor.com reports that Freddie Mac’s average fixed rate for 30-year mortgages is 6.94%, rising by four basis points since last week. Xu reports that many investors are delaying their anticipation of the Federal Reserve’s first rate cut until June.
Source: Realtor.com (March 2024)
“While today’s mortgage rates remain higher than the level a year ago, recent double-digits increase in new listing activities suggest that the impact of the locked-in effect might start to decline. For some sellers, the optimism of lower mortgage rates in the next 12 months may boost their listing activities. Other sellers, who have been frozen by high mortgage rates for more than a year, may have gotten used to the high-rate environment and decide to list their homes, especially given the uncertain timeline for potential Federal Reserve rate cuts.”
Diana Olick of CNBC reports that these higher rates put downward pressure on mortgage applications. Refinance applications decreased by 7% from the previous week while home purchase applications dropped by 5% for the week and 12% from the same week last year.
Nicole Goodkind of CNN reports on comments from JPMorgan Chase CEO Jamie Dimon, who noted that we should all be prepared for 7% interest rates, but that Dimon was unsure of the exact impact this would have on the economy.
Finally, Emily Pandise and Christine Romans of NBC News report on comments from Greg McBride, Bankrate’s chief financial analyst, who noted: “Markets are just kind of recalibrating for the reality that the Fed is not going to cut interest rates right away…we’re not going back to three and four percent mortgage rates anytime soon.”
