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Wednesday, February 21, 2024

Florida Seeing New Condo Boom

 Developers see luxury condos dotting Florida's shorelines as new construction takes over the first generation of condos. However, it might be tough to convince current residents to sell.

MIAMI – Luxury condos are replacing Florida's first generation of condominiums, which are upwards of 60 years old. Many of those older buildings are slated to come down after the 2021 Champlain Tower South collapse in Surfside and the subsequent passage of regulations.

Ian Bruce Eichner, CEO of the Continuum Co., says it is “the most significant impact on waterfront real estate that you've ever seen in your professional lifetime. These buildings, they have two things. They're 60 years old, they're on the water and they're in ‘A’ locations. And they're crappy old buildings.”

Condo associations are now required to regularly assess the structural integrity of their buildings and fully fund reserves necessary for maintenance and repairs. Many associations are raising their monthly fees significantly, and they must undergo newly required inspections and potentially high assessments that not every condo owner can afford.

Some of the condo owners or associations may be pressured into selling to developers, NPR reported. Florida law requires condo owners receive fair market value for their properties. Eichner says developers have to persuade hundreds of condo unit owners to sell at the same time in order to obtain the totality of the building. He says the land under some of these structures “is worth a million dollars a unit.” He has several condo development projects already in the pipeline but foresees more on the way.

Source: NPR (01/04/24) Allen, Greg

© Copyright 2024 Smithbucklin

Monday, February 19, 2024

When will housing affordability improve? Spoiler alert: It will take some time

 BY:  - FEBRUARY 18, 2024 - Florida Phoenix

Inflation is slowing and job growth has surged, but many Americans still feel the burden of expensive housing – fueled in part by high demand, low inventory and mortgage rates.

Home prices across the U.S. rose 5.5% over the past year in December 2023 and they are projected to increase 2.8% year over year by December 2024, according to CoreLogic, a consumer and business information company. None of the states in CoreLogic’s data showed home price declines.

Rents shot up 23.9% between the beginning of 2020 and the start of of 2023 and home prices rose 37.5% according to Harvard University’s Joint Center for Housing Studies’ 2023 state of the nation’s housing report. The median sales price of a home sold in the U.S. is $417,700, according to the St. Louis Fed.

Given the state of housing affordability in the U.S., here’s what to know about ongoing construction shortages, high interest rates, where housing prices are climbing, and what policymakers could do about it.

How did the housing market get this way?

 New homes.
Getty Images.

Much of the current predicament renters and homebuyers face is linked to high housing demand, low housing inventory and the Fed’s cycle of hiking interest rates.

Very low mortgage rates – January 2021 saw the lowest recorded mortgage rate at 2.65% – fueled demand but drove up prices, exacerbated by low housing inventory, Matthew Walsh, economist at Moody’s Analytics explained. The Federal Reserve then raised interest rates in 2022 to combat inflation, which in turn influenced mortgage rates.

Those rates reached near 8% in October, and higher rates put constraints on housing supply, with more homeowners staying put. It’s now 6.77% for a 30-year fixed rate mortgage.

A lack of housing stock, both in for sale and overall inventory, is a key long-run problem for housing affordability, said Robert Dietz, chief economist for the National Association of Home Builders. A lack of accessible rental inventory that provides both single family and multi-family rental housing is a problem, he said.

“We simply don’t have enough developed land to build on, particularly in the places where it’s needed the most, which tends to be highly dense, more regulated markets in the largest metros where there’s a lot of population growth,” he said.

He added that a lack of construction labor as well as expensive building materials – partly affected by supply chain problems – have exacerbated the problem.

A 2023 Home Builders Institute report found that construction would need to add hundreds of thousands of workers to meet residential construction demand. An HBI survey done in 2021 found that around 90% of home builders for single family homes said there was a shortage of carpenters and that more than 80% of remodelers said there was a shortage in most of the construction trades they needed subcontractors for.

What is the Federal Reserve doing with interest rates?

The Fed is expected to cut rates this year, which should have some impact on housing prices. The Fed may not cut rates until May or later, but economists have forecast multiple rate cuts this year.

Many homebuyers and renters are hoping that a cut in interest rates could provide lower home and rental prices, since a lack of homebuying can drive up rental costs.

But economists say there won’t be meaningful relief anytime soon.

 New housing in Orlando. Credit: File, U.S. Department of Housing and Urban Development.

“It should push mortgage rates down into the low 6% range and perhaps in 2025 moving into the high 5s,” Dietz said. “That’s not the 2 to 3% rate that we saw earlier, but it will help price in some demand by lowering the monthly payment on a hypothetical mortgage. It is going to have a disproportionate impact on first-time buyers who tend to be particularly sensitive to changes in rates because they don’t have any home equity as first-time buyers.”

Selma Hepp, chief economist at CoreLogic, said home prices will remain pricy for quite some time, even when mortgage rates come down.

“Because home prices have gone up 40%, no matter how much you adjust mortgage rates — and we’re not expecting them to come down to 2% any time soon if ever again — you’d really have to get them to 2% to get that affordability back,” she said.

What are home price trends in different parts of the U.S.?

New Jersey, Connecticut and Rhode Island saw the highest home price increases in December, according to CoreLogic’s data, but no states saw home prices go down.

Hepp said that is significant because until this report, a couple states continued to show year-over-year declines: Utah and Idaho as well as the District of Columbia. She said that change may have been fueled by people moving from parts of California and from Seattle who drove up home prices in their new states.

A Moody’s Investor Service report released in October showed Florida, Montana, Nevada, and Idaho had the largest decline in affordability, due in part to growth in new residents.

But no part of the country is being spared by the effects of rising housing prices. Walsh said some of the fastest price appreciation he’s seen is in parts of the northeast and midwest because some of those markets are more affordable compared to parts of the country that saw an influx of residents earlier in the pandemic, such as metro areas in Mountain states including Colorado and Arizona

“The places where we’ve seen the most moderation in home prices have been in the places that lost that affordability edge…,” he said. “… Some of the fastest growing places in the northeast, like upstate New York, a place that really hasn’t seen quick increases in home prices in a long time, have been showing signs of life over the past year.”

How are policymakers helping?

Some states and cities are stepping up to the challenge of improving its affordable housing stock.

A program in Maine is funding more affordable rental housing, which includes the improvement of existing housing. Minnesota’s Family Homeless Prevention and Assistance Program is expanding rental assistance.

Voters in Phoenix and Albuquerque, New Mexico, last year supported bond measures that will spend millions on affordable housing. In 2022, voters approved housing bonds to fund more affordable housing for Buncombe County, North Carolina; Columbus, Ohio, and Kansas City, Missouri. Localities in Colorado and Montana voted to use tax revenues on affordable housing development and projects in 2023 as well.

On the federal level, the Biden administration announced in July it would address low housing supply by incentivizing projects with greater density and creating a program to fund projects that focus on zoning reforms. In October, the administration also introduced new housing initiatives to increase homeownership, such as loans to boost affordable housing on tribal lands and letting homeowners use prospective rental income from “dwelling units” at their home as part of their income when they want to qualify for FHA-insured mortgages. Some economists say that zoning is far too restrictive to increase housing supply and make it more affordable.

Government policies to address housing affordability should include “thinking about ways to incentivize state and local governments to reduce regulatory burdens and enact zoning reform to promote density where the market demands it,” Dietz said.

Thursday, February 8, 2024

U.S. Home Prices Saw Record Jump in November

 By Alex Veiga

CoreLogic Case-Shiller found U.S. home prices are up 45% since March 2020, the biggest gains since December 2022. CoreLogic forecasts home prices will rise by an average of 3% this year.

LOS ANGELES — A closely watched housing market barometer shows U.S. home prices in November posted their biggest annual gain in more than a year.

S&P Dow Jones Indices’ CoreLogic Case-Shiller national home price index rose 5.1% over the 12 months ended in November. That’s the index’s fifth straight annual gain and the biggest since December 2022, according to data released this week.

The jump “is pretty strong, given where mortgage rates have been and the impact on affordability,” said Selma Hepp, chief economist at CoreLogic.

U.S. home prices are now up 45% since March 2020, the early days of the pandemic.

A tight supply of homes for sale nationally has kept upward pressure on home prices despite a severe housing market slump deepened by a sharp runup in mortgage rates last fall.

The average rate on a 30-year mortgage rate reached 7.79% in late October, according to mortgage buyer Freddie Mac. Since then, home loan borrowing costs have been mostly easing, though they remain well above the rock-bottom levels seen just three years ago.

Elevated mortgage rates and a dearth of available homes have kept the U.S. housing market mired in a slump the past two years. Sales of previously occupied U.S. homes sank to a nearly 30-year low last year, tumbling 18.7% from 2022.

While annual home price gains remain solid, the month-to-month changes in the latest index paint a less definitive picture of home price trends.

Consider, the November reading was down 0.2% from October, marking the first monthly decline in the home price index since January 2023.

“Surging mortgage rates in late 2023 started to impact prices in November, which declined from the month before,” Hepp said. “That suggests pivoting of annual gains over the next few months.”

CoreLogic forecasts that U.S. home prices will rise by an average of 3% this year.

A version of the index that tracks the value of homes in 20 major U.S. metropolitan areas showed that home prices in November increased in all but one of the metros in the index: Portland, Oregon.

Among the biggest gainers: Detroit, where the index surged to an annual gain of 8.2%, and San Diego, where the index registered an 8% annual gain.

Many economists are projecting that mortgage rates will head lower in 2024, though forecasts generally have the average rate on a 30-year home loan hovering around 6% by the end of the year.

Copyright 2024 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed without permission.

Nearly 32% of Home Sales in the Last Quarter Were Newly Built

 New construction accounted for a large share of home sales in 2023 Q4 because homebuilding has increased and the number of homeowners selling has decreased, Redfin said.

SEATTLE — Nationwide, 31.8% of U.S. single-family homes for sale in the fourth quarter of 2023 were new construction, according to a new report from the real estate brokerage Redfin. That’s comparable with 31.9% a year earlier, which is the highest level of any fourth quarter on record.

Newly built homes are taking up a growing share of the for-sale housing pie for two primary reasons:

  1. Homebuilding has increased. Homebuilding has been on an upward trajectory since 2009 as builders have slowly climbed their way out of the hole caused by the Great Recession. Construction also jumped during the pandemic as builders responded to surging homebuyer demand fueled by record-low mortgage rates.
  1. The number of homeowners putting their houses on the market has decreased over the last year and a half. That’s because mortgage rates started rising in 2022 and jumped to a 23-year high in 2023, prompting many homeowners to stay put instead of selling and losing the rock-bottom rate they scored during the pandemic. While mortgage rates have fallen a bit in the last few months, this “lock-in effect” continues to hamper listings, which are higher than they were a year ago but remain far below pre-pandemic levels.

Homebuilders have been offering sizable concessions, including money for mortgage rate buydowns, to attract bidders and offload inventory. That has made it hard for some individual sellers of existing homes to compete for buyers.

“Newly built homes are selling quickly right now because builders are offering such good discounts,” said Heather Mahmood-Corley, a real estate agent in Phoenix. “I recently had a buyer who wasn’t interested in a new construction home, but the builder offered such a good rate – 5.25% – that they couldn’t afford not to take it. Another one of my buyers got a $10,000 credit for closing costs from a builder.”

While builders are offering discounts, they’ve also boosted prices, according to Christine Kooiker, a real estate agent in Grand Rapids, MI.

“One of the builders in Grand Rapids that focuses on entry-level homes now has prices in the mid $300,000 range,” Kooiker said. “Not long ago, buyers could get a new construction home here for $250,000 or $300,000.”

Roughly two of every five (42%) new single-family homes that sold in 2022 went for $500,000 or more, up from under one-third (30%) in 2021 and 18% in 2020.

©2024 Florida Realtors