Logan Mohtashami, HousingWire analyst, joins ‘Squawk on the Street’ to discuss what the rise in mortgage rates mean for the consumer, what recent rate moves mean for housing activity, and much more.
03:22
Fri, Oct 18 202411:18 AM EDT
Tag: Housing policy
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How a rare type of mortgage is landing homebuyers a 3% rate
As mortgage rates stagnate around 6%, prospective homebuyers are feeling nostalgic for the 3% interest rates of 2020 and 2021. Google search results for the term “assumable mortgage” spiked in May, following a steady upward trend starting in 2022.
Mortgage assumptions allow buyers to take over an existing mortgage at its current rate, possibly securing mortgage rates as low as 2% or 3% depending on when the original mortgage was taken out.
Mortgage assumptions were a popular way to buy a house in the 1970s and 1980s but have largely fallen out of public consciousness. The Garn St.-Germain Act of 1982 allowed private lenders to enforce a due-on-sale clause, requiring payment in full if a property changes hands, making assumable mortgages near obsolete outside of divorce and property inheritance.
Now a rarer find in the U.S. housing market, a specific subsect of mortgages can still be assumed by outside buyers: Veterans Affairs, Federal Housing Administration, and United States Department of Agriculture mortgages.
“Twenty percent to 25% of the homes on the market will be fully assumable at one time,” says Raunaq Singh, Roam founder and CEO. But, “the number of assumption transactions that are happening is far fewer than the number of mortgages which can be assumed.”
Only 4,052 FHA-backed mortgage assumptions were completed in 2023. Still, that’s a 59% increase compared to 2021, according to numbers provided by the FHA. The VA has seen an even larger jump with 713% more mortgage assumptions in 2023 compared to 2021. Both the VA and FHA are already outpacing last year’s assumption totals at more than 5,000 assumption per department so far in 2024.
Watch the video above to learn more about assumable mortgages, how they work, and why they can come with their own set of hurdles.
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Colliers U.S. CEO: Commercial real estate still has some stress to come and loans to be worked out
Gil Borok, Colliers U.S. and Latin America CEO, joins ‘Money Movers’ to discuss if Borok thinks rate cuts mark the peak in commercial real estate delinquencies, how the chief executive sees the current environment, and much more.
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Economist: China needs to employ more forceful property measures
Wei Yao, chief APAC economist & head of research at Societe Generale, says the Chinese government needs to step up support in both housing and consumption to help lift up the economy.
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She jumped from the third story of a burning single-stair apartment building and doesn’t want others to have to do the same
Colorado’s debate over fixing the affordable housing crisis by adding taller single-stair apartment buildings dredged up Denise Surina’s memory of the fire — and the fall.
The fire happened six months after Denise Surina moved into apartment 312 in the Kennedy Ridge Apartments in Southeast Denver. She lived there with her two cats and two dogs, her late husband’s belongings and her many artworks. There was just one staircase in the building. The only other exits from her place were the windows.
Her downstairs neighbors, in apartment 212, often smoked behind flags hung for privacy. One night, as they often did, they put out their cigarettes in flower planters, according to a Denver Fire Department investigation. A couple of hours later, the planters ignited. The flags caught fire.
Flames climbed up the balcony to Surina’s porch. She woke to the noise of crackling fire.
“I ran out to the living room and saw a ball of fire on my balcony,” she said.
The apartment complex at Dartmouth Avenue and Havana Street in Denver’s Kennedy neighborhood where Denise Surina once lived, and had to jump out of a window during a fire in 2012. April 9, 2024. Kevin J. Beaty/DenveriteShe tried to escape through the door, but the hallway was filled with smoke, and she couldn’t reach the single staircase in her building.
Black smoke engulfed her. She slammed the door, hit the ground, and crawled, as fire burned along the ceiling.
Finally, she made it to her bedroom. She looked out the window, and the firefighters were not there. A couple of neighbors were beneath her window, holding a comforter. First, she threw her two dogs, Skipper and Jimo, out the window. They survived the fall.
She wasn’t ready to jump herself, even as her neighbors begged her to do so. She hoped firefighters would rescue her, but they were on the other side of the building battling flames. She wanted to stay until they could rescue the cats. But they didn’t come.
Denise Surina in the back yard of the home she shares with her mother in Denver’s Hampden neighborhood. April 9, 2024. Kevin J. Beaty/Denverite“I waited as long as possible, but then I turned around and lowered myself,” she recalled. “I was hanging from my fingertips and dropped down so they caught me in the blanket. I injured my right knee. I tore my meniscus.”
Eventually, the firefighters saved the cats. Other neighbors were injured escaping the building. Surina was taken to the hospital and treated for smoke inhalation.
Nobody died. But death isn’t the only harm caused by a home fire, she said. She wouldn’t wish what she’s suffered on anybody.
Homes like the one she lived in, that burned, are legal to build now. Lawmakers are currently proposing cities across Colorado allow single-stair buildings to go even higher and will discuss the issue in committee on Wednesday.
“When I saw they were going to build more, it was just horrifying to me,” she said. “Because you know, there’s no way out. It’s pretty scary.”
Fires happen. But the single-stair buildings lawmakers are debating are well-tested structures.
Tall single-stair buildings are popular throughout Europe and Seattle. They fall outside of International Building Code rules that limit such buildings to three stories high.
The newer builds boast fire sprinklers, alarms and other technologies to prevent fires. They incorporate technology that removes smoke from stairwells in case evacuation is needed. And those stairwells are placed close to apartment entries for easy access.
Proponents, like affordable housing developer Peter LiFari and architect Sean Jursnick, argue single-stair buildings are a safe, smart solution to the lack of housing for working people. These buildings would give smaller developers a chance to contribute to the city’s affordable housing shortage.
Architect Sean Jursnick and developer Peter LiFari stand in front of a huge apartment project and a small single-stair apartment building on Downing Street in Capitol Hill. March 6, 2024. Kevin J. Beaty/Denverite“We could have gentle-touch density that would add charm to the neighborhood character instead,” YIMBY Denver member Luchia Brown testified at the Statehouse.
Rep. Alex Valdez, one of the bill’s cosponsors, told lawmakers a statewide building code model would speed up the construction of needed housing in cities across Colorado. The lack of affordable housing requires an urgent response, and this is one of several solutions lawmakers are considering in this session.
David Pardo, an AirBnB property manager and former wildland firefighter, argued at the Statehouse that single-family homes on the border of cities and wildlands, where working people live, are much more dangerous than single-stair buildings in urban areas.
“When we fail to build family-friendly dwellings in well-protected cities, families without significant resources end up in these types of homes, and our wildland firefighters will end up paying the price for that development with their lives,” said Pardo.
Single-stair apartment buildings are nothing new in Denver. Capitol Hill is full of such homes. The city’s current zoning code allows them to be built up to three stories high — the same height as Surina’s former apartment.
The new law would allow builders to add just two more stories of housing. The five stories could be built from the ground up or on top of ground-floor retail, creating a building with up to six stories.
Multiple urban fire departments, including Denver’s, have been arguing against changing the rules.
Sure, there are fire prevention technologies that reduce the risk of fires implemented since the ban on single-stair multi-family construction above three stories was enacted. But in the case of a fire, more access points, firefighters argue, are always better and minimize injury.
It’s safer for residents to be able to exit themselves without waiting for firefighters. In a mass shooting, having one exit could be deadly.
“In our industry, we say the building and fire codes are written with the blood of people’s lives,” said Elizabeth Fire Chief Kara Brzezinski. “We take the development code process very seriously.”
Proponents say the fears, expressed by firefighters, are overblown, conservative and undermine a fix on a much more urgent crisis: the lack of affordable housing that’s led to rampant homelessness.
Single-stair advocates point to studies that indicate cities with single-staircase apartments have fewer fire deaths than Denver.
“In Spain and Italy, for example, one or two units are often on each of eight or even 12 floors,” Pardo said. “Both of those countries have one-third the rate of fire deaths per capita that we have here in the United States. South Korea and Switzerland have no height limit on single-stair buildings, and their fire death rates are one-half and one-fifth that of the United States respectively.”
Death isn’t the only bad outcome from an apartment fire that lawmakers should be weighing, Surina said.
Three weeks after the fire a company doing the cleaning gave her and her daughter hazmat suits so they could go into the apartment and retrieve their belongings. Doing so was against the law, but Surina was grateful for the chance.
Many of her belongings had already been looted. They couldn’t salvage any of Surina’s husband’s things, but she did manage to retrieve some of her art.
“Your life is completely changed,” she said. “Because you have nothing. You’re starting from nothing.”
Surina’s mom, who had watched the fire consume the building, lived across the street. Surina moved in and has been living there since.
Eventually, she declared bankruptcy, as did the people in the apartment below hers. She tried to sue, along with one of her neighbors, taking legal action against the landlords because fire alarms didn’t go off.
After her neighbor passed away, Surina dropped the case.
For more than a decade, she was scared of tall buildings, but slowly she’s recovering from a trauma she doesn’t want others to experience.
“I’m finally getting human again,” she said.
Denise Surina in front of the home she shares with her mother in Denver’s Hampden neighborhood. April 9, 2024. Kevin J. Beaty/DenveriteColorado Public Radio’s Andrew Kenney contributed reporting to this story.
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How China’s property bubble burst
China’s top real estate developers, Evergrande and Country Garden, have defaulted on their debts. But the issues in China’s property market have much deeper roots.
Desperate property developers in China have resorted to gifts like new cars, free parking spaces, phones and other consumer goods to attract homebuyers and boost flagging sales.
These incentives are just the tip of the iceberg in a crisis involving hundreds of billions of dollars in home builder debt, trillions in local government debt and at least a billion empty apartments.
But it wasn’t always the case. Since China’s economic liberalization in the 1970s and housing reforms in the late 1980s, locals have flocked to properties as the investment vehicle of choice over alternatives such as the stock market.
The property and construction boom helped fuel China’s – and the world’s – economic growth for 30 years. By some estimates, property in China was worth $60 trillion at its peak, making it the biggest asset class in the world.
Developers like Evergrande and Country Garden got extremely rich in the process.
As property values soared and Chinese households piled on more debt, Beijing attempted to cool its housing market and rein in risky business behavior. Spooked, Chinese consumers soured on property purchases.
But the country’s property crisis has deeper roots than speculation and uncontrollable debt. Watch the video to find out how China’s property bubble burst.
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How RealPage influences rent prices across the U.S.
RealPage software is used to set rental prices on 4.5 million housing units in the U.S. A series of lawsuits allege that a group of landlords are sharing sensitive data with RealPage, which then artificially inflates rents. The complaints surface as housing supply in the U.S. lags demand. Some of the defendant landlords report high occupancy within their buildings, alongside strong jobs growth in their operating regions and slow home construction.
09:56
Sat, Feb 3 20248:27 AM EST
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Why U.S. renters are taking corporate landlords to court
A group of renters in the U.S. say their landlords are using software to deliver inflated rent hikes.
“We’ve been told as tenants by employees of Equity that the software takes empathy out of the equation. So they can charge whatever the software tells them to charge,” said Kevin Weller, a tenant at Portside Towers since 2021.
Tenants say the management started to increase prices substantially after giving renters concessions during the Covid-19 pandemic.
The 527-unit building is located roughly 20 minutes away from the World Trade Center, on the shoreline of Jersey City, New Jersey. A group of tenants at the tower is involved in a sprawling class-action lawsuit against RealPage and 34 co-defendant landlords. The U.S. Department of Justice filed a statement of interest in the case in December 2023, arguing that the complaints adequately allege violations of the Sherman Antitrust Act.
In November 2023, the attorney general of Washington, D.C., filed a similar but more narrow complaint against RealPage and 14 landlords that collectively manage more than 50,000 apartment units in the District.
“Effectively, RealPage is facilitating a housing cartel,” said Attorney General of the District of Columbia Brian Schwalb in an interview with CNBC. His office filed the complaint on antitrust grounds. They allege that landlords share competitively sensitive data through RealPage, which then sets artificially high rents on a key slice of the local rental market.
Office of the Attorney General for the District of Columbia, November 2023
“Rather than making independent decisions on what the market here in D.C. calls for in terms of filling vacant units, landlords are compelled, under the terms of their agreement with RealPage, to charge what RealPage tells them,” said Schwalb.
RealPage says its revenue management products use anonymized, aggregated data to deliver pricing recommendations on roughly 4.5 million housing units in the U.S. The company says its tools can increase landlord revenues between 2% and 7%.
“Just turning the system on will outperform your manual analyst. There’s almost no way it can’t,” said Jeffrey Roper, a former RealPage employee and inventor of YieldStar.
YieldStar is one of three key revenue management tools offered by RealPage. The software balances prices, occupancy and lease lengths to help property managers optimize their portfolio’s yield. The company feeds data from its models into a newer tool dubbed “AIRM” that considers the effect of credit, marketing and leasing effectiveness.
RealPage told CNBC that its landlord customers are under no obligation to take their price suggestions. The company also said it charges a fixed fee on each apartment unit managed with its software.
RealPage was acquired by Miami-based private equity firm Thoma Bravo for $10.2 billion in 2021. In court filings, Thoma Bravo has claimed that it is not liable for the alleged acts of its subsidiary outlined by plaintiffs in the class-action complaints.
Renters told CNBC they discovered how revenue management software is used in real estate after reading a 2022 ProPublica investigation. Equity Residential investor materials show that the company started to experiment with Lease Rent Options between 2005 and 2008. RealPage acquired the product in 2017.
“How could we possibly know?” said Harry Gural, a tenant in an Equity Residential property located in the Van Ness neighborhood of Washington, D.C. Gural says he has been involved in legal matters against his landlord’s pricing practices for more than seven years.
Affiliates of Equity Residential are contesting a separate decision made by a local housing authority in Jersey City regarding prices set on the Portside Towers property. The company has filed a lawsuit in federal court challenging the decision, stating that the decision could result in millions of dollars in refunds for tenants.
Equity Residential and other defendant landlords declined to comment on ongoing RealPage litigation.
Redfin reports that asking rents in the U.S. ticked down to $1,964 a month in December 2023, a decline from recent highs. Prices are coming down in markets such as Atlanta and Austin, Texas, where home construction is high. But analysts believe low rates of homebuilding on the U.S. East Coast could give well-located landlords more pricing power.
“Guys like us that own 80,000 well-located apartments, we’re still in a pretty good spot,” said Equity Residential CEO Mark Parrell in a June 2023 interview with CNBC.
Watch the video above to learn about the rising tide of lawsuits against U.S. corporate landlords.CORRECTION: A previous version of this article misstated when Equity Residential purchased Portside Towers.
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Rental markets are softening, but half of U.S. tenants spend more than they can afford, Harvard report finds
Sneksy | E+ | Getty Images
Rent prices are coming down in some areas, but not at the pace needed to relieve tenants struggling to pay rent.
Half of renters in the U.S. spent more than 30% of their income in 2022 on rent and utilities, according to the new America’s Rental Housing report by the Joint Center for Housing Studies of Harvard University.
The report considers those who spend 30% or more of their income on housing “rent burdened” or “cost burdened,” which means those high costs may make it difficult for them to meet other essential expenses.
The share of cost-burdened renters increased by 3.2 percentage points from 2019 to 2022.
More from Personal Finance:
Here are the top 10 hottest housing markets in 2024
Here’s where people are moving
How to use rent-reporting services to boost credit“Places in the market that need the most relief are at the very low end, and it’s hard to reach those people through market rate supply alone,” said Whitney Airgood-Obrycki, lead author and senior research associate focused on affordable housing at the Joint Center for Housing Studies of Harvard University.
While cost burden has increased across income levels, the consequences are much higher for low-income households, said Airgood-Obrycki.
‘We have a very unaffordable country right now’
The average residual income, or the amount of money available after paying for rent and utilities to cover other needs, has significantly dropped for lower earners, the study found.
“It’s a really important part of the conversation because … it makes it more humanizing how big this problem is,” Airgood-Obrycki said.
Renter households with annual incomes below $30,000 had a record-low median residual income of $310 a month in 2022, the Harvard study found. For perspective, a single-person household in even the most affordable counties need about $2,000 a month for non-housing needs, according to the Economic Policy Institute.
“The underlying problem is we have a very unaffordable country right now,” she said. “If you go through any sort of life crisis, you’re on the brink of homelessness.”
Most young adults have either stayed at home with their parents or are moving back in because of the cost of living.
Share of young adults living at home goes back to 1940s
Historically, what kept young adults living at home was the lack of a job; today, it’s the lack of affordable housing, according to Susan M. Wachter, a professor of real estate and finance at The Wharton School of the University of Pennsylvania.
The percentage of Gen Z adults living at home “takes us all the way back to 1940, the end of The Great Depression,” said Wachter.
The share of young adults between the ages of 18 and 29 who live at home with parents is almost at 50%, according to a study Wachter co-authored.
That is a result of young adults competing with potential homebuyers, who themselves are being priced out of the single-family housing market.
“They’re competing in a way that they haven’t before,” she said. “The home mortgage market is indirectly causing a huge spillover demand into the rental market, making the rental market not affordable.”
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Hong Kong's property market won't see a strong 'V-shaped' rebound, analyst says
Marcos Chan, head of research at CBRE Hong Kong, says demand for residential property will nevertheless pick up, and a “couple of percentage points up” in prices is possible.
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In a tough real estate market, a century-old housing idea could make a comeback
A crane taking four 15-foot-wide by 60-foot-long modular home segments and stacking them one on top of the other to make a new duplex in Aurora, Colorado in 2018.
Hyoung Chang | Denver Post | Getty Images
A century ago, a first-time homebuyer might begin their search in a catalog for a kit-built home from Sears and others. In today’s real estate market, the idea rarely registers in house hunting. But with affordability stretched to an extreme and more buyers thinking about sustainability, the modular home — the kit home’s descendent — could be poised for the spotlight.
In the least, U.S. consumers looking to build an efficient and sustainable home should consider going modular. Green construction experts generally agree that modular construction generates less waste and causes less disruption to plants and animals on building sites. And instead of thousands of pieces of lumber, nails, and roofing material that you’d have received with those century-ago kits, modular homes today come in fewer but far larger pieces — assembled in a manufacturer’s facilities, then shipped to the home site, where they’re assembled together. In fact, the modules that make up a modular home can be the size of whole rooms. Typically, it is only the home’s foundation that is actually built on-site.
Modular construction has also attracted interest from affordable housing advocates with mortgage rates, though now on the decline, having reached as high as 8% this year and home prices up in almost every major metro market. The first of up to 2,000 single-family modular homes are being assembled in Chicago’s Southside and will be available for about a $1,000 down payment thanks to a partnership between city and state governments and area non-profits. A smaller affordable modular home project is planned for the Maryland suburbs outside Washington, D.C. Modular dwellings have also been used to combat homelessness in the U.S., Canada, and elsewhere. The issue was raised this week in the op-ed section of the New York Times.
Modular housing can be lower cost
Modular homes have to comply with state and local building codes, and they are financed the same as traditional construction. The difference is price. Modular construction averages $80 to $160 a square foot, which is 10-20% cheaper than traditional construction, according to HomeGuide. That puts the cost of building a typical modular home at $120,000 to $270,000 compared to $155,000 to $416,000 for traditional construction.
The modular building method can save money due to scale. “We have seen offsite construction of repeatable modular units save as much as 25 percent of vertical construction costs,” said Dave Dauphinais, associate partner at the management consultant McKinsey & Company.
Based on these construction costs, down payment and monthly mortgage expenses for a 30-year fixed mortgage at 7.25% interest would be $13,500 and $1749.78/monthly for a high-end modular home, versus $20,800 and $2,695.96/monthly for a traditional top-end $416,000 home, according to Rocket Mortgage.
Several venture capital firms have invested in modular construction, including Khosla Ventures and Y Combinator. One of the larger recent deals was led by Waed Ventures and Bold Capital this September, a $52 million funding round for Mighty Buildings, a startup in the sustainable, modular-home space that uses 3-D printing to automate the construction process.
The net-zero lifestyle goes well with prefab homes
Some modular dwelling manufacturers specifically cater to consumers looking to maximize efficiency or to attempt net-zero living. This includes Deltec Homes, Dvele, and S2A Modular, which all include solar panels in their residential home options.
“Modular home building has come a long way and is worth considering as prefabrication done well can reduce waste and the associated carbon emissions,” said Lisa Carey-Moore, director of buildings at the International Living Future Institute, a nonprofit that promotes regenerative building practices.
Generally, the modular assembly method can use less materials than traditional construction methods – where everything is built on site – because there’s more control over the building process and less chance wood, tile, roofing and other materials will be stolen, damaged, or wasted. It’s also easier to recycle excess materials in a factory setting than on the typical outdoor job site or use excess material from one job on a later one.
More than 15 percent of the materials used to construct a home the traditional way can end up as waste, but waste with modular construction is only about five percent, noted Ryan McEvoy, founder and principal of a sustainable building consulting firm called Gaia Development.
Speed of construction and portability are advantages
Though modular construction companies tout their cost and sustainability — and have attracted notable financial backers such as Bill Gates‘ Breakthrough Energy Ventures in the case of Vantem — there can be other advantages. These homes can be constructed relatively quickly in a housing market where inventory is at a historic low. McEvoy noted that a modular home can be move-in ready in eight to 12 months, about half the time needed to build a dwelling the traditional way. And it can be easier to move a modular home to a new location should the need arise, since the structures can be taken apart about as easily as they are put together.
Modular townhomes in Bradenton, Florida, manufactured by Vantem’s Affinity Modular subsidiary.
Vantem
You may have noticed that major retailers such as Costco, Home Depot, Lowe’s and Walmart have begun selling tiny home kits at prices starting under $10,000. These are different than modular homes and not suitable for everyone. At the low end, these structures are basically storage sheds, and marketed as such. Even larger units from these retailers are typically less than 600 square feet – about a third the size of the average American home. Unlike most modular and traditional homes, these little dwellings also lack foundations for extra storage. Instead of basements or crawl spaces, they generally feature metal frames meant to be secured to concrete slabs or mounted on wheeled trailers.
Warren Buffett is in, but modular remains out in the market
Most modular companies are small and do business on a regional basis, but some larger manufacturers exist, such as Champion Home Builders, Kent Homes in Canada, and Clayton Homes, part of Warren Buffett’s sprawling conglomerate Berkshire Hathaway empire.
Overseas, modular homes have been more popular than in the U.S. and have been built quickly. Globally, the modular home market has been estimated at over $100 billion, but for the most part, even with modular homes in the U.S. around for decades, they have yet to catch on with American consumers. The vast majority of U.S. homes are built on-site using traditional methods. By contrast, less than four percent of current housing stock was built using modular techniques, according to a report from McKinsey. That makes modular construction less popular than even mobile homes, which make up 6.3 percent of U.S. housing stock. The research cited multiple factors contributing to the relative rarity. This included a lack of familiarity among contractors as well as the need for financing up front to insure the full cost of construction and modular components.
Some environmental experts are skeptical of the sustainability claims, too.
“Modular and prefab is not necessarily more environmentally friendly than traditional building methods,” said Chris Magwood, a co-founder and director of research at Builders for Climate Action, a Canada-based organization that promotes zero-carbon construction. “It is entirely possible to assemble materials with high climate impact, major toxicity concerns and problematic building science attributes and come up with a bad prefab home. … it’s not so much the prefabrication that makes it better or worse for the environment.”
Indeed, no homebuilding company should be assumed as more sustainable in a market where greenwashing has become all too common. Carey-Moore said it’s critical to evaluate the sustainability credentials of the companies to ensure that building products used are not toxic, sourcing of materials is responsible, and waste is minimized and diverted appropriately.
But to the extent that sustainable building is important to the developer, builder, and buyer, modular solutions often present an attractive alternative to traditional methods,” Dauphinais said. “Modular construction has the potential to be more sustainable.”
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Hong Kong’s property prices won’t pop any time soon. Here’s why
Residential buildings in Hong Kong, China on October 23, 2023.
Vernon Yuen | Nurphoto | Getty Images
Hong Kong’s leader John Lee this week eased the city’s decade-old residential property cooling measures — but questions remain on whether it’s enough to boost market sentiment and low transaction volumes for the private housing sector.
“Although relaxation of property restrictions was highly anticipated, the BSD [buyers’ stamp duty] cut from 15.0% to 7.5% surprised us; the other relaxations were in-line,” Citi’s Ken Yeung wrote in a note.
He doesn’t expect the move to reverse downward trend in Hong Kong’s property prices as interest rates remain high.
According to data from real estate agency Midland Realty, the second-hand property market average turnover ratio between 2017 and 2023 stands at 3.7%. That’s compared with 8.7% before the cooling measures took effect in 2010.
Buggle Lau, chief analyst at Midland Realty told CNBC the average turnover ratio in 2022 to 2023 are at historic lows, as property prices have corrected down by nearly 20% since their peak in August 2021.
He expects the policy address will give property prices “a chance to stabilize” and for volumes to pick up.
For the market to fully recover, both in terms of price and volume, interest rates will have to come down next year, the property analyst said.
He expects a further 5% downside on prices in the first half of next year should there be a rate cut.
Homeowners’ struggles
Hong Kong homeowner KC Mok has been trying to sell his apartment before his family immigrates at the end of the year — a popular reason for people selling their property in recent years.
The 41-year-old told CNBC that his 707 sq. ft. 3-bedroom apartment is currently listing at $9.5 million Hong Kong dollars ($1.21million), 20% lower than his purchase price in 2019.
He said many people have been viewing his place, but the only offer he received so far is a mismatch.
“Now when we come to selling the apartment, we found that the value of the apartment [is] already like $2 million dollars less, so a little bit depressed but we have to leave so it’s the timing maybe,” Mok said, acknowledging that the latest cooling measures “will help a little bit” for his situation.
Meanwhile, 33-year-old Kitty Yiu considers herself “lucky” as she sold her apartment and started renting in February, just before property prices fell and interest rates rose.
Yiu gave birth to her firstborn earlier this year and needed a bigger home to accommodate her growing family.
“To be honest, we are still in a struggle to see whether we should buy a new flat, like to buy a flat again,” she said.
“I think the price at this moment is still high, even if it’s having a downward trend, but for me I think it’s still overpriced,” said Yiu who doesn’t think the latest policy relief would increase her appetite to purchase a house.
Unlike Mok and Yiu, Eugene Law faces the struggle of rising mortgage rates as a new homeowner.
Together with his mother, Law, who is 30, purchased a flat at pre-construction in 2021 and moved in last year. His mortgage rate started at 1.9% and is currently at 3.375%. That means he needs to pay an additional HKD $6,000 ($767.09) per month for the interest, which he says makes him feel “so bad.”
“[It was] unexpected … because I expected the HIBOR may rise but I didn’t expect the prime rate will also rise, and also in a very high percentage.”
Prospective homebuyers in Hong Kong can choose to peg their mortgage rate with HIBOR or prime rate – known as the “H Plan” and “P Plan.” HIBOR refers to the interest rate for interbank borrowing, while prime rate is determined by individual banks.
In a low interest rate environment, the prime rate is usually the more popular choice as it is considered more stable, and easier for the mortgagor to make financial plans.
Despite regretting the timing of his purchase, Law said the latest easing of policy would not have affected the decision.
Risks for Hong Kong property
A recent report from UBS showed Hong Kong is the 6th overvalued city on their Global Real Estate Bubble Index. Zurich, Tokyo and Miami are the top three.
“Biggest risk [to Hong Kong’s property market] will be [a] pro-longed high-rate environment, and hence further mortgage cost increase. Longer run will be geopolitical risk,” said UBS’s china property market Mark Leung in an email to CNBC.
While describing the current sentiment as “a bit weak,” he expects the policy address would release sizable purchasing power from non-local expats who are waiting to become permanent residents.
With the second-hand market bid-ask spread remaining high and many homeowners not willing to sell their properties at a discount, Leung said he expects little room for property prices to reverse the downward trend.
For the primary market, he expects developers will now be more willing to cut prices in order to boost sales and “recycle cash, given higher interest rate environment.”
“Price-wise should be muted, as we think developers may be aggressive in price setting, hence cap the price rebound potential,” he added.
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Our estates have distinguished themselves during this crisis, says Myanmar’s Yoma Strategic Holdings
JR Ching, chief financial officer at Yoma Strategic Holdings, discusses the conglomerate’s product portfolio and how its performance compares with that of other developers.
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How Wall Street’s REIT giants are reshaping U.S. real estate
U.S real estate investment trusts today manage $4.5 trillion in real estate worldwide. Many groups on Wall Street offer these tax-friendly funds to retail investors.
KKR’s real estate business is one of the big players in the REIT game. The private equity firm manages multiple REIT funds. The KKR Real Estate Select Trust, which currently manages $1.5 billion in assets, paid a dividend of 5.4% to its investors in July 2023.
But the benefits extend beyond returns.
“When you look at the after tax equivalent of that yield, it is very compelling.” said Billy Butcher, CEO of KKR’s global real estate business. “The depreciation from our properties has covered 100% of the income generated by our properties, and there’s no tax on that dividend,” he said in an interview with CNBC.
Larger funds sometimes contain a diversified pool of assets. Categories may include office, student housing, casino, timberlands, radio and cell towers, server farms, self-storage properties, billboards, and much more.
“Back in the 1960s, there were three or four different types [of REITs], said Sher Hafeez, a managing director at Jones Lang LaSalle, a real estate services firm. “Now, I can count at least 20 different types.”
Top performing REIT sub-sectors in recent years include data centers, self-storage properties, residential housing and tower REITs. Residential housing delivered a return of 16% from 2010 to 2020, according to a S&P Global Investments report.
The investor-friendly tax rules can also increase the pace of large-scale development.
“Having REITs there as a potential exit helps the market, and helps the availability of financing,” said Michael Pestronk, CEO and co-founder of Post Brothers, a Philadelphia-based housing developer.
Some funds like Invitation Homes and American Homes 4 Rent were founded in the yearslong slowdown in U.S. home construction. At the time, REITs bought and managed commercial-scale properties, which could include products like master-planned communities or traditional apartment complexes.
In recent years, publicly traded trusts have targeted single-family rental market, and today, these REITs have grown tremendously — enough to build new neighborhoods in their entirety.
Watch the video above to learn the fundamentals of real estate investment trusts.
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Less than 5% of U.S. housing supply is accessible to older, disabled Americans. These changes may help
Lucy Lambriex | DigitalVision | Getty Images
Despite a sizeable elderly and disabled population in the U.S., there is not enough affordable housing to accommodate those individuals.
“For millions of Americans, adequate housing is more of an aspiration than a reality,” said Sen. Bob Casey, D-Pa., who serves as chairman of the Senate Special Committee on Aging, at a Thursday hearing.
“In particular, too many older adults and people with disabilities cannot afford accessible housing,” Casey said.
About 26% of the U.S. population — or about 61 million people — have a disability, Casey said. At the same time, 1 in 5 Americans will be older than 65 by 2030.
Accessible homes — which offer specific features or technologies — can help older and disabled individuals continue to live in their own homes or in communities they choose. That may include wider doorways, lower counters and sinks and accessible bathrooms.
Yet less than 5% of the national housing supply is accessible, Casey said. Moreover, less than 1% of housing is available to wheelchairs.
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Social Security phone disruptions have led to longer wait timesLeaders on both sides of the political aisle agree the shortage of adequate housing is a problem.
The U.S. is between 3 million and 6 million houses short of what the market needs, noted Sen. Mike Braun, R-Ind., ranking member of the Senate aging committee.
The problem has been complicated by state and federal regulatory burdens, higher infrastructure costs, supply chain constraints, work force shortages and increased materials costs due to inflation, Braun noted.
“Sometimes we’re at odds in terms of what we should do, but there’s always practical legislation in the middle, and I’d hope that we can have those conversations that get us there,” Braun said.
Suggestions for improvements emerged during Thursday’s hearing.
Develop affordable, accessible housing
For Dominique Howell, a disability housing advocate based in Philadelphia, finding an adequate place to call home that can accommodate her disability has been a struggle, she testified at Thursday’s hearing.
Five years ago, Howell said, she was “wrongfully evicted” from her home, along with her daughter, who was 3 years old at the time, and her grandmother.
Howell was initially prohibited from entering a shelter, due to the home- and community-based services she receives. After finding legal representation, she was able to enter the shelter, though she slept in her power wheelchair for a year.
Today, Howell and her daughter have found a home. However, it still has accessibility challenges, she said. When the elevator breaks, she and other residents are sometimes forced to spend weeks in their homes.
“Housing is a human right and unfortunately for too many Americans, especially people with disabilities, are not being equally granted the right of housing they can afford that is accessible,” Howell said.
To address the situation, Pennsylvania and other states should “develop affordable accessible housing to match the needs of residents,” she said.
Retrofitting older homes to update them and improve accessibility may be one solution, said Jenny Schuetz, a senior fellow at Brookings Metro. However, updating millions of homes is an “enormous task” that would require both private and public capital, she said.
Making homes more affordable for elderly and disabled populations is crucial, said Allie Cannington, senior manager of advocacy at The Kelsey, a disability-forward housing developer.
“For people with disabilities who rely on Supplemental Security Income and other forms of federal assistance, there is no U.S. housing market where rent is affordable,” Cannington said, an issue that affects more than 4.8 million people with disabilities.
Encourage new housing construction
The U.S. has not built enough housing since the Great Recession to keep up with job and population growth, noted Schuetz. To fill the gap, the U.S. needs about 3.8 million additional homes nationally, according to estimates, she said.
Local markets are also feeling the effects. In Indiana, for example, 18,000 to 22,000 new houses per year are needed in order to meet average demand, according to Rick Wajda, chief executive of the Indiana Builders Association. Yet the state only reached those levels of production in 2020 for the first time since 2007, he said.
To reverse the “underbuilding” trend that has been prevalent since the Great Recession, there should be financial incentives for local governments to revise zoning to allow for more kinds of structures, Schuetz said.
Regulations may be relaxed to shorten delays that often lead to increased building costs, according to Wajda. Permit, hookup or impact fees, as well as development and construction standards, may get in the way of development, he said.
Restrictive building codes may also add thousands of dollars to a house’s cost, thereby adding thousands of dollars to the cost of a house, Wajda said.
“All regulations should be examined for their impact on housing affordability,” he said.
To address the shortage of accessible and affordable housing for vulnerable populations, Casey has proposed a bill that would require a percentage of homes built through the Low-Income Housing Tax Credit Program to meet accessibility standards.
It remains to be seen whether the proposal will receive the support needed to become law.
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East Coast mayors call for more office-to-apartment conversions
Mayors in cities across the U.S. want to loosen rules that can slow the pace of office-to-residential conversions. In some instances, cities have offered generous tax abatements to developers who build new housing.
“We have a great opportunity to change the uses in the downtown,” said Washington, DC, Mayor Muriel Bowser at a December 2022 news conference in support of her housing budget proposals.
“It’s absolutely a budget gimmick” said Erica Williams, executive director at the DC Fiscal Policy Institute, referring to Bowser’s 2023 proposal to increase the downtown developer tax break. “We fully support the idea that some of these buildings could be turned into residential properties or into mixed-use properties, but that we don’t necessarily need to subsidize that.”
In New York City, a task force of planners assembled by Mayor Eric Adams is studying the effects of zoning changes, and possible abatements for developers who include affordable units in conversions.
Cities like Philadelphia have previously embraced these policies to revitalize their downtowns. In Philadelphia, homeowners and investors received more than $1 billion in tax breaks for their renovation projects.
A small collective of developers have taken on this challenging slice of the real estate business. Since 2000, 498 buildings have been converted in the U.S., creating 49,390 new housing units through the final quarter of 2022, according to real estate services firm CBRE.
Prominent investors Societe Generale and KKR have worked with developers like Philadelphia-based Post Brothers to finance institutional-scale office conversions in expensive central business districts.
“Capital has gotten much more limited,” said Michael Pestronk, CEO of Post Brothers. “We’re able to get financing today. … It is a lot more expensive than it was a year ago.”
Many experts believe local governments will alter zoning laws and building codes to make these conversions easier over the years.
“Our rules are in the way, and we need to fix that,” said Dan Garodnick, director of New York City’s Department of City Planning.
Watch the video above to learn how cities are getting developers to convert more offices into apartments.
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Here’s what’s stopping cities from converting offices into apartments
Some U.S. mayors are loosening up rules that determine how developers convert office buildings into apartment complexes. The conversion trend sped up in the 2020s, as the Covid pandemic remote work boom reshaped cities. Declines in office leasing activity is constraining funding for services like education and transit, leading some local leaders to prioritize conversion of dated buildings. These rule changes may create some additional housing supply in regions like the U.S. East Coast.
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U.S. cities are filling up with luxury apartments despite ‘housing recession’
Scores of luxury homes are coming to major cities across the United States.
Analysts at Yardi Matrix projected that more than 400,000 units were completed in 2022, and they expect another strong showing in 2023. Experts believe much of this new stock is built with upper-tier customers in mind.
“You often see new housing branded as ‘luxury,’ in part because it’s new,” said Ethan Handelman, deputy assistant secretary at the U.S. Department of Housing and Urban Development. “When you get to affordable housing, we need to be providing some additional capital and/or rental assistance to help make that housing affordable to the people who need it most.”
Market-rate rents for new apartments can easily be multiple thousands of dollars monthly. For many high-wage earners in cities, this is achievable. But for moderate-income Americans, the sky-high prices appear disconnected from reality.
“The marketplace is structured not to house certain people. We need to admit that,” said Dominic Moulden, a resource organizer at Organizing Neighborhood Equity DC.
Builders say the high cost of housing in the U.S. is related to the large amount of regulation in the housing sector. For example, they say, many U.S. cities are short on land due to restrictive zoning codes.
“Currently, 40% of the cost of multifamily development is in regulation,” said Sharon Wilson Géno, president at the National Multifamily Housing Council. “We have to do something about that if we’re going to build more housing.”
In 2022, the Biden administration announced a housing action plan that aims to shore up housing supply within five years. But these efforts may not have a material impact on prices for some time.
“Unfortunately, I don’t think we’re going to see rents going down a whole lot over the next one to two years,” said Al Otero, a portfolio manager at Armada ETF Advisors. “Developers cannot make a profit at those more affordable price points. Therefore, we see the development and the new construction at the much higher, higher end of the spectrum.”
Watch the video above to see why the United States is awash in new luxury apartments.
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Rent control policies are gaining support nationwide. Here’s why economists still think it’s a bad idea.
In December 2022, $1,981 was the typical monthly rent in the United States — a 7.4% increase from the year prior. But while rent has begun to stabilize nationwide, rent affordability remains difficult for many Americans.
“There’s literally nowhere in the country where a tenant is not burdened by their rent,” according to Leah Simon-Weisberg, an adjunct professor of law at UC San Francisco.
In response, support for rent control policies has gained traction.
But this isn’t the first time such policies have had widespread support. After the massive economic disruption caused by World War II, the federal government imposed rent control on roughly 80% of rental housing between 1941 and 1964.
Over time, it was abandoned because prominent economists unanimously argued against the policy. That sentiment mostly continues today.
“There are various surveys of economists. One done by IMG showed that only 2% thought that rent controls in places like New York and San Francisco were having a positive impact on affordable housing,” said Jay Parsons, chief economist at RealPage.
Economists argue that rent control would deter developers from building more homes, which would only worsen the housing supply crisis in the United States.
America already suffers from a deficit of 3.8 million homes, especially at low-income price points, according to Habitat for Humanity.
“We have not invested as a nation in building the supply of housing in a variety of communities, in a variety of different price points. We’ve instead relied on the private sector to do so,” said Sharon Wilson Géno, president of the National Multifamily Housing Council. “But unless that money comes into the market and investors see that as a better investment than some other kind of equity or some other kind of investment, they’re not going to come.”
Watch the video to find out why so many economists are against the idea of widespread rent control.
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London’s rental market is in crisis. Here’s why and how renters are struggling
Stories about soaring rents and the search for a new place to live taking months are all too common in London right now. The city’s rental market is in crisis, and renters are facing the consequences.
One of them is Daniel Lloyd, who lives with his flatmate in southwest London. After living in their two-bedroom apartment for almost a year, their landlord asked them to pay 27% more rent.
“We were shocked at how high the rent increase was,” he told CNBC’s Make It. While they were expecting their rent to go up, they had not anticipated it being by that much.
“We were willing to accept an acceptable level of increase. However, going close to 30% would have been an increase of just over £4,000 [$4,854], and we were not going to be earning an extra £4,000 by the end of the tenancy,” Lloyd explained.
They would therefore not be able to afford the higher rent, and would be forced to move. But as rent prices have gone up across the city, they would likely have to move further from the center — somewhere with worse transport links and away from their local community.
“None of the areas that we’ve found potential properties for would really suit our living situation,” Lloyd said.
Him and his flatmate also realized that most other renters in their building were facing the same issue. They got together and tried to push back against the rent increases after realizing that their landlord was breaching their tenancy agreements, which limit how much rents can go up.
Some of Lloyd’s neighbors have heard back from their landlord through the property manager and new, lower rent increases have been suggested, but most are still worriedly waiting.
Buying instead of renting?
Dave Chawner was in a similar situation and moved out when his landlord proposed a 26% rent increase.
“When we said, ‘look, I think it’s reasonable that there is going to be inflation, I think it is reasonable that prices do go up. We will negotiate at, say, 15%. Does that sound good to you?’ And they said absolutely not. It’s a 26% increase or nothing,” he told CNBC’s Make It.
The rent increase was unaffordable for them and would have slashed their budget for food and bills, Chawner said.
Chawner and his partner were already saving and were able to buy an apartment together when they did move. Their mortgage is now lower than their increased rent would have been.
“We were incredibly fortunate in order to be able to buy somewhere,” Chanwer said, adding that he is very aware that most of London’s renters are not in the same position.
He is not, however, the only person opting to buy, explained Richard Donnell, executive director of research at real estate company Zoopla.
“We’re seeing people sort of leaving rented accommodation to buy property and just looking further afield. So that’s one approach. And actually the fact that rents are going up so fast themselves will push some renters into buying,” he told CNBC’s Make It.
A recent survey by housing charity Dolphin Living, published in the U.K.’s The Times newspaper, said that eight-in-10 renters in London were struggling to keep up with the cost of accommodation.
The root of the crisis
The key issue that has led to this crisis, that saw rents rise by 17% throughout 2022, according to Zoopla, is demand and supply, Donnell explained.
“Supply and demand are really out of kilter at the moment. On the supply side, the average London estate agent would typically have had 17 to 20 properties for rent on their books. That’s down to 10 or less than 10 at the moment,” he said.
The rent shifts also link back to the coronavirus pandemic, and the sudden drop in demand for rental flats that occurred when London went into lockdown and people could not travel or move there. This caused rents to fall by as much as 10-15%, Donnell recalled.
Laws and regulations also play a role: There are no rent controls in London, and landlords have the option of so-called “no fault” evictions. These allow them to force people to move out even if they have not breached their tenancy agreement, so for example if they do not agree to pay higher rent.
This has led to intense competition for rental properties, Katinka Hill, the regional director for central London lettings at the estate agent Chestertons, said.
“Viewing levels have increased dramatically year on year. Properties aren’t staying on the market long, if at all,” she told CNBC’s Make It.
“We often don’t have to to ask tenants to offer over asking price. They just offer over asking price because they’ve lost out on the last two or three properties that they’ve bid for,” Hill added.
As well as making higher offers, people are also providing bios and pictures of themselves, and are creating resumes for their pets to help secure them a home, she explained.
Looking ahead, Donnell believes rent prices are likely to keep increasing, but probably at a slower pace. Long term solutions are needed, he said. “We really need to see more supply in London. A lot of that’s going to come off new build development,” he said.
For now however, the situation is likely to remain difficult for London’s renters.