A new report from ATTOM Data Solutions shows a steady increase in commercial foreclosures, from 141 in May 2020 to 625 in March 2024. California had 187 commercial foreclosures in March 2024, an 8% decrease from the previous month but a 405% increase from the previous year. The state has been experiencing a rise in commercial foreclosures since November 2023. New York, Florida, Texas, and New Jersey also showed significant increases in foreclosures over the decade.

Source: ATTOM Data Solutions (April 2024)

Telis Demos of the Wall Street Journal (subscription required) reports that major banks have reserved substantial money for future office loan losses, anticipating more losses. Despite reports of office towers selling at discounted prices, large office lenders have not suffered big hits to their earnings this reporting season. This is because they have already utilized credit provisions to borrow money from prior earnings, preparing themselves for losses caused by rising interest rates or vacancies.

Mitchell Hartman of MarketPlace reports on smaller banks, highlighting that earnings season has revealed trouble in this sector due to high interest rates and commercial loan exposure. “On Thursday, KeyCorp, Comerica and Ally all reported that their net income fell. Wednesday it was a similar story from U.S. Bancorp and Citizens Financial. One thing weighing on the sector is commercial real estate. These banks have a lot of CRE loans on their books, beset by the double whammy of high interest rates and high office vacancies from the pandemic-era shift to remote work.”

Indeed, Saeed Azhar and Matt Tracy of Reuters report that regional banks are expected to increase their provisions to cover potential commercial real estate losses as the industry remains under pressure following the collapse of Silicon Valley Bank and Signature Bank. Multifamily properties with more than five units are also reportedly a major concern, especially since New York Community Bank had booked losses on its real estate portfolio.

7% rates

New Freddie Mac data shows that the 30-year average benchmark mortgage rate is now 7.1%, an increase from 6.39% a year ago. Jiayi Xu of Realtor.com reports on the rise in average rates, highlighting that: 

“Despite the previous uptick in inflation not being substantial enough to shift the Federal Open Market Committee’s (FOMC) short-term forecast in March, it did lead to an increase in the median forecast for the end of 2025 and 2026 policy rates. However, March’s inflation data increased the likelihood of a revision to the 2024 outlook in June, indicating fewer rate cuts. In other words, we will continue to live in a prolonged period of high rates and face expensive borrowing costs, including high mortgage rates, which exceeded 7% for the first time this year.”

Source: Realtor.com (April 2024)

Alex Veiga of AP News reports on rising rates, noting that home loan rates have been drifting higher due to doubts over the Fed’s potential interest rate drop following robust reports on employment and inflation. Uncertainty has pushed up bond yields, with the yield on the 10-year Treasury jumping to its highest level since early November. The Fed wants more confidence in inflation, heading towards its target of 2% before decreasing rates.

Bryan Mena of CNN highlights that “breaching 7% represents a psychological threshold that has yet to be crossed this year and adds to pressures buffeting the US housing market during the crucial spring homebuying season. Mortgage rates are climbing based on expectations that the Federal Reserve won’t cut interest rates anytime soon. The Fed doesn’t directly set mortgage rates, but its actions influence them, and persistently hot inflation readings keep the Fed on hold.”

Homeowner update

Two new reports from the National Association of Home Builders (NAHB) outline the evolving nature of homeowner preferences. Rose Quint starts by highlighting that a laundry room and a patio are the top two most wanted features in a home, according to a study by NAHB on buyer preferences. The study rated over 200 features and found that 13 were essential or desirable to at least 80% of all home buyers surveyed.

Source: NAHB (April 2024)

The amenity that saw the most growth over the years was security cameras, now wanted by 76% of buyers, 36 points higher than a decade ago. “Technology is the common thread through all the features gaining the most favor with buyers in the last 10 years.  Figure 2 also allows us to glean that buyers are leaning on technology primarily for two purposes: to increase the safety of their home and to save energy by efficiently controlling the temperature of their home.”

Source: NAHB (April 2024)

A separate NAHB article reporting on the same study also shows that most home buyers prefer a home with at least one home office or a space dedicated to work/study. Younger and wealthier buyers are particularly in favor of home offices. When asked, 59% of buyers interested in having a home office said it should be medium size (100 to 150 square feet).

Source: NAHB (April 2024)

Finally, Yanling Mayer of CoreLogic reports on homeowner capital gains taxes, highlighting that in 2023, almost 8% of U.S. homes sold exceeded the capital gains tax limit of $500,000. Homeowners can exclude housing capital gains for up to $500,000 (or $250,000 for a single filer) when they sell their houses. However, with skyrocketing home prices during 2021 and 2022, many homeowners are finding they may owe taxes on excess capital gains beyond the exemption limits.

Source: CoreLogic (April 2024)

“What does this trend mean for homeowners in states like California, where nearly three in 10 recent home sales have approached the exemption limit? For one thing, it means owing capital gains taxes upon selling homes has become more common than it was when The Taxpayer Relief Act became effective. Then, very few homes — except for multimillion-dollar properties owned by high-income, high net-worth individuals — could generate the kind of large capital gains that would push them beyond the tax limits. Nearly 30 years later, even modest homes for average-income families in many high-cost markets routinely sell for more than $1 million.”