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COMMERCIAL REAL ESTATE ON RECORD-BREAKING RISE
Has the pandemic changed your mind about the future of commercial real estate? The current statistics will convince you to think again with volume at its highest level in 16 years.
Quoting Phil Hall of Benzinga via Yahoo Finance, “The deal volume for U.S. commercial real estate in July skyrocketed by 74% from one year earlier, according to a new data report from Real Capital Analytics, which noted that last month’s deal volume was also above the average pace set across each July since 2005.
What Happened: Within the overall commercial real estate environment, the apartment sector attracted 35% of the month’s total commercial real estate investment.
The apartment market also led price gains in the month of July, with prices of apartment buildings up 13.5% year-over-year, the fastest pace since the housing boom of 2005-2006.
The office sector comprised 26% of sales volume for the month. Within the office sector, suburban-based activity was the driving force as central business district (CBD) properties showed less attractiveness based on continued uncertainty about office space use in urban markets. The suburban office price index jumped 11.7% in July from one year earlier, while the CBD office index was down by 4.6%.
What Else Happened: Separately, the delinquency rate on commercial mortgage-backed securities (CMBS) dropped in August to a new post-crisis low, according to data from Trepp LLC.
The August reading of 2.54% was an eight-basis-point decline from July and a 110-basis-point drop from August 2020. The CMBS delinquency rate started to fall after June 2017 when the rate was 5.75% and has been in decline for 22 of the last 26 months.
Among the sectors within commercial real estate, lodging had the lowest delinquency reading at 1.54%, while retail had the highest at 4.07%.”
Massive Housing Equity Loss On The Horizon
Recent homebuyers may soon live in regret in conjunction with the Fed’s pandemic housing policies.
Interview with Peter Boockvar, courtesy of CNBC’s Trading Nation (see link to video in news notes).
Quoting Stephanie Landsman of CNBC, “Investor Peter Boockvar is sounding the alarm on a housing price bubble brought on by the Federal Reserve’s COVID pandemic policies.
He warns first-time homebuyers are most vulnerable to dramatic losses.
“I feel bad for the people who bought homes over the past year because they’re the ones that paid the very elevated prices,” the chief investment officer at Bleakley Advisory Group told CNBC’s “Trading Nation” on Thursday.
He singles out those who put down 5% amid historically low mortgage rates. If home prices correct by 10%, Boockvar sees a world of pain.
“Their equity is basically wiped out,” he said. “For those who have owned for a while that have built up equity, they will be much more insulated.”
His warning comes as Fed policymakers convene virtually for the annual Jackson Hole, Wyoming, symposium.
Boockvar, who went on inflation watch in mid-2020, has been critical of Fed policy through the pandemic. By maintaining unprecedented quantitative easing measures through the economic recovery, he notes the central bank created a spike in housing demand that has been overwhelming supply. The result is skyrocketing prices.
“The problem is it stimulated so much demand that the supply side couldn’t keep up — whether it was builders who couldn’t get materials or couldn’t find labor or couldn’t find enough lots,” said Boockvar, a CNBC contributor.
Since housing is the most interest rate-sensitive part of the U.S. economy, Boockvar is concerned the repercussions will be far-reaching.
“It’s very hurtful for the buyer — particularly the first-time buyer who wants to own a home who is now getting priced out and then in turn is renting,” said Boockvar. “But renting prices are going up dramatically, as well.”
He suggests there’s evidence the air is leaking out of the bubble.
“People are now seeing sticker shock in home prices and they’re backing off,” added Boockvar. “Buyers are calling a time out. They said ‘I can’t afford this’ or ‘I want to wait to see home prices cool down.’”
Wall Street may get more clarity on the housing market next week with the pending sales of existing homes, the FHFA house price index and S&P CoreLogic Case-Shiller results. He expects the data, which will reflect trends from earlier this summer, will be strong.
“We’re still going to see these double-digit home price increases,” Boockvar said. “There’s still a dearth of inventory.”
Booming Southwest Housing Sales Unsustainable
With the U. S. housing market behaving somewhat like a slight rollercoaster ride showing more incline motion than downward slopes, Las Vegas, Nevada is proving to be one of the hottest parts of the country.
Quoting Eli Segall of the Las Vegas Review-Journal, “Almost any way you slice it, Las Vegas’ housing market is white-hot.
Homes are selling rapidly, prices are reaching all-time highs every month, and rents are skyrocketing. People are in a frenzy for housing, sparking affordability concerns and prompting more buyers than usual in the valley to look for homes in rural, less expensive Pahrump some 60 miles away.
So, how long can the hot streak last, and how will it all end?
Short answer: Who knows?
Housing markets are always prone to ups and downs, especially in Las Vegas, and no boom lasts forever. But tumbling sales totals this spring were later reversed, and overall, the market is still flooring it, thanks largely to a prolonged period of cheap money that has let buyers stretch their budgets.
All told, Las Vegas-area homes are selling for nearly 42 percent over long-term trends, making it the ninth-most overvalued market in the nation, according to a new report from professors at Florida Atlantic University and Florida International University.
Vivek Sah, director of UNLV’s Lied Center for Real Estate, pointed out to me that value is relative. Like many things, real estate is worth only what someone is willing to pay for it.
The current price streak is not sustainable, Sah said, but he believes the market will taper off, not nosedive like it did a decade or so ago after an easy-money-fueled, investor-heavy buying binge.
For now, however, Las Vegas is seeing rapid sales and fast-rising, record-high prices.
The median sales price of previously owned single-family homes — the bulk of the market — was a record $405,000 in July, up nearly 23 percent from a year earlier, trade association Las Vegas Realtors reported.
Moreover, 89 percent of the houses that traded hands last month had been on the market for 30 days or less, compared with roughly 60 percent of the sales in July of last year.
Homebuyers are also paying record amounts for new construction. Builders’ median closing price in Southern Nevada was an all-time high of around $419,950 last month, up 13 percent from a year earlier, according to Home Builders Research.
Las Vegas’ rental market has also accelerated as people, including newcomers from pricier cities, seek more space during the pandemic, a shift that’s helped fuel sales, too.
The typical rental rate of a Las Vegas-area home soared nearly 23 percent year over year in July to $1,662, compared with a roughly 9 percent jump nationally to $1,843, listing site Zillow recently reported.
Rents are climbing here at the second-fastest rate in the nation, and at an increased speed. In January, Las Vegas rents were up 6.7 percent from a year earlier, Zillow previously reported.
The current frenzy is by no means the same as the bubble some 15 years ago that, when it popped, saw home prices plunge and people across the valley lose their homes to foreclosure.
Builders put up far more homes back then, developers set out to pack the valley with condo towers, and resale house prices, when adjusted for inflation, were higher than they are now.
There’s no telling where Las Vegas’ market is headed today. But if prices fall, local homeowners can only hope they don’t have to brace for impact.”
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