With the recent rash of Bank failures, it is clear to see that there will be more financial and economic issues to face in the near future. Commercial Real Estate debt is a topic that has gone unnoticed for some time now, however it is about to rear its head and send shock waves through the economy. Around 70% of the financing to this sector is supplied by local and regional banks. Additionally it is estimated that the commercial sector is running on a 60% to 70% occupancy rate. This will become problematic when $2.5 Trillion are up for refinancing in the next few years especially when interest rates have doubled. We will most likely see and experience a crisis in this sector.
The past Tuesday we received the data from the S&P CoreLogic US Home Price Index for January 2023. The data results stated that home values dropped for the 7 straight month, with many west coast metros showing significant declines. This trend will continue as the year goes on. Of particular note, the co-creator of that Index, Robert Shiller, provided some rather interesting commentary about the current state of the Housing Market. He mentioned that we should "probably wait" to buy a house as prices should be more affordable "in about 6 months". His commentary regarding the state of the Housing Market should be noted. I have found that he rarely speaks about the Housing Market and when he does, he is somewhat ambiguous with what he says. If you read between the lines, he is saying that the Housing Market is not recovering and will only get worse as time goes on. It is clear that he will never call out a Correction, Crash or Crisis publicly, however he does not what is going on...
It has been a while since we have heard anything regarding the status of Rental Payments and Income in the Mainstream News Media. According to a recent article from CNBC, there are more than 5 Million Households that are still behind on their monthly rent. This should come as no surprise considering the financial issues most people are facing these days along with the effect inflation has had on the overall economy and our expenses. This is yet another problem and issue within the Housing Market that has not been addressed and will manifest sometime in the near future resulting in more losses and financial issues for the small (Ma & Pa) Real Estate Investor group.
It was a very interesting weekend with 2 of the nations's largest Banks imploding under the pressure of inadequate liquidity. Americans better heed the wake up call. This will have both short and long term impacts on a very broad economic level. How will the Housing Market fare now? Expect tightened lending guidelines and a drag down in values as the economy adjusts to the chaos.
Real Estate Investment is not without its risks. Even the wealthy are prone to making poor Investment choices. Pop Singer Britney Spears "did it again" by recently selling her Calabasas CA home she owned for approximately 8 months for a whopping $1.7 Million dollar loss. As the Housing Market goes through its correction, and eventual crash, we find that the higher end home market is seeing signs of stress with significantly less sales activity and rapid price depreciation. As we all know, what goes up, must come down and this new Real Estate cycle will show us where the future deals are. Additionally, The FED tossed the Markets a change up and stated that they foresee additional and higher rate increases for 2023.
Need I say More ? Today the S&P CoreLogic Case Shiller US Home Price Index was released for December 2022. Now realize that the Index does lag about 2 months, however it is clear, or at least the data confirms what most of us are thinking: US Home Values are still declining and are now where near bottoming out. It was interesting to note that both San Francisco and Seattle posted negative year over year numbers (which means they lost value). Additionally the Pending Home Sales Index, provided by NAR, did post an increase and will most likely be utilized as a positive statistic by MainStream Media and its Housing Narrative, suggesting that the correction/crash is over. It must be noted that the increasing in pending sales coincided with a few weeks of lower mortgage rates. Mortgage rates have since risen and sales activity has slowed down once again.
There has been a lot of recent chatter in the Mainstream News Media that the current US Housing Market has already reached the "bottom" and we are now on the road to recovery. Well, according to the recent Existing Homes Sales Report for January 2023, which is produced by NAR (National Association of Realtors) it appears that a "recovery" is not happening. Home Sales posted a record 37% YOY collapse, which is worse than the pandemic slow down and puts the Housing Market on par with 2010 sales pace and 2012 value increases
The larger Real Estate Investment firms and funds have significantly pulled back on purchasing SFR's for now. The comparison between Q4 2022 and Q4 2021 shows an almost 50% drop off in their acquisitions. Maybe this is a small opening for owner occupant Buyers to get in and make purchases without other Cash Buyers bidding up their deals. Don't get too use to this phenomenon, these massive Buyers of Real Estate have amassed $110 billion and are waiting for the Housing Crash to deploy their funds.
When the Housing Market changes, or rather Corrects and Crashes, we typically see certain kinds of Real Estate properties that are the first casualties. I think that the Short Term rental market and their Landlords/Hosts/Owners will be the first to fall as many would have jumped on the Short Term bandwagon and purchased properties over the past 2 years at a premium. Now that there may be an over supply of short term rentals, the business plan to convert them into monthly rentals or annual leases may not work financially. It will be interesting to see what happens over the course of this year.
Don't believe everything you hear regarding the volume of Foreclosures or Foreclosure activity from Mainstream Media. It is interesting that the true volume, or potential volume of data is not really discussed or available to the public. I assume that this is yet another way in which the Mainstream Media and Housing Narrative is trying to downplay what could be serious issues for the US Housing Market in the near future. From my perspective, which is based on what I see and participate in when out in the Real Estate field, is a definite increase in activity and the fact that Homeowners are now starting to take action when dealing with their Foreclosure.
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