Housing Market Roundup Aug. 22 2022

Here’s a quick summary of housing/real estate finance articles that have come across the MBA NewsLink desk:

Redfin: Growth in U.S. Asking Rents Slows for Second-Straight Month

Redfin, Seattle, reported the national median asking rent increased by 14% year over year to $2,032 in July, the smallest annual increase since November, and compares with a revised gain of 15% in June and 16% in May. On a month-over-month basis, the median asking rent climbed 0.6%, the slowest growth since February and down from a 2.1% increase a year earlier.

“Big rent hikes may finally be coming to an end as landlords adjust to waning tenant budgets that are being strained by the rising cost of groceries, gas and other regular expenses,” said Redfin Chief Economist Daryl Fairweather. “Still, rents are increasing faster than overall inflation, which has started to ease. We expect rental growth to continue to slow, but markets with strong job growth and limited new housing construction, like New York and Seattle, will likely continue to experience large rent increases.”

Just three of the 50 most populous metro areas saw rents fall in July from a year earlier. Rents declined 10% in Milwaukee, 8% in Minneapolis and less than 1% in Baltimore. Milwaukee and Minneapolis have seen declining asking rents since April, but this is the first month asking rents in Baltimore declined.

Fitch: U.S. Corporate 2022-2024 Forecasts Consider High Recession Risk

Fitch Ratings, New York/Chicago, said recession risk in the U.S. is high, with demand erosion and the inability to pass through rising costs to customers via pricing likely to become a more meaningful risk to the credit profiles of issuers in some sectors in 2023.

“We are revising our financial forecasts to consider the potential effects of a recession,” said Megan Neuburger, Regional Group Head for U.S. and Canadian corporates.

Fitch said median revenue growth is projected to slow from 15% in 2021 to 7% in 2022 and 4% for both 2023 and 2024. Less margin expansion is projected for 2023, with the median EBITDA margin for our portfolio of publicly rated issuers stabilizing at around 23%. Median FCF margin is expected to increase to 5% in 2024 from roughly 3% in 2021, with mostly balanced capital allocation and median debt/EBITDA forecast to decline to 3.8x in 2024, from 4.2x in 2021.

FHA Implements Residential Facility Green Mortgage Insurance Premium Reductions

The Federal Housing Administration issued implementation guidance for lenders to obtain a reduction of upfront and annual mortgage insurance premiums on most Section 232 Residential Care Facility mortgages for subject properties that meet industry-recognized green building certifications and that will achieve meaningful and measurable energy and water efficiency improvements.

Announced in its May 19, 2022, and August 12, 2022, Federal Register notices, the “Green MIP” reductions decrease both capitalized upfront MIP and annual MIP rates to 25 basis points. The new rates go into effect for mortgages on eligible facilities for FHA mortgage insurance firm commitments issued or reissued on or after October 1.

“We want to make sure that the imperative to address climate change is compatible with the need to ensure the availability of residential care in communities,” said Federal Housing Commissioner Julia Gordon. “The Green MIP pricing will provide financial incentives to increase the energy and water efficiency of these facilities, which will not only support the Biden-Harris Administration’s climate goals and HUD’s Climate Action Plan, but also ultimately reduce operating costs for these facilities.”

This reduction is designed to encourage owners of nursing homes, assisted living facilities, board and care homes, and intermediate care facilities to adopt standards for construction, rehabilitation, repairs, maintenance, and property operations that are more efficient and sustainable than are customary for such facilities.

Redfin: Slowdown Starts to Ease as Drop in New Listings Hampers Supply

Redfin, Seattle, said the housing-market slowdown is itself starting to slow down, as fewer homeowners are listing their homes due to ebbing homebuyer demand.

Redfin Deputy Chief Economist Taylor Marr said that’s hampering the recent growth in housing supply that has been forcing sellers to slash their prices. The number of homes for sale during the four weeks ending August 14 fell slightly from the prior four-week period, the first decline since the start of the year, as new listings plummeted 14% from a year earlier—the largest annual drop since June 2020.

With fewer homes hitting the market, the sellers who remain aren’t facing as much competition from other sellers. Consequently, the share of home listings with price reductions—a key gauge of a cooling market—is no longer surging and has leveled off at its record high. The share of listings with price cuts may also be plateauing because sellers are adjusting to the cooler market and pricing more in-line with buyer expectations from the get-go. Following months of declines, the share of homes selling within a week has leveled off at around 25%, another sign that the market slowdown is easing.

“Many homeowners have been reluctant to put their houses up for sale during a market slowdown, which is now holding back inventory growth,” Marr said.

Zillow: Buyers Gaining Time, Options as Housing Market Rebalances

Zillow, Seattle said after two years of unprecedented growth, home values fell slightly from June to July, according to its latest market report.

As a result, said Zillow Chief Economist Skylar Olsen, the market is quickly rebalancing. With buyers’ purchasing power diminished by nearly two years of double-digit price growth and higher mortgage rates, competition for homes is dropping off.

Zillow reported the typical U.S. home value declined by 0.1% ($366) month over month in July and now stands at $357,107. Monthly growth in this metric has relaxed since reaching a recent peak of 1.9% in April, slowing to 1.2% growth in May and 0.8% growth in June. It’s not unusual for home price growth to decelerate this time of year, but the small decline is the first monthly dip since 2012. The nation’s typical home value is up 16% year over year and 44.5% since July 2019.

“Home values flattening so quickly after recent record growth might surprise, but it’s a badly needed rebalancing that gives home buyers more options, more time to shop and more negotiating power,” Olsen said. “This slowdown is about discouraged buyers pulling back after the affordability shock from higher rates. As prices soften, many will renew their interest, and we will continue our progress back to ‘normal.’ With buyers ready in the wings once confidence returns, homeowners can expect to keep the majority of the equity gains they’ve seen in the last two years.”

Home values measured by raw ZHVI fell from June to July in 30 of the 50 largest metro areas, an increase from 13 the previous month.

Redfin: Investor Home Purchases Plateau But Remain Well Above Pre-Pandemic Levels

Redfin, Seattle, said real estate investors purchased 87,500 U.S. homes in the second quarter, up 11% quarter over quarter and 5.9% year over year. That’s down from a high of 93,700 in third quarter 2021, the height of the pandemic-driven homebuying frenzy. Still, investors are buying far more homes than they were before the pandemic; they purchased roughly 60,000 homes per quarter in 2019.

The report said investor market share has also started to level off but remains above pre-pandemic levels. Investors bought 19.4% of homes that sold in the second quarter, down slightly from a record 20.1% in the first quarter, the first drop after nearly two straight years of increases. But it’s up from 16.2% a year earlier and roughly 15% per quarter in 2019. In dollar terms, investors purchased a record $60.1 billion worth of real estate in the second quarter, up from $50.5 billion in the first quarter and $54.5 billion a year earlier.

“The cooldown in the overall housing market motivates some investors and scares others off,” said Redfin Senior Economist Sheharyar Bokhari. “Investors are contending with sky-high home prices, just like other buyers. Those who plan to turn homes into rentals are still in the market because high rental payments help offset the cost of the home, and the home will likely grow in value over time. Others are motivated by discounts from home builders looking to sell off extra inventory as individual buyers pull back. But investors in the flipping business have quicker turnaround times, so they’re shying away because the prospect of falling home prices means they may lose money when they relist in six months or a year.”