Last month, the world’s largest real estate holder Blackstone raised a record $30 billion fund. According to Miriam Gottfried of The Wall Street Journal (subscription required), the Blackstone Real Estate Partners X fund is 50% larger than its predecessor fund and will seek out “opportunistic” investments in various real estate asset classes. The fund is possibly looking to take advantage of market volatility during a potential forthcoming downturn.
Vishesh Raisinghani of Yahoo! reports that “[i]n a regulatory filing last month, Blackstone said that it has secured $24.1 billion of commitments for its latest real estate fund called Blackstone Real Estate Partners X. Combined with Blackstone’s real estate funds in Asia and Europe, the company will have over $50 billion available for opportunistic investments. In the event of a market downturn, Blackstone will have plenty of capital to scoop up some attractive real estate bargains.”
More recently, Patrick Clark and Dawn Lim of Bloomberg report that Home Partners of America, a single-family home property management company owned by Blackstone, will halt acquisitions of homes in 38 U.S. cities. These markets include Boise, Idaho; Fresno, California; Memphis, Tennessee, among 35 others. That said, Home Partners of America will continue with acquisitions in 20 other markets it deems as high growth.
Candyd Mendoza of MPA comments on the story, indicating that Home Partners of America operates in 80 markets, and the current pullback in acquisitions will only represent 5% of the company’s recent activity.
Mortgage applications
As mortgage rates continue their upward trend, a similar downward one can be found in mortgage volume. According to Flávia Furlan Nunes of Housing Wire, mortgage demand dropped to its lowest level in two decades last week. Demand was also down 63% year-over-year, as a result of reduced refinance demand and a slowing home resale market.
In commenting on the recent data, Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting comments that “Mortgage applications continued to remain at a 22-year low, held down by significantly reduced refinancing demand and weak home purchase activity. Last week’s purchase results varied, with conventional applications declining 2 percent and government applications increasing 4 percent, which is potentially a sign of more first-time homebuyer activity.”
ATTOM Data Solutions reports on mortgage originations, noting that they are down 13% from Q1 2022 and another 40% from Q2 2022. This marks the biggest annual drop in ATTOM’s data since 2014.
Source: ATTOM Data Solutions (August 2022)
In commenting on the data, Rick Sharga, executive vice president of market intelligence at ATTOM, noted:
“Mortgage rates that have virtually doubled over the past year have decimated the refinance market and are starting to take a toll on purchase lending as well…The combination of much higher mortgage rates and rising home prices has made the notion of homebuying simply unaffordable for many prospective buyers, which threatens to drive loan volume down even further as we exit the spring and summer months.”
Bonnie Sinnock of National Mortgage News (subscription required) reports on the recent announcement on student loan forgiveness, noting that of the 43 million receiving this benefit about 20 million will benefit from a full payout of their debt through the program. This could benefit the mortgage market in that the creditworthiness of younger borrowers will improve through the forgiveness program.
Finally, Danushka Nanayakkara-Skillington of the National Association of Home Builders (NAHB) reports on a drop in non-conventional financing, reporting that “[n]on-conventional forms of financing, as opposed to conventional mortgage loans, include loans insured by the Federal Housing Administration (FHA), VA-backed loans, cash purchases and other types of financing such as the Rural Housing Service, Habitat for Humanity, loans from individuals, state or local government mortgage-backed bonds…Nationwide, FHA-backed loans and cash purchases tied for the majority share of non-conventional financing of new home purchases, accounting for 11% each.”
Compass troubles
There was a lot in the press over the past few weeks covering headwinds facing real estate brokerage Compass. Jeremy C. Owens of MarketWatch opens up the discussion by reporting that due to the downturn in the housing market, Compass will seek to cut $320 million in expenses. Compass has reported a net loss of $101.2 million in Q2 2022, with revenue missing expectations at $2.02 billion. The company stock has also decreased 48% this year to date.
Katherine Kallergis and Harrison Connery of The Real Deal report that Compass is also cutting one of its most effective agent recruitment tools: cash and equity incentives. The company currently has 28,000 agents on the books.
Patrick Clark and Jennifer Epstein of Bloomberg continue with the challenging news, noting that Compass was getting rid of its Chief Technology Officer, Joseph Sirosh, “a week after the executive sold 40% of his shares in the real estate brokerage.”
Maxwell Strachan of Vice reports that “[l]ike a lot of high-growth tech darlings, Compass has still never made an annual profit, but when the housing market started to cool down and the tech industry came back to earth this year, the lack of even a clear path toward profitability was laid bare.” Further, Strachan notes that one industry expert expects Compass needing to implement more dramatic cuts.
