The Existing Home Market Is Down Still From the Pandemic

Reports show that the market for potential existing home sales were down still from the pandemic. June 2022 showed an estimate of 5.47 million at a seasonably adjusted annualized rate of 13.1% which was lower than just one year ago and 2.5% lower than just last month. The housing market is still strong, however still down compated to before the pandemic.

The factors that drive the existing home sales market have changed. The housing market is still trying to adjust to a post-pandemic norm coupled with higher mortgage rates and high home prices. The current rise in home prices is not the norm. June 2022 saw sales decreased by 823,000 compared to June of 2021. There are many fundmentals that are causing the slow down. Declining House-Buying Power is one which is basically how much home a buyer can afford. Factors that are looked at include household income and the current 30-year fixed mortgage rate. Another is tighter credit standards which means when lending standards are tight, then it is harder for a potential buyer to become qualified. When it is harder for a buyer to get a loan, then homes are not going to sell. The last catalyst is increasing tenure. This year it is reported that tenure length has increase from 10.4 years to 10.6 years. This has been driven by low mortgage rates and potential sellers staying put.

On the otherhand there are several fundamentals that are boosting the housing market potential. The biggest we have seen is rising house prices. When home prices rise, the home owner’s equity becomes stronger. Another factor is rising household formation which means the more households formed, the higher the demand for home inventory. Lastly, there is more new home supply. Seller will not want to sell if there is nothing for them to buy.

The housing market potential for existing-home sales is down compared to last year because of the factors mentioned above but it is still a good time to purchase a home. If you are in the market for a home, find a local sales agent who can help you navigate the current housing market.

In order to find out the potential home sales, existing-home sales are measured which include single-family, townhomes, condos and co-ops. These are taken on a seasonally adjusted annualized rate that is factored by looking at the historical relationship between existing home sales and the country’s population, demographics, homeowner tenure, and pricing trends. This is all done through The Potential Home Sales model which is published by the National Association of Realtors.

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Factors Affecting The Current Bank Lending

 Like everything else, the commercial real estate business has seen changes due to the pandemic in the past two years. Add another catalyst to the mix, global inflation and we have a whole new ball game. This fall we have seen a change from the previous fall in interest rates.

Commercial real estate investors and lenders are viewing underwriting in a different perspective than times past. This is due to how investors are working with debt. Currently, the cost of debt is higher making the old on commercial real estate weaker than it was six to twelve months ago.

The Commercial real estate industry is hesitant because this certain rate environment has not shown up in a long time. The competitiveness of the market has also slowed down because a lot of the pent up demand that was seen after the worst of the pandemic is now gone.

Buyers and sellers are working at a slower pace than just six months ago. Transactions are being thought through more with the change in interest rates and capital markets. In fact, many commercial real estate lenders are stepping away altogether.

Inflation has also slowed things down. Labor cost and material cost have seen an extreme rise in costs . This has a big impact because when both lenders and investors look at future cash flow, these higher costs can dampen the profit margin. The Southeast market has actually seen double-digit rent growth already from this time last year.

When it comes to international affairs, interest rate hikes and the potential of a recession the capital markets are uncertain causing an upset in capital markets. This has become a challenge for lenders and their ability to lend.

There has also been a change in the demand for many lending products. Investors are looking for more long-term and fixed-rate lending products. The drastic shift can be blamed on the fast-rising interest rates.

As for the state of the current commercial real estate lending market, lenders still have maintained underwriting standards and the leverage has not gone completely unhinged. Structures are still sturdy and there is still a lot of equity capital in deals today. Last year saw a record year due to the floodgates opening after the pandemic restrictions. We are in a more measured environment but that does not mean it is not an active market.

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