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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2022 First Quarter Sees a 3% Increase in Homeowner Equity

 According to a report published by CoreLogic, homeowners with mortgages in the first quarter of 2022 saw their equity grow by 32.2% year-over-year. There was a collective equity gain of $3.8 trillion in the first quarter. This was an average gain of $63,600 per borrower. Homeowners with mortgages accounted for around 60% of properties across the country. Home equity and home prices both rose together, in fact, home prices were up 20% in March 2022 compared to March 2021.

“This has led to the largest one-year gain in average home equity wealth for owners and is expected to spur a record amount of home-improvement spending this year,” Patrick Dodd, CEO of CoreLogic said in a statement.

Homeowners across the nation, approximately 62,000 homeowners regained their home equity. Good news but CoreLogic still reports that around 2% of homeowners with a mortgage still remain underwater. This is about 5.3% less than those reported underwater in the fourth quarter of 2021.

There is still hope, the report predicts that if home prices increase by 5% then around an additional 130,000 homes would regain equity. Lets hope it takes this trend, if it doesn't and the market turns the opposite way, then around 167,000 additional homes will go underwater.

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Three Must Have Features for the 2021 Homebuyer

The COVID-19 pandemic has shifted the way buyers think when it comes to the features they must have in a new home. The list of desired features can be a litany of things, but these three top the list when it comes to the broader overall trends.

Spaces in a home usually have a sole purpose, but in this day in age, a dining room can also be a classroom. Buyers are wanting flex space in a home that can be transformed effortlessly.

“Great rooms divided by screens to create privacy, spare bedrooms converted into offices, and areas that function as a workspace by day and a dining room by night,” lists Doreen Trudeau, Global Real Estate Advisor with Venture Sotheby’s International Realty in Hawaii. “The need to create secluded workspaces, especially with more than one professional in the house, has owners repurposing nooks and closets.”

Modularity can be done in a hundred different ways. Realtors are demonstrating this key factor to clients when showing a home. Two great examples are fold-out desks and retractable walls. Realtors are also coming up with ideas for flex space outside of the main home.

“There are many creative ways to achieve a dedicated workspace with under-utilized outdoor spaces. Some that I’ve seen include detached office sheds and gazebos,” said Clark Niemeyer, a Real Estate Professional with Realogics Sotheby’s International Realty in Seattle.

Openness has also become a big selling factor when it comes to a home's floor plan. Today, buyers are seeking a floor plan to be functional and versatile and connective, and borderless. Good features that can help achieve openness are high ceilings, floor-to-ceiling windows, properly scaled furniture, and connectivity to the kitchen. Color can also hinder or enhance the openness of a home. Dark rooms usually appear smaller than light-colored rooms.

“Buyers are looking for seamless transitions between interior and exterior areas,” explains Trudeau. “Glass doors and negligible window coverings are two ways to create the illusion of larger space.” 

The stay-at-home orders caused everyone to look at their home in a different light. Your home became your retreat 24/7. Realtors are now finding areas in the home that are designed for joy, escape, and relaxation.

“Comfort has become paramount as we spend more time in our homes,” says Trudeau. “Most of my buyers still want a clean, linear space—simplicity with an emphasis on durability. Performance fabrics are becoming more popular as we live and work from home. Quality still resonates with the affluent buyer, but in design, less is more.”

A sanctuary for a homebuyer could be a separate home spa or an ensuite bathroom with high-end amenities. A tranquil setting could be created with soft, white neutrals and natural, organic materials in a home.

A good Realtor can help a homebuyer find a home that has one or all three of these features. A local sales agent can shed light on instances of modularity, openness, and sanctuary in a new home.

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Student Debt Is Not an Obstacle to Homeownership

According to a study done by Zillow.com, the only way student debt can negatively impact young professionals interested in starting a family and “settling down” to buy their first home is if that debt is combined with no degree at all.  According to the study, student debt is not an obstacle to homeownership with those students who finished with a bachelor’s degree or higher for the amount of debt they acquired.  Home buyers that are college graduates and never had to take on student loans have a higher chance (70%) of becoming a homeowner than home buyers that have student debt and at least a bachelor’s college degree, but not by much – the statistic only drops to 66% for these types of buyers.

Because of the Recession and the lack of jobs for college graduates upon completing college, many young people did not get married and start a family right away, so household formation was also a considering factor in the study done by Zillow.com.  The study seemed to indicate that people were waiting until their 30’s to have children, and the study included those couples that had actually started a family with at least one child.

High rents were also a factor as being a deterrent for young professionals to be able to buy a home.  The payment of higher rent made it impossible for them to get the larger down payment together upon trying to get financing for a conventional mortgage.  The FHA just recently reduced the percentage of down payment required for both FHA and Rural Development loans, so this factor will not be as pertinent moving forward.

The truth about young professionals becoming homeowners is that student debt is not an obstacle to homeownership, and the possession of a bachelor’s degree or higher and the acquisition of a good job after college has made it possible for these students to be able to buy a new or pre-existing home upon graduation (or later).  This is good news for the housing market as one more positive sign that the real estate market is moving in the upwards direction.

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Newly Built Home Sales Rise 25.8% Year-Over-Year

Just like summer here in New Orleans, July’s housing market was hot! The new home sales activity is on its way back to normal with annual home sales already reaching 507,000. The Census Bureau and HUD reports that newly built home sales rose 5.4% from June of this year and 25.8% from July of last year.  New home inventories were reported at 218,000 in July which is the highest level that have been seen in over five years.
This increase can also be seen in private residential construction spending where the high was at an annual rate of $387 billion in July.  This solidifies the continuing economic growth in the construction industry.  Single-family homes have pushed construction expansion 15.8% on a year-over-year basis and multifamily new home construction spending is 21.2% higher than it was reported a year ago.

Developers are not the only ones that are seeing a positive growth, the National Association of Realtors (NAR) reports increase in existing home sales.  Existing home sales increased in July 0.5% from June and 7.4% from July of last year. Completed sales (closings) were reported at the highest since February 2007.

The confidence for home buyers stems from the strengthening economy.  The Bureau of Economic Analysis reports that the global economic developments (GDP) growth is at a strong 3.7% rate.  These findings were based on several factors including investment, faster growth for consumption, government spending and trade components.

Now is the time for buyers buying new homes or existing homes to tap into the housing market. Sales are solid which makes the real estate market a stable venture. New home prices are continuing to strengthen making real estate a great investment.

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More Homes Are Being Built to Supplement the Housing Inventory Shortage

A shortage in homes and a strong job market in the Greater New Orleans area definitely strengthened the housing market, especially in new home construction and the advent of new subdivisions. Solid hiring in the job market, low mortgage rates and easier credit conditions have driven the demand for new home buyers to purchase a new home for sale. The Greater New Orleans area alone represents 20% of the new jobs that have been created this year in the state of Louisiana which has led to the strong home sales on both the north shore and the south shore.

West St. Tammany Parish has seen a decrease in housing inventory making the average sales price increase.  The housing market in general is leaning more towards a seller’s market because of the lack of supply of homes for sale.  This lack of inventory in homes priced from $190,000 – $300,000 is causing a bidding war pulling the average sales price for metro New Orleans up by 7.8% from $197,300 to $212,610. New Orleans has seen an increase from 21,954 homes sold annually in 2010 to 30,322 in 2014. Homeowners are starting to realize that this is the time to sell, and for home builders now is the time to build new homes for sale in St. Tammany Parish on the northshore.

On the flip side, home buyers will not have long to wait because more homes are being built which means the inventory problem will start to correct itself. According to Richard Haase, president of NAI/Latter & Blum, who reported at the UNO/Latter & Blum Economic Outlook & Real Estate Forecast Seminar for the Northshore Region, which was held at the Clarion Inn & Suites Conference Center in Covington, ”There’s a lot of pent-up demand,” he said, because tight lending standards have kept potential buyers out of the homebuying market, even as the economy recovered. ”For the next one or two years, I’m extremely optimistic about housing prices and housing affordability,” Haase said. ”We’re in a very healthy supply-and-demand market.”

Bedico Creek Preserve in Madisonville, Louisiana, offers new homes for sale that could plug the dearth of homes priced from $190,000 – $300,000.  Two neighborhoods being built in this master planned community in St. Tammany Parish offer new homes for sale from the $230’s – $300’s. 

These two neighborhoods are called Cypress Crossing and Deer Park.  Also, if you purchase one of our lots for sale in the Garden / Courtyard section of this St. Tammany Parish subdivision, you can build a home starting from the $290’s.  For more information about our homes for sale, Contact Bedico Creek at 985-845-4200 or E-mail Info@LiveBedico.com.

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