NAR: January Pending Home Sales Drop 5.7%

 By Kerry Smith

Buyers have difficulty finding a home, says NAR’s chief economist. He won’t be surprised to see demand decline given current “mortgages, home costs, and inventory.”

WASHINGTON – Pending home sales slumped in January, continuing what is now a three-month decline in transactions, according to the National Association of Realtors®’ (NAR) monthly report.

Of the four major U.S. regions that make up NAR’s full report, only the West registered an increase in month-over-month contract activity, and all regions posted a year-over-year decline.

The Pending Home Sales Index (PHSI) – a forward-looking indicator of home sales based on contract signings – fell 5.7% to 109.5 in January. Year-over-year, transactions decreased 9.5%. An index of 100 is equal to the level of contract activity in 2001.

“With inventory at an all-time low, buyers are still having a difficult time finding a home,” says Lawrence Yun, NAR’s chief economist.

Alongside persistent supply constraints, Yun says house hunters are contending with a number of additional market issues, including escalating home prices and rising interest rates. Rates jumped by nearly a percentage point in January compared to December, further adding to monthly mortgage costs.

“Given the situation in the market – mortgages, home costs and inventory – it would not be surprising to see a retreat in housing demand,” Yun adds.

NAR expects economic conditions to be volatile in the coming months. The impending conclusion of the Federal Reserve’s asset purchase program in March paves the way for higher interest rates. Russia’s aggression in Ukraine is also likely to affect global oil supply, imposing further burdens on inflation and bringing about more aggressive rate hikes.

“There’s also the possibility that investors may flee toward safer U.S. Treasury bonds, which may result in temporary short-term relief to interest rates,” Yun says.

Realtor.com’s Hottest Housing Markets data in January showed that of the largest 40 metros, the most improved markets over the past year were Orlando-Kissimmee-Sanford, Fla.; Tampa-St. Petersburg, Fla.; Jacksonville, Fla.; Nashville-Davidson-Murfreesboro-Franklin, Tenn.; and Las Vegas-Henderson-Paradise, Nev.

January regional breakdown: Month-over-month, the Northeast PHSI dropped 12.1% to 84.3 in January, a 16.7% decrease from a year ago. In the Midwest, the index fell 5.9% to 104.4 last month, down 5.9% from January 2021.

Pending home sales transactions in the South slipped 6.3% to an index of 134.6 in January, down 8.7% from January 2021. The index in the West increased 1.5% in January to 95.2, down 9.7% from a year prior.

© 2022 Florida Realtors®

NAR: January Existing Home Sales Surge 6.7%

 By Kerry Smith

Pressured by a fear of rising interest rates, investors and families rushed to buy homes in Jan. as listings remained tight and prices rose 15.4% year-to-year.

WASHINGTON – Existing-home sales rose notably higher in January, following a decline the month before, according to the National Association of Realtors® (NAR).

Month-over-month, each of the four major U.S. regions included in NAR’s monthly report saw increased sales, though activity year-over-year was mixed: Two regions reported sagging sales, another watched sales increase and a fourth region remained flat.

Total existing-home sales – completed transactions that include single-family homes, townhomes, condominiums and co-ops – climbed 6.7% from December to a seasonally adjusted annual rate of 6.50 million in January. Year-over-year, sales fell 2.3% (6.65 million in January 2021).

“Buyers were likely anticipating further rate increases and locking-in at the low rates, and investors added to overall demand with all-cash offers,” says Lawrence Yun, NAR’s chief economist. “Consequently, housing prices continue to move solidly higher.”

Total housing inventory at the end of January was 860,000 units, down 2.3% from December and down 16.5% year-to-year. Unsold inventory sits at a 1.6-month supply at the current sales pace, down from 1.7 months in December and 1.9 months in January 2021.

“The inventory of homes on the market remains woefully depleted, and in fact, is currently at an all-time low,” Yun adds.

According to Yun, homes priced at $500,000 and below are disappearing, while supply has risen at higher price ranges. He says those increases will continue to shift the mix of buyers toward high-income consumers.

“There are more listings at the upper end – homes priced above $500,000 – compared to a year ago, which should lead to less hurried decisions by some buyers,” Yun says. “Clearly, more supply is needed at the lower-end of the market in order to achieve more equitable distribution of housing wealth.”

The median existing-home price for all housing types in January was $350,300, up 15.4% from January 2021 ($303,600), with prices higher in each of the four regions. January marks 119 consecutive months of year-over-year increases – the longest-running streak on record.

Properties typically remained on the market for 19 days in January, equal to days on market for December and down from 21 days in January 2021. Four out of five homes (79%) sold in January were on the market for less than a month.

First-time buyers were responsible for 27% of sales in January, down from 30% in December and down from 33% in January 2021.

Yun says that anticipated increases in mortgage rates will be problematic for at least two market segments.

“First, some moderate-income buyers who barely qualified for a mortgage when interest rates were lower will now be unable to afford a mortgage,” he says. “Second, consumers in expensive markets, such as California and the New York City metro area, will feel the sting of nearly an additional $500 to $1000 in monthly payments due to rising rates.”

Individual investors or second-home buyers, who make up many cash sales, purchased 22% of homes in January, up from 17% in December and 15% in January 2021. All-cash sales accounted for 27% of transactions in January, up from 23% in December and from 19% from January 2021.

Distressed sales – foreclosures and short sales – represented less than 1% of sales in January, equal to the percentage seen in both December and January 2021.

According to Freddie Mac, the average commitment rate for a 30-year, conventional, fixed-rate mortgage was 3.45% in January, up from 3.10% in December. The average commitment rate across all of 2021 was 2.96%.

Single-family and condo/co-op sales: Single-family home sales jumped to a seasonally adjusted annual rate of 5.76 million in January, up 6.5% from 5.41 million in December and down 2.4% from one year ago. The median existing single-family home price was $357,100 in January, up 15.9% year-to-year.

Existing condominium and co-op sales were recorded at a seasonally adjusted annual rate of 740,000 units in January, up 8.8% from 680,000 in December and down 1.3% from one year ago. The median existing condo price was $297,800 in January, an annual increase of 10.8%.

“The market is still thriving as an abundance of home sales took place in January,” says NAR President Leslie Rouda Smith. “We will continue to beat the drum for more inventory, which will give buyers additional options and also help alleviate increasing costs.”

January regional breakdown: Existing-home sales in the Northeast grew 6.8%, posting an annual rate of 780,000, an 8.2% decline from January 2021. The median price in the Northeast was $382,800, up 6.0% year-to-year.

Existing-home sales in the Midwest rose 4.1% from the prior month to an annual rate of 1,510,000, equal to the level seen a year ago. The median price in the Midwest was $245,900, a 7.8% rise from January 2021.

Existing-home sales in the South – the region that includes Florida – jumped 9.3% from the prior month, for an annual rate of 2,940,000 – a gain of 0.3% from one year ago. The median price in the South was $312,400, an 18.7% surge from one year prior.

For the fifth straight month, the South saw the highest pace of price appreciation.

“The migration to the Southern states is clearly getting reflected in higher home sales and fast rising home prices compared to other regions,” Yun says.

Existing-home sales in the West increased 4.1% from the previous month, registering an annual rate of 1,270,000 in January, down 6.6% year-to-year. The median price in the West was $505,800, up 8.8% from January 2021.

© 2022 Florida Realtors®

Researchers: Home Market ‘Close to Peak’

 By Steve Patterson

Home prices, inflation and rising interest rates will soon create a balance in the housing market, say FAU researchers, though prices will remain high.

JACKSONVILLE, Fla. – The Jacksonville area’s booming housing market has left home values a little inflated, say a pair of academics warning that flush times for home-sellers across the state could be ending.

“If you’re buying a home in these metros across Florida … it’s imperative that you know you’re buying close to the peak of the market,” said Ken H. Johnson, an economist at Florida Atlantic University who has been researching home prices nationwide with Florida International University professor Eli Beracha.

The researchers aren’t forecasting a market collapse, but they say the crush of buyers that drove up prices nationwide last year could soon taper considerably.

“Mortgage rates have been near historic lows for the last two years and have helped keep housing demand strong through the pandemic,” Beracha said in a release about their research, expected to be published in a scholarly journal on housing. “Now we’re seeing rates rise, and that’s going to take some buyers out of the market and curtail price gains.”

Jacksonville could be seeing hints of a slowdown already, said Northeast Florida Association of Realtors President Mark Rosener. But he said the area’s demographics and a stream of buy-and-lease investor purchases should help buoy the market modestly even after a year when median single-family home prices rose 22%.

“It’s not going to be dramatic,” Rosener said.

Last year’s price hikes added to Jacksonville home costs that the researchers said have become more overpriced than most, ranked at 36th in a list of 100 metro housing markets across the country, but only eighth out of the nine Florida markets the researchers measured.

The researchers used 25 years of data to track prices by market and estimate an “expected” price on a typical home in each market, then compared those against a Zillow index of real-world prices for each market.

Jacksonville’s index price ended December at $321,420, about 32% above what the researchers considered an expected price of $243,019.

Because the rankings were based on the percentage markup compared to the index price, Lakeland’s index price of $271,809 – about 43% above the expected price – was counted as the state’s most overvalued market and 12th nationally. On the other extreme, always-expensive Miami-Fort Lauderdale’s index price of $397,603 – with a roughly 21% premium – was scored as Florida’s least overpriced metro market, and 60th nationwide.

If the researchers’ expected pricing was correct, overpaying has apparently become standard nearly everywhere.

Of the 100 markets in the study, only one – Honolulu, Hawaii – had an index price below what was expected, and then only by 0.1%. Baltimore, New York, Virginia Beach, Va., and Washington, D.C. were the next least overvalued, the researchers concluded.

Rosener said other metrics, like the Case-Shiller home price index, had already made Realtors aware that Jacksonville’s prices were growing faster than many places. But he said local conditions still seem good for the housing market, absent the exuberant increases seen last year.

The area’s relatively young population includes a lot of millennials entering age brackets when people are more typically interested in buying homes, Rosener said. In addition, he said, the area has been attractive for investors wanting to buy houses they can hold as rental property for an area where the population is growing and apartment rents are climbing.

Luxury homes have also become more attractive to affluent buyers who considered real estate a more reliable place to hold their wealth than stocks or cryptocurrencies.

After two years when pandemic conditions changed routines of how homes were bought and sold, Rosener said Jacksonville could experience a more routine “seasonality of the real estate business,” with slower winters, busy springs and an inventory that could grow over the coming year as builders gradually resolve more supply-chain problems.

He said preliminary data on January transactions suggests fewer sales closed last month but the number of pending deals, where homes are under contract, rose.

Despite discussion of being over-valued, Rosener said Jacksonville’s housing market is fundamentally different from the overpriced flippers’ market that fueled the Great Recession in the mid-2000s.

“People are buying homes to live in them. They’re not buying homes speculatively,” he said. “If you’re buying a home to live in and raise your family … that’s your motivation. You’re not looking at it to be a quick buck.”

Copyright © 2022 The Florida Times-Union.

It’s Not Just Home Prices; U.S. Rents Rise Sharply

 By Chris Arnold

Cities in Florida, New York and New Jersey are seeing steep jumps in rent. Austin, Texas had biggest 1-year gain, 40%; rent in Orlando rose 30%.

MINNEAPOLIS – Last year, Laura Kraft landed a job in Orlando, Fla. She’d just gotten her Ph.D. in entomology, meaning she studies bugs, and she’d be working on a big nature exhibit at a theme park. All that sounded great until she started looking for an apartment.

“I started looking at rent and was like, not sure if I was going to take the job,” she says. “The rent was so high in Orlando. It really blew me away.”

At first she looked for a place of her own. But anything in her price range had a waiting list at least six months long. So she found a Facebook group for theme park employees looking for roommates in order to afford a place to live.

“My roommate and I together are paying $2,200,” Kraft says. “A lot of people that I know have like three, four, sometimes five roommates in a house.”

The cost of renting a place in Orlando rose nearly 30% just last year alone, according to a survey by the real estate firm Redfin. Cities in Florida, New York and New Jersey are seeing particularly steep jumps in rent, as is Austin, Texas, with the biggest one year gain of 40%.

The survey, it should be noted, tracks new listings for apartments.

“That doesn’t literally mean that every person in Austin is going to see their rent go up 40%,” says Redfin’s Chief Economist Daryl Fairweather. “But it means that if you are on the market right now looking for an apartment or home to rent, the prices will be 40% higher than they were the year before.”

Some of the forces driving rents higher differ from city to city. Fairweather says a lot of technology workers have been moving to Austin and the migration of more people there is pushing up both rents and home prices. In New York City, rents are rebounding after falling earlier in the pandemic.

But she says rents are rising more than usual just about everywhere.

“The root cause of the problem is a lack of supply,” Fairweather says. “We have not built enough homes to meet demand.”

There a bunch of reasons for that. One of the biggest, she says, is restrictive zoning. Especially in higher-cost parts of the country, zoning rules make it hard to build cheaper smaller houses or apartments that are tightly packed together.

Meanwhile, Fairweather says more millennials in their late 20s and early 30s feel like they’re done with roommates or their parents’ basement.

“Millennials are the biggest generation,” she says. “We’re forming households, and we want a place of our own and that is causing an increase in demand.”

Redfin’s survey looks at the 50 largest U.S. cities. On average, it found the rents landlords were seeking for available homes and apartments rose 3% in 2020, which is about normal for recent years. But then last year, they rose 14%.

Government data show that the rent Americans are actually paying – not just the change in price for new listings – rose 3.8% over the past year. But, while less dramatic, that consumer price index also shows rents have been rising more than usual the past few months.

Allison Best-VanLiew is feeling the bite of those rising rents up in Buffalo, N.Y. “It’s been a little wild, to be honest,” she says.

By no stretch is Buffalo a hot housing market historically. Best-VanLiew and her husband have been renting on a busy street for a few years, and they pay $900 a month.

“We do not have a dishwasher, which is normally fine.” But she says now they are thinking of having a baby. “The bottles alone, like you kind of need that.”

And as they’ve been looking around for a better place, she says everything seems more expensive than it was a few years ago. “Between $1,200 and $1,400 for a place relatively close to this size with just a dishwasher,” she says.

Like a lot of young couples, she and her husband would rather buy a house. But with home prices hitting new records she says they’re having trouble saving enough for a down payment. And with so many would-be first-time homebuyers priced out of the market, that boosts demand for rentals and helps push rents even higher.

Copyright © 2022, NPR, KNOW Minnesota Public Radio. All rights reserved.

Two Property Insurers Halt New Policies in Florida

 As St. Johns Insurance and Lighthouse Property Insurance Corp. announce the decisions, state lawmakers consider proposals to address the troubled industry.

TALLAHASSEE, Fla. – As another sign of problems in Florida’s property-insurance industry, two insurers said Tuesday they are halting writing new business in the state.

St. Johns Insurance and Lighthouse Property Insurance Corp. notified agents of the decisions, according to copies of the notices. St. Johns said in its notice that it has used “many strategies to manage our risks,” such as not renewing policies, using new rules for eligibility for business and making rate changes.

But it said, “At this time, St. Johns Insurance has made the difficult decision to suspend all new business writing statewide as of February 15, 2022 … This closure applies to all lines of business.”

The announcements came as state lawmakers consider proposals to address the troubled industry, which has shed policies and sought hefty rate increases to try to reduce financial risks.

The problems have led to a huge influx of customers at the state-backed Citizens Property Insurance Corp., which has been adding thousands of policies a week. As of Jan. 31, Citizens had 776,790 policies, about a 75% increase over the past two years.

© 2022 The News Service of Florida. All rights reserved.

Brand-new home buyers forced to pay a higher amount later

 By Shannon Behnken

TAMPA, Fla. (WFLA) – As home prices continue to rise and buyers rush to lock in prices, some new home buyers are losing homes they thought they had already secured through a contract.

Increasingly, builders – citing pandemic-related material cost hikes, worker shortages and permitting issues – are using clauses in their contracts to raise prices or even cancel, often selling the home to someone else for a lot more money.

That happened to Delia and Eddie Masone. In February 2021, they entered into a contract with Adams Homes for a house in Wyndsor Place in Spring Hill. The sales price was $297,400. There were delays and permitting issues. Then, in November, they say they were told the slab would be poured and they were excited.

In December, though, they say the builder called with bad news.

“We are canceling your contract unless you give us 60% of your equity,” Masone said they were told. “My husband was like, ‘What?’ We are like, ‘How much is 60% of our equity?’ About 40,000 … $40,000!?”

The Masones wanted the house to help care for Santino, one of their three children, who has severe disabilities. The family wanted room so Santino could have a night nurse and not disturb their other sleeping children. When the family couldn’t pay the increased price, their contract was canceled.

“Being blindsided like this, it is heartbreaking,” she said. “It’s heartbreaking because now it’s like, what do we do?”

What happened to the Masone family is playing out all over the Tampa Bay area.

Jennifer Motsinger, executive director with the Tampa Bay Builders Association, tells Better Call Behnken that homes are taking longer to build, and builders can no longer predict what the home will cost when it’s finally done. So builders are using two types of clauses: an escalation clause that says they can raise the home price if material costs go up significantly, or a duration clause that states the builder can cancel if they are unable to start construction within six months.

Shannon Behnken reached out to Adams Homes Vice President Bryan Adams and he said supply issues and permitting issues have led to the company losing money on some homes. He explained that he decided late last year to use the duration clause with 125 homeowners. Those buyers had the choice, like the Masones, to pay more or walk away.

“It’s not a decision I took lightly, and I and my entire team feel for the families,” he said.

Motsinger, of the builder’s association, said most builders are using similar clauses in their contracts in case they find they can’t build the home for what they stipulated in their contracts.

“I’ve never seen it like this,” Motsinger said.

Realtor Julie Larsen says she also hasn’t seen it like this before. She says she recently had two buyers with similar decisions to make after the builder wanted to raise the price. One buyer chose to walk away because they could not afford the increase, and the other is still trying to make a decision, she says.

“It’s very sad to go back to the drawing board when you already are financially and emotionally invested in a property,” Larsen said. As a real estate agent, though, she says she knows the prices are increasing every month right now, and that’s why buyers want to lock into a contract in the first place. She added that some clients are no longer looking into new homes for this reason.

“It’s just a fact of the game that any property is going to be worth more tomorrow than it is today,” she said.

Meanwhile, the Masones say homeownership is now out of reach because similar homes are now out of their budget.

“What’s the point in a contract if you are going to breach it and you’re gonna break it?” Masone said. “You are not only breaking the contract, you are breaking all of these families’ hearts.”

© 1998-2022 WFLA, Nexstar Broadcasting, Inc. All rights reserved.

Older Condo Building Owners May Get Buy-Out Offers

 By Oscar R. Rivera

Pressured by high repair costs, more owners of older condos may welcome developer buy-out offers if the land’s value outweighs that of all the individual properties.

MIAMI – A condominium development trend that was already unfolding prior to the horrific Champlain Towers tragedy in Surfside – the legal termination of older condominium communities and buyout of all the unit owners to make way for new construction – is now becoming a movement in South Florida real estate redevelopment.

More owners of units in aging condo communities near the water are receiving offers from industry-leading developers than ever before, and some of these offers are coming just as the 40- and 50-year recertifications for their aging condominium towers come due.

The costs for repairs, even at the 40-year mark, can be too much for many unit owners to afford. Some associations’ financial reserves are woefully inadequate, or even nonexistent, so they would need to impose significant special assessments to pay for major repairs.

In such cases, offers that are sometimes two to three times over market value for each unit can become a very appealing exit strategy for owners, and Florida has a legal mechanism for such condominium terminations that has proven to be effective. Terminations led to the development of the Armani/Casa tower in Sunny Isles Beach and the Una Residences now under construction in the Brickell area.

For developers, the math is even simpler than that of the unit owners. Once the value of the land for redevelopment becomes greater than that of the combined property values of all the existing units in a community, a condominium termination presents a fruitful opportunity.

In a market with little undeveloped waterfront properties, combined with the recent influx of well-heeled new residents, offering to purchase all a community’s units in order to demolish a building and raise a new one presents a potentially lucrative development option.

Developers in the state are already setting their sights on a fast-growing list of target communities.

Depending on the language of the governing documents for a community, condominium terminations in Florida require very high approvals ranging from 80 to 100% of all the unit owners. Needless to say, achieving that level of buy-in from property owners is a daunting task for developers, which also often face competing offers from other condominium builders.

However, decisions between moving forward with significant special assessments to restore and repair an aging condominium tower versus offers of three times the value of one’s unit are giving owners a lot to ponder.

Serious proposals from major developers in communities that may be right for termination and redevelopment require careful consideration. This usually begins with the unit owners meeting with those presenting offers to hear their proposals and initiate the vetting process. The engagement of experienced real estate and legal professionals for the ensuing negotiations is also highly advisable.

Ultimately, it will be up to each individual owner to decide what is in their best interests.

Terminations require many months to complete, and those that are contested could take as long as several years. Plus, there will always be matters for negotiation, such as how long owners will be allowed to continue residing in their units after the termination is completed, what costs will each owner bear, what to do with existing tenant leases, and others.

Condominium terminations can be contentious, and they often stir up controversy. Today, the developers that are successfully acquiring sites through terminations are generally paying way above market value to secure the buy-in of as many owners as possible to obtain the required termination approval.

For those communities that check all the boxes for termination, there may never be a better time than now for unit owners to unite behind one offer and strike the best possible deal.

© 2022 Miami Herald. Distributed by Tribune Content Agency, LLC. Oscar R. Rivera is the managing shareholder of the Coral Gables-based law firm of Siegfried Rivera and heads the firm’s Real Estate Law Practice Group.