New data from the National Association of Realtors (NAR) revealed that home sales in February spiked. Sales of existing homes jumped 9.5% in February to 4.38 million units. Although sales were down 3.3% annually, it was the largest monthly gain since February 2023. The West and South regions saw the highest growth in sales, while sales in the Northeast remained unchanged. NAR’s Chief Economist, Lawrence Yun, commented on the data:

“Additional housing supply is helping to satisfy market demand…Housing demand has been on a steady rise due to population and job growth, though the actual timing of purchases will be determined by prevailing mortgage rates and wider inventory choices.”

Source: Fannie Mae (April 2024)

Dana Anderson of Redfin reports on rising housing supply, noting that new home listings have increased by 15%, the highest increase in three years. Further, the total number of homes for sale is up by 6%, bringing back some demand and helping to maintain robust price growth. Mortgage-purchase applications have increased by 14% from a month ago, and pending home sales are down just 1% from a year ago, marking the smallest decline since the beginning of the year.

That said, Orphe Divounguy of Zillow notes that “despite these improvements, the housing market remains supply constrained. The typical home sold in February was on the market for less than 30 days. Unsold inventory sits at just 2.9 months of supply compared to 2.6 months in February 2023. The lack of existing homes on the market provides an opportunity for builders to fill the gap, and many are offering incentives such as rate buy-downs to make the math work for prospective buyers.”

Hannah Jones of Realtor.com provides more supply data, highlighting that pending home sales rose by 1.6% in February but were down by 7.0% compared to the previous year due to higher mortgage rates. New-home sales fell slightly but were still up 5.9% from the previous year. Existing home inventory improved over the previous year, leading to a 9.5% increase in sales.

Multifamily update

Erika Morphy of Globe St reports on the multifamily market, noting that the volume of multifamily loans that were at least 30 days past due or in nonaccrual status in the fourth quarter increased to $3.46 billion, up 43.1% from the previous quarter and an 81.2% increase year over year.

Matt Tracy of Reuters reports on Fitch Ratings data showing that lending by banks to multifamily borrowers grew 32% since 2020 to $613 billion at the end of 2023. However, the rising supply has started to outstrip demand, leading to decreasing apartment values and downward pressure on rents. This has weighed on regional banks exposed to rent-controlled multifamily loans where landlords face a ceiling on rent increases to offset rising costs.

Jake Mooney and Zain Tariq of S&P Global Market Intelligence report on the multifamily bank loan issues, highlighting that although the focus on commercial real estate has typically been in the downward trend in office assets, multifamily isn’t immune. 

“While demand remains much stronger in the multifamily sector, high levels of new construction in some markets — especially in the Sun Belt — have weakened landlords’ pricing power and hurt their ability to make loan payments.”

Source: S&P Global Market Intelligence (April 2024)

Erik Sherman, also of Globe St, reports on this topic, highlighting a Trepp report showing multifamily delinquency rates rising. That said, there’s some good news: construction material prices continue to moderate. 

First-time buyers

Dana Anderson of Redfin reports on survey data showing that 36% of Gen Zers and millennials who plan to buy a home soon expect to receive cash gifts from family. 16% plan to use inheritance, 13% plan to live with parents or family. 60% will save directly from paychecks, and 39% may work a second job to fund their down payment. 

Source: Redfin (April 2024)

“Nepo-homebuyers have a growing advantage over first-generation homebuyers. Because housing costs have soared so much, many young adults with family money get help from Mom and Dad even when they have jobs and earn a perfectly respectable income…The bigger problem is that young Americans who don’t have family money are often shut out of homeownership. Many of them earn a perfectly good income, too, but they aren’t able to afford a home because they’re at a generational disadvantage; they don’t have a pot of family money to dip into.”

More data from Redfin, reported by Dana Anderson and Elijah de la Campa, shows that affording a typical starter home now requires homebuyers to earn nearly twice as much as before the pandemic due to high prices and mortgage rates. However, the affordability of starter homes is slowly improving after hitting a low point at the end of 2023. Homebuyers must now earn $75,849 annually to afford the typical U.S. starter home, up 8.2% from a year ago.

ATTOM Data Solutions released its latest home affordability report, highlighting that median-priced homes are less affordable in over 95% of counties compared to historical averages. This pattern has persisted since 2022 and major expenses on such homes consume 32.3% of the average national wage. While there have been slight quarterly improvements, the scenario has continued to work against home buyers for three years due to rising home values and expenses outpacing wage gains. Rob Barber, CEO at ATTOM comments:

“The picture for home buyers is brightening a little again as affordability measures have improved for the second quarter in a row…For sure, it’s not like things are coming up roses for house hunters. Affording a home remains a financial stretch, or a pipe dream, for so many households. But with mortgage rates coming down and home prices growing only by modest amounts, it’s gotten a bit easier for average wage earners to afford a home so far this year. The upcoming Spring buying season will say a lot about whether home prices remain stable enough for this trend to continue.”

Kathleen Marshall of Investopedia comments on recent Realtor.com data that shows it’s now cheaper to rent than buy in all major U.S. markets. The monthly cost of buying a starter home is now reportedly 60% higher than renting in the 50 largest metro areas. The median asking rent is down $7 compared to last year, but still only $50 lower than the peak rental rates of August 2022. Also, buying a starter home at last year’s listing prices is $101 higher than it would have been under last year’s mortgage rates.