Ana Teresa Solá of CNBC reports now that the average 30-year fixed mortgage rate hit 8% for the first time since 2000. Now, the typical homebuyer must earn $114,627 to afford a median-priced U.S. home. 

Source: CNBC (October 2023)

Chen Zhao, Redfin’s economic research lead, comments on the new interest rate reality:

“High mortgage rates and still-high prices are making it harder than ever to afford a home, shutting many young people out of homeownership and causing homeowners to reevaluate whether 2023 is the right time to move. Mortgage rates are staying high longer than anticipated, keeping away everyone except those who need to move and pushing our sales projection for the year down to a 15-year low. The last time home sales were this low was during the Great Recession.”

Source: Mortgage Daily News (October 2023)

That said, according to Dana Olick of CNBC, we are unlikely to see today’s high rates dramatically affect housing prices due to our housing shortage. Buyers are stuck, though, as many have locked in lower rates, and the prospect of a new mortgage at a higher rate is keeping them on the sidelines. This will dramatically lower sales volume. 

Andrew Dehan of Bankrate reports on the higher interest rates, noting that the escalating war between Hamas and Israel is also raising treasury yields (a key benchmark for 30-year mortgages). Further, “[m]any mortgage lenders have been quoting rates higher than 8 percent, even as they’ve struggled to drum up business for much of this year.”

Antitrust action

Jordan Yadoo and Leah Nylen of Bloomberg report on new details from the Justice Department, that they are weighing antitrust action against agent commissions. According to Yadoo and Nylen:

“Federal antitrust enforcers are poised to decide whether to pursue their own case after a years-long investigation, according to a person familiar with the issue. The Justice Department is focused on the real estate commission-sharing system that typically puts homesellers on the hook for a 5% to 6% cut of the sale, split between their agent and the buyer’s agent.”

The Real Deal highlights the crux of the case, “[t]he [Justice] department has taken a particular interest in the commission-sharing system at the heart of the landmark lawsuits that could change how buyers’ brokers are compensated.”

In response, the National Association of Realtors released a statement:

“These virtual marketplaces are efficient, transparent and accurate because of cooperation among real-estate professionals. Listing brokers make offers of compensation to buyer brokers, who bring buyers to the table. Those offers can be of any amount, even zero, and the National Association of Realtors doesn’t tell practitioners what to charge. That compensation is set between the brokers and their clients and is always negotiable. According to Real Trends, commissions rates are well below where they were in the 1990s.”

In an opinion piece on the potential legal action, Steve Murray of Housing Wire notes that no buyer or seller is forced into using a real estate agent and that the move by the Justice Department would be misguided. Furthermore, commissions are negotiable; for agents who choose not to budge on commissions, buyers and sellers can move to another agent.

Commercial real estate

The Mortgage Bankers Association (MBA) has released new data on lending activity in the commercial sector, showing noticeable signs of slowing. It’s estimated that total commercial borrowing and lending will fall to $442 billion in 2023, a 46% decline from 2022’s $816 billion. For multifamily, lending is expected to decrease to $285 billion, a 41% year-over-year decline.

Further, MBA reports that delinquency rates for mortgages backed by commercial and multifamily properties jumped in Q3 2023. Reportedly, 2.2% of these mortgages were 90+ days delinquent, up from 1.7% in Q2. Jamie Woodwell, MBA’s Head of Commercial Real Estate Research, comments on this:

“The delinquency rate for loans backed by commercial properties has now increased for four consecutive quarters…The delinquency rate for loans backed by office properties now exceeds those of loans backed by retail and hotel properties, while the delinquency rates for multifamily and industrial property loans remain below one percent.”

Diana Olick of CNBC reports on architects in the commercial real estate industry, which reported a sharp drop in business last month. This highlights that the commercial real estate market could experience a bigger slowdown for the remainder of the year.

Matt Tracy of Reuters reports on commercial distress, noting that major banks are reporting an increase in non-performance in these loans and are increasing their cash reserves. Morgan Stanley, for instance, set aside $134 million for commercial credit losses in addition to the $161 million it already set aside in Q2. The bank noted this move was due to “deteriorating conditions in the commercial real estate sector.”

Finally, John Gittelsohn of Bloomberg highlights MSCI Real Assets data showing that the value of distressed commercial real estate in the US reached $80 billion in Q3 2023, the highest level in a decade. Office properties accounted for 41% of this distress.

Source: Bloomberg (October 2023)