A Decline in Home Prices

September 2022 saw a dip in home values after a two-month 0.4% decline. Those in the industry say that the dip comes from a reaction to the drop in mortgage rates this summer. The future will also see a decline in the housing market due to the rise in mortgage rates since the summer.

The United States has seen declines as follows: Phoenix (-2.3%), Las Vegas (-1.9%), New Orleans (-1.0%), Riverside (-0.9%), and Austin (-0.9%). There has been a rise in prices in the following: Richmond (0.6%), Miami (0.6%), and Indianapolis (0.6%) markets. The greatest year-over-year was in Miami (25.7%), Orlando (23.4%), Tampa (23.2%) and Jacksonville (22.6%).

Fortunately, active listings have risen 3% from this time last year but they are still well below norms before the pandemic. This still is good for buyers as it means there are more options.

Even though there are fewer sales, pending listings dropped 29% compared to September 2021. This is due mostly to the rise in interest rates. Offers to accepted offers also went from 11 days in September 2021 to 19 days in September 2022. Many sellers began to cut the price of their homes to create a since of urgency.

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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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Millennials Win When It Comes to Buying Homes

 The National Association of Realtors revealed in the most recent buyers' report that millennials make up 37% of the homebuyers. Millennials (22-40 years old) make up the largest share of homebuyers in 2021.

The report breaks up the millennial generation into two groups. The older millennials who make up 23% of homebuyers range from 31-40 years old and the young millennials (ages 22-30) make up 14%. Combined this makes up the 37% reported and has not changed since 2014.

This year the report also includes Gen Z buyers for the first time. These buyers are between 18 and 21 years old and only make up around 2% of home buyers and sellers. Gen X (ages 42 - 57) comes in at 24% when it comes to buying a home. Gen X has the highest median income of $113,300 and they usually purchase the largest houses (2,100 square feet).

The oldest generation reported was the Silent Generation which is from 74 - 95 years old. This generation just purchased 5% of the homes this year. This is a small group which probably is due to the fact that this age bracket is retired. The largest group for selling homes was the Baby Boomers (ages 56 - 74) which consisted of 43% of home sellers.

If you would like to view the NAR's report which also includes characteristics of home buyers and sellers click here.

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