According to Orphe Divounguy of Zillow, new home sales rebounded in December despite higher mortgage rates. According to the data, in December, 664,000 new single-family homes were sold nationwide annualized, an increase of 8% from the revised November rate of 615,000 and 4.4% from December 2022. The median sales price of new houses sold in December was $413,200. Given the low supply of existing homes, new home sales are helping fill the gap.

Likewise, pending home sales jumped 8.3% in December month-over-month and 1.3% year-over-year, according to Realtor.com. Pending sales improved most in the West with a 14.0% month-over-month increase, followed by the South (+11.9%) and the Midwest (+5.6%).”

Source: Realtor.com (January 2024)

“Pending home sales tend to lead existing home sales by roughly one-to-two months and are a good indicator of market conditions. Recovering pending home sales activity emphasizes the impact of a small win in affordability, namely lower mortgage rates. Buyers who are currently priced out of the market are eagerly awaiting progress, which could come in the form of lower mortgage rates, more for-sale options, or lower prices.”

Home price growth is also slowing, according to Lily Katz of Redfin. Home prices grew only 0.4% in December, the slowest pace in 6 months. The price growth is slowing down, there is an increase in supply, and mortgage rates have significantly decreased since October. As the housing market becomes more balanced, price growth also seems normalizing. Although we won’t see the wild price upswings seen during and before the pandemic, we won’t likely see significant price drops.

Indeed, ATTOM Data Solutions released a sales profit report recently highlighting a decline for the first time since 2011. Although seller gains remain strong, they made a $121,000 profit on the typical sale in 2023, a 56.5% return on investment, down from 60% in 2022.

Source: ATTOM Data Solutions (January 2024)

According to Fannie Mae: “While affordability will remain a constraint, we expect new home sales to trend upward as lower mortgage rates help spur demand. Similarly, the December 2023 increase in pending sales supports our forecast that existing sales will begin a slow recovery upward in 2024.”

Institutional investor update

According to Carol Ryan of the Wall Street Journal (subscription required), commercial real estate investors were hoping for discounted opportunities last year but were disappointed as they didn’t find the kind of buildings they were interested in. According to MSCI data released on Wednesday, only $374 billion of real estate was sold in the U.S. last year, a 51% decline compared to 2022. This number was also 14% lower than in 2020 when buyers couldn’t view buildings for most of the year due to COVID-19 lockdowns.

Andria Cheng of CoStar reports on an earnings call where Blackstone’s CEO Stephen Schwarzman stated that the high rate environment over the last two years has led to muted returns; however, he looks back on 2023 as a “cyclical bottom” for commercial real estate. Blackstone, the world’s largest commercial property owner, is optimistic about the real estate sector’s future. They believe that real estate values have bottomed out due to slowing inflation and an anticipated rate cut by the Federal Reserve. 

Greg Lippmann, a central figure in the book and movie “The Big Short,” would agree with Blackstone CEO’s assessment and is readying his next big trade in beaten-up commercial mortgage bonds, according to MorningStar.

“Lippmann anticipates higher recoveries in some commercial mortgage-backed securities than prices currently reflect. In 2013…Lippmann’s team is betting it can cherry-pick bonds at bargain prices that produce less dire outcomes than others anticipate.”

Blackstone recently acquired Tricon Residential in a deal valued at $3.5 billion, according to Sarah Marx of HousingWire. Tricon owned 37,478 homes by the end of Q3 2023, making it one of three publicly traded institutional homebuyers. Most single-family rental giants are privately held or consolidated into a broader REIT. American Homes 4 Rent and Invitation Homes were the only comparably sized contenders, with 58,392 and 76,138 single-family homes, respectively.

According to Mark Maurer of the Wall Street Journal, regulators are also tightening up on bank commercial loans, which will act as a headwind for this industry. This comes amidst a wave of anticipated delinquencies in commercial banking.

Source: WSJ (January 2024)

“The SEC released four letter exchanges in the past week or so in which it questioned smaller financial firms about their CRE exposure in loan portfolios. The SEC last year sent letters to banks to request more clarity in their disclosures around the potential consequences from the failures of First Republic Bank, Silicon Valley Bank and Signature Bank. Banks are falling under the regulator’s spotlight increasingly around the effects of the CRE credit crunch, which threatens to trigger failure for banks highly concentrated in property debt.”

Proptech

Erik Sherman of Globe St (subscription required) reports on the state of proptech funding, highlighting that proptech venture funding dropped by 42.4% YoY by the end of 2023 due to the skittishness of VC funds’ limited partners concerned about the future. However, multiple deals totaling more than $313.25M were made in December 2023 and January 2024, with most of the investment in US-based companies.

Phillip Russo of Commercial Observer reports on the challenges facing proptech, noting that several startups such as Here, Veev, and Zeus Living crashed between November 2023 and mid-January 2024. Frontdesk also laid off its staff and was on the verge of closing. Latch also changed its leadership and rebranded as Door.com.

In reporting on the Veev acquisition by Lennar, Erik Sherman of Globe St states: “The conditions that caught up Veev haven’t disappeared. The industry may hear of more collapses and forced acquisitions, none of which is unheard of when tech, especially the money sources, get pinched.”

There have been some recent examples of funding and M&A successes. These include Operto, which recently acquired Dack, a digital guest experience platform for short-term rentals. Requity Homes, a rent-to-own proptech, recently raised a $26M round to expand its platform. Finally, Bilt, a rent payments platform, recently raised $200M and doubled its valuation to $3 billion.

That said, there is still trouble for some more prominent players, such as WeWork, as reported by Ethan Rothstein of Bisnow. WeWork reportedly failed to pay approximately $33M in January rent, according to a statement filed by the attorneys for the company’s unsecured creditors with the U.S. Bankruptcy Court for the District of New Jersey.