Top markets for affordable renovated housing inventory

Despite the rapidly deteriorating affordability, there is some hope for homebuyers in the form of renovated homes: properties that have been rehabbed into move-in ready condition after being purchased at auction.

HousingWire Magazine: December 2021/ January 2022

AS WE ENTER A NEW YEAR, let’s look at some of the events that we can look forward to in 2022. But what about what’s next for the housing industry?

Back to the Future of Mortgage Lending

This webinar will be a discussion on understanding what’s to come in the future of mortgage lending by analyzing past trends in the industry, evolving consumer behaviors and demographics of the industry’s production capacity.

Logan Mohtashami on Omicron and pending home sales

In this episode of HousingWire Daily, Logan Mohtashami discusses how the new COVID variant, Omicron, will impact inflation and whether or not it will send mortgage rates lower.

Real Estate

Commercial real estate prices hit historical peak

Regulators concerned about imbalances

Whereas the residential real estate market continues to recover gradually, the same cannot be said for the commercial real estate market, where prices rose much quicker, according to a study by Goldman Sachs.

Recently, regulators expressed concern for the potential imbalances in the CRE market.

Keeping rates too low for too long might encourage excessive risk-taking and unsustainable gains in commercial real estate, said Eric Rosengren, Federal Reserve Bank of Boston president.

CRE generally refers to retail, office, industrial, lodging and multi-family properties.

This chart shows the difference between commercial and residential prices:

Click to Enlarge

GS

(Source: Federal Reserve Board, Standard & Poor’s)

So what’s the difference between the two markets? According to Goldman Sachs’ study there are several factors. To begin with, the fall in construction was not as hard in the CRE market as it was in residential. Whereas it dropped by 2.8% for residential, it only dropped 1.6% in the commercial market.

Here is a chart that shows the smaller boom but smaller fall in the CRE market:

Click to Enlarge

GS

(Source: Department of Commerce)

That being said, whereas CRE prices look expensive relative to rents, according to CoStar data, commercial rent caps, the ratio of net operating income and prices, dropped to historic lows. Earnings yields on other assets such as equity and bonds declined significantly, therefore from an asset pricing perspective, CRE prices don’t look as rich.

This chart shows the CRE versus residential markets compared to bond rates, the cap rate and earnings-price ratio:

Click to Enlarge

GS

(Source: CoStar)

“The upshot of our analysis is that the housing recovery has been characterized by a substantial divergence between the slowly recovering residential market and the swifter recovery in commercial real estate, where prices have picked up more substantially,” Goldman Sachs Economist Daan Struyven and Vice President Marty Young wrote. “Our models point to deceleration of price gains going forward, particularly in the CRE sector.”

That being said, the company said it does not see the market declining in prices nationally any time soon.

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