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Tag: housing market 2023

  • The Most Overpriced Housing Markets Of 2023

    The Most Overpriced Housing Markets Of 2023

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    Housing markets across the United States have witnessed a general tightening in inventory as well as high prices, though down a bit from their peaks in 2021 and 2022 before the regiment of rate hikes instituted by the Federal Reserve commenced. While prices may be down from their recent highs, affordability still remains a major issue in many major housing markets.

    We wanted to identify the most overpriced housing markets in the U.S. based, not simply on possessing a high sale price, but on key metrics such as the sales-to-list ratio and the percentage of homes in a city that sold above asking price. To get these metrics, we sourced data from Redfin
    RDFN
    , including those two mentioned plus median sale price, available inventory, monthly number of active listings, and median number of days on market before a home is bought up.

    Read on to find out the most overpriced housing markets in America.

    The Most Overpriced Housing Markets of 2023

    In order to generate a list of cities, we limited our scope to the 200 largest cities in the U.S. by population, per the Census Bureau’s 2021 American Community Survey 5-Year Estimates, the latest data available. From here, we analyzed the housing markets in terms of the metrics mentioned above, with the two most critical being sales-to-list ratio — which tells you if homes are selling for more than they were originally listed by having a value of over 100% — and the percentage of homes that sold above their asking price. We then scored all these factors and ranked the cities accordingly.

    Below you’ll find a table detailing the top 20 most overpriced housing markets in America based on our criteria:

    Incredibly, in Lubbock, every home sold in the month of July 2023 was sold for above its asking price. No other housing market experienced a rate of 100% of homes sold above asking price. The current median sale price in Lubbock is $350,000, up 45.8% from July 2022 when it was $240,000. While home prices have risen year-on-year, so has inventory in Lubbock. From 659 available homes for sale in July 2022, inventory grew by 44.2%, reaching 950 available homes in July 2023. At the same time, the median days on market for a home for sale in Lubbock leapt up dramatically, by 425%, from 8 days in July 2022 to 42 days in July 2023. Indeed, a separate report by the Lubbock Association of Realtors for July 2023 revealed that homes are spending an estimated 80% more time on the market compared to the same time last year, according to KLBK News.

    In the second most overpriced housing market, Sunnyvale, 81.3% of homes sold in July 2023 were sold above their asking price. That’s up almost 30 percentage points from July 2022, when the percentage was 52.9%. The year-over-year change in prices in Sunnyvale has also been substantial. From a median sale price of a little over $1.6 million in July 2022, Sunnyvale’s median price rise by 30.6% to roughly $2.09 million in July 2023. The sale-to-list ratio in Sunnyvale is 106.6%, which is the fourth highest ratio in the study.

    The third most overpriced housing market is Worcester, which is about halfway between Springfield and Boston, Massachusetts. In the Worcester housing market, 76.1% of homes sold in July 2023 sold above their asking price, which is up slightly from last July’s 73.9%. Both inventory and the number of active listings have declined year-over-year in Worcester, by 63.4% and 40.3%, respectively. These factors are helping contribute to continued high home prices in Worcester, with the first month its median sale price reaching $400,000 occurring in May 2022. Back in the pre-pandemic days, in July 2019, the median sale price in Worcester was only $269,950. Unfortunately, it seems those days are long gone.

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    Andrew DePietro, Contributor

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  • Intensified housing market correction has homebuilders offering sweetheart deals to Wall Street

    Intensified housing market correction has homebuilders offering sweetheart deals to Wall Street

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    Homebuilders have a housing downturn playbook that’s proven to be effective time and again. They start by offering incentives like mortgage rate buydowns. If that doesn’t work, then builders begin to mark down home prices communities until their unsold inventory has been moved.

    Fast-forward to 2022, and homebuilders have clearly returned to their housing downturn playbook, only there’s a new wrinkle: institutional investors. In the years following the 2000s housing bust, institutional investors like Blackstone saw an opportunity to buy more directly from distressed builders. The expansion in this so-called “build-to-rent” category means that builders, this time around, are already floating big-time markdowns to Wall Street buyers.

    Last week, Bloomberg reported that homebuilding giant Lennar would begin to shop 5,000 unsold properties—an amount greater than the entire total active inventory in Kansas City—to institutional investors. In some of these Southwest and Southeast communities, investors would have the opportunity to buy entire subdivisions at a discount.

    “What’s an interesting dynamic with the institutional investors is a lot of them have been sitting on the sidelines waiting for that moment to strike… [they’re thinking] ‘Hey, I want to buy these homes from you [the builder], but I want to have a discount to do so.’” Ali Wolf, chief economist at Zonda tells Fortune.

    These institutional investors don’t just want markdowns in the 10% ballpark, they’re hoping for “20% and 30%” price cuts, says Wolf.

    On one hand, the current average 30-year fixed mortgage rate (6.28%) means the housing market downturn is still very much alive. On the other hand, the decline in the average 30-year fixed mortgage (down from 7.3% in early October) means the bottom for housing demand might be in the rearview mirror. That’s why, Wolf says, some institutional investors might be ready to pull the trigger.

    “What we’re hearing now is that some investors, because mortgage rates have come down, they’re afraid that primary buyers are going to come back into the market. So some of the institutional buyers are trying to rush in now because they’re afraid that there will be a pop in demand from primary buyers and they’re going to lose their opportunity,” Wolf says.

    Why are homebuilders like Lennar going to investors now? There are two big reasons.

    First, the ongoing housing correction has sharpened in recent months. As mortgage rates floated around 7% in October, the homebuilder cancellation rate (i.e. the percentage of buyers who back out of their contract) tracked by John Burns Real Estate Consulting spiked to 26%. That elevated cancellation rate—coupled with a weak 2023 spring housing market on the horizon—means builders are discounting faster and making sweeter deals to investors who can buy in bulk.

    Second, homebuilders still have a tremendous amount of inventory—both single-family and multi-family—in the pipeline. A pandemic housing demand boom coupled with supply chain issues pushed the number of U.S. housing units under construction to a record high this year. Now, with cancellation rates spiking, builders are eager to get this backlog sold before they finish construction.

    In the future, Wolf expects the historic pipeline of unfinished homes to continue to depress new home prices through the first half of 2023. But once standing inventory has been cleared and the pipeline is under control, the pressure on new home prices should ease up.

    Just how many of these homes will go to institutional investors? It’s hard to say.

    While firms like Blackstone have made it clear they’d like to continue to grow their real estate portfolios, some institutional buyers have also temporarily moved to the sidelines in the face of the ongoing housing correction. Look no further than Blackstone-owned Home Partners of America, one of the nation’s largest private landlords, which announced in August that it would halt single-family home purchases in 38 U.S. regional housing markets.

    There’s also the fact that firms like Blackstone and Starwood announced plans earlier this month to limit withdrawals from their real estate funds. It’s unclear how the ongoing surge in redemption requests from investors will affect their plans for future real estate investments.

    While the housing downturn certainly has homebuilders scrambling to move standing inventory, it doesn’t mean we should pencil in doomsday for builders.

    Just look at the stock market.

    While major homebuilders are all down from their 2022 highs, they’re still well above their January 2020 share price. That includes builders like D.R. Horton (+72.9% since January 1, 2020 ), Lennar (+67.4%), Toll Brothers (+30.2%), NVR (+28.5%), and PulteGroup (+21.8%). During the same period, the S&P 500 Index rose 22.5%.

    Want to stay updated on the housing correction? Follow me on Twitter at @NewsLambert.

    Our new weekly Impact Report newsletter examines how ESG news and trends are shaping the roles and responsibilities of today’s executives. Subscribe here.

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    Lance Lambert

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  • Updated: Odds of falling home prices in your local housing market, as told by one interactive map

    Updated: Odds of falling home prices in your local housing market, as told by one interactive map

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    Unlike the stock market—which corrects through price shifts—housing corrections are historically felt the most acutely through declines in housing activity. That, of course, is why spiked mortgage rates are already translating into sharp declines in both existing and new home sales.

    That said, it’s increasingly clear that this housing correction won’t be felt through just a decline in housing activity. The housing correction is also putting downward pressure on home prices, with many markets having already slipped into a home price correction.

    To better understand where home prices might be headed, Fortune reached out to CoreLogic to see if the firm would provide us with its updated October assessment of the nation’s largest regional housing markets. To determine the likelihood of regional home prices dropping, CoreLogic assessed factors like income growth projections, unemployment forecasts, consumer confidence, debt-to-income ratios, affordability, mortgage rates, and inventory levels. Then CoreLogic put regional housing markets into one of five categories, grouped by the likelihood that home prices in that particular market will fall between August 2022 and August 2023. Here are the groupings the real estate research firm used for the October analysis:

    • Very high: Over 70% chance of a price dip
    • High: 50%–70% chance
    • Medium: 40%–50% chance
    • Low: 20%–40% chance
    • Very Low: 0%–20% chance

    Between August 2022 and August 2023, CoreLogic predicts national home prices are poised to rise another 3.2%. That said, CoreLogic’s forecast model estimates a huge swath of the country is at risk of falling home prices.

    Of the 392 regional housing markets that CoreLogic measured, zero markets currently have “very low” odds of falling home prices over the coming year. Another 18 housing markets are in the “low” group and 39 markets are in the “medium” group. Meanwhile, CoreLogic put 97 markets in the “high” camp and 238 markets in the “very high” odds camp.

    This October assessment finds 335 markets have a greater than 50% chance of notching a negative year-over-year reading (i.e. markets in either the “high” or “very high” risk groups) over the next 12 months. In August, only 125 markets had a greater than 50% chance of falling home prices. In July, there were 98 markets at risk. In June, 45 markets were at risk. In May, just 26 markets fell into those “high” or “very high” risk camps.

    The trajectory is clear: Falling home prices are getting more and more likely.

    There’s two main reasons CoreLogic’s outlook continues to go lower. 1. Housing data, which feeds into the forecast model, continues to weaken in the face of deteriorating housing affordability. 2. Home prices are already falling in many markets.

    “With some markets already posting month-to-month declines since this year’s peak in prices, probability of price decline on a year-over-year basis intensified as well in August,” Selma Hepp, deputy chief economist at CoreLogic, tells Fortune.

    Where are home prices falling the fastest? The biggest declines are occurring in West Coast, Southwest, and Mountain West markets.

    “Markets already posting monthly declines are generally concentrated in the West and Mountain West, particularly in Washington, Idaho, California, Utah, Colorado, Oregon, Montana, Nevada and Arizona, and have seen relatively larger run-up in prices since the onset of pandemic,” Hepp says.

    The sharpest home price corrections can be found in one of two groups. The first group are high-cost tech hubs like Seattle and San Jose. Not only are those high-end housing markets more rate sensitive, but so are their tech sectors. The second groups are frothy housing markets like Austin, Boise, and Phoenix. Those frothy markets—which saw home values go far beyond what local incomes can support during the Pandemic Housing Boom reach levels that local incomes are struggling to support.

    Hungry for more housing data? Follow me on Twitter at @NewsLambert.

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    Lance Lambert

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