Love, Money & Real Estate #33

Springing up all over

May 07, 2024

Greetings, Friends.

Spring is here - no going back. I was on Michigan Avenue for a stroll recently and happened to catch the 2024 tulips at their peak:

Check out the end of this post for a peek at the blooms in the Chicago Botanic Gardens.

Real Estate News

Here’s what’s happening in the world of real estate:

Freddie Mac published its Equitable Housing Finance Plan and Performance Report for 2023, and revised its 2024 objectives and actions.
- The Plan is the company’s roadmap to promote sustainable homeownership and rental opportunities for traditionally underserved communities across the nation. Since 2022, Freddie Mac has helped more than 764,000 minority borrowers purchase or refinance a home, accounting for approximately 33 percent of the company’s Single-Family acquisitions.
- Updates include expanding access to down payment assistance, using special purpose credit programs (SPCP), with financial education augmenting down payment assistance, and expanding initiatives to help renters build credit and buy their first homes.
- To date, 500,000 renters have enrolled in Freddie Mac’s renter credit building initiative, with more than 300,000 of them increasing their credit score. Some 55,000 participants established credit scores for the first time.
Fannie Mae released its first quarter results: $4.3 billion in net income, with net worth reaching $82 billion as of 3/31/24.
- $72 billion in liquidity provided in the first quarter of 2024, which enabled the financing of approximately 280,000 home purchases, refinancings, and rental units
- Acquired approximately 155,000 single-family purchase loans, of which more than 45% were for first-time homebuyers, and approximately 36,000 single-family refinance loans during the first quarter of 2024
- Financed approximately 89,000 units of multifamily rental housing in the first quarter of 2024; a significant majority were affordable to households earning at or below 120% of area median income, providing support for both workforce and affordable housing
- Home prices grew 1.7% on a national basis in the first quarter of 2024 according to the Fannie Mae Home Price Index.
- And, here’s how Fannie Mae did on it’s 2023 Equitable Housing Finance Plan.
The median purchase interest rate has been at 7 1/8% for the third consecutive week. According to Mortgage News Daily, the average 30-year fixed rate mortgage was 7.25% on May 6th. According to Housing Finance Watch, purchase volume was down 27% from the same week in 2019, and down 1% year over year.
58% of tenants have disliked a landlord, according to a new LendingTree survey.
- 25% say they dislike their current landlord. This is mostly due to landlords not maintaining the property (68%), communicating well (53%), or a lack of respect of professionalism (42%)
- One-third say they’ve experienced rent discrimination.
- 37% of renters don’t believe they’re paying a fair market value for their rental, yet 60% have never negotiated lease terms.
S&P CoreLogic Case-Shiller Index reports 18 out of the 20 major metro market reported month-over-month price increases.
- “Following last year’s decline, U.S. home prices are at or near all-time highs,” says Brian D. Luke, Head of Commodities, Real & Digital Assets at S&P Dow Jones Indices. “Our National Composite rose by 6.4% in February, the fastest annual rate since November 2022. Our 10- and 20-City Composite indices are currently at all-time highs. For the third consecutive month, all cities reported increases in annual prices, with four currently at all-time highs: San Diego, Los Angeles, Washington, D.C., and New York. On a seasonal adjusted basis, our National, 10- and 20- City Composite indices continue to break through previous all-time highs set last year.”
Houzz reports that among renovating homeowners addressing special needs in the kitchen, the most common reason is to accommodate aging household members’ future and current needs (36% and 27%, respectively).
- Home renovation surged in the past few years with the median spent increasing by 60% since the start of the pandemic (2020). Gen Xers are still spending the most of any generation.
According to ApartmentList, one in 10 homes is built to be a rental. According to the report, 16.6% of all single family homes are rented.

Not real estate, but certainly annoying…

Not really real estate, but this week, the U.S. Federal Communications Commission (FCC) levied fines totaling nearly $200 million against the four major carriers (AT&T, Sprint, T-Mobile, and Verizon) for illegally sharing access to customers location information without consent.

Really? I thought that’s what privacy settings are for.

So, What’s Going on With Commercial Real Estate?

Nothing good. Defaults are reaching historic rates, even as $38 billion in commercial loans is on the line, noted the Wall Street Journal:

More than $38 billion of U.S. office buildings are threatened by defaults, foreclosures or other forms of distress, according to data firm MSCI. That is the highest amount since the fourth quarter of 2012 in the aftermath of the 2008-2009 financial crisis.
Office owners are paying back their loans at a much slower rate. As recently as 2021, more than 90% of office loans that were converted into commercial-mortgage-backed securities were paid off when they became due, according to Moody’s. Last year, that figure fell to 35%, the worst payoff rate in the history of the data, which goes back to 2007.

The U.S. office vacancy rate is at a historic high, of nearly 13%. And, in the next 12 months, billions of loans will come due.

The Mortgage Bankers Association (MBA) noted that total commercial real estate (CRE) mortgage borrowing and lending totaled $429 billion in 2023, down 47% from 2022 and 52% off the all-time record amount of $891 billion in 2021.

“Higher interest rates, uncertainty about property values, and questions about some properties’ fundamentals led to a steep fall-off in borrowing and lending backed by commercial real estate last year,” said Jamie Woodwell, MBA’s Head of Commercial Real Estate Research. “The declines were broad-based, covering every major property type and capital source. The sustained growth in the amount of CRE mortgage debt outstanding signals that much of the drop in originations was driven by a decline in borrower demand stemming from slowdowns in sales transactions and refinances. If property owners had the ability to sit pat, they generally did.”
Woodwell continued, “All indications are that 2024 is off to a slow start as well. While higher interest rates are likely to continue to act as a deterrent for many property owners, more than $900 billion of maturities – and perhaps acquiescence to those higher rates – are likely to bring some additional deals to the market this year.”

But credit quality for U.S. cities is holding up, says S&P Global Ratings - so far.

"We expect cities to see sluggish revenue growth in the coming few years rather than precipitous cliffs from falling tax collections tied to commercial real estate (CRE), and we have widely observed residential valuations supporting tax base stability even in cities seeing CRE values decline," said S&P Global Ratings credit analyst Scott Nees in a press release touting a new report, titled “Credit Quality for U.S. Cities Holds Up Despite Challenging Commercial Real Estate Market" (paywall).

On the plus side, traffic in the Chicago Loop is up a bit. And, Fulton Market is on fire. What are you seeing in your neck of the woods?

Are we heading for a major stock market correction?

David Rosenberg, founder of Rosenberg Research, thinks so. After looking at last week’s leaner-than-expected jobs report (175,000 new jobs were added), he said the data is inconsistent with numbers coming from the Bureau of Labor Statistics' Quarterly Census of Employment and Wages and Business Employment Dynamics datasets, both of which stated the economy actually lost jobs in the third quarter. Here’s a link to the press release.

From the Business Employment Dynamics website.

Given the disparity, Rosenberg said the data is likely 'overstated - by historical proportions.'

He believes the stock market could fall way more than 30%. Add Mr. Rosenberg to the growing chorus of those who worry that the U.S. high debt and faltering jobs numbers could have unintended consequences.

Pay Dirt, Slate Magazine

A few weeks ago, I was approached by Slate Magazine to see if I wanted to become a Pay Dirt columnist. Short answer: Absolutely! I’m a big fan of Slate and it’s a lot of fun to stretch these advice muscles.

So, the first two columns are out. I’ve linked to my author’s page above but here are direct links to my first two columns:

I Have a Six-Figure Savings Account. It’s Completely Useless.

My Partner Is Being Extorted by His Adult Kids

Subscribers are also fairly active commentators. Feel free to join in the fun, or leave a comment here.

Warren Buffet Speaks

Warren Buffett held his first solo annual shareholder's meeting (after the death of Charlie Munger's death last year). Highlights:

He sold nearly 1/3 of his Apple stock for "tax reasons" but says it will still be his largest holding.
Says federal taxes will have to rise to pay down the budget deficit. Also said if companies paid the taxes he pays, Americans wouldn't need to pay tax. "He told those gathered that his company pays a 21% tax rate, sending about 5-billion dollars to the federal government last year. What he said next, might have stunned many in the room. “If 800 other companies had done the same thing no other person in the United States would have had to pay a dime of federal taxes, whether income taxes, no social security taxes, no estate taxes.”
Iowa's News Now calculated the 2023 revenue from just the top 100 companies in the U.S. If all 100 paid the same tax rate as Buffett's Berkshire-Hathaway, it would result in more than $2 trillion in tax revenue for the U.S. Government, or nearly half of all tax revenue that currently comes into the U.S. Treasury.
Last year, Buffett donated more than $5 billion dollars in company stock to five charities, bringing his lifetime total donations to more than $50 billion. Despite giving all that away, Buffett is still worth more than $130 billion dollars.