Real Estate Newsletter 5.13.24
- E-Commerce Supporting Retail Real Estate
- Where are Mortgage Rates Going?
- Wealthy Not Selling Their Homes
E-Commerce Supporting Retail Real Estate
Store owners once viewed e-commerce as a mounting threat to their survival. Now, more bricks-and-mortar stores are thriving after integrating their properties with the online shopping experience. Shoppers browse in person to see, touch or try on items before ordering them online. They are picking up or returning purchases in stores. And retailers are increasingly relying on their shops as fulfillment hubs, shipping items ordered online from store stockrooms in addition to warehouses. Overall, nearly 42% of e-commerce orders last year involved stores, up from about 27% in 2015, according to research firm GlobalData.
It is another example of how online-only retail has its limits, and why physical stores are making a comeback. After years of overbuilding that lead to a sharp contraction, retailers are on track to open more stores than they close in 2024 for the third consecutive year, according to advisory and research firm Coresight Research. Many retailers have found that it is too expensive and difficult to attract and retain customers without physical stores. And using stores as pickup and drop-off points helps lower the labor, packaging and shipping costs involved in online orders.
Kohl’s now fulfills more than a third of its online orders in stores, Walmart more than half, and Target nearly all its sales from its network of roughly 2,000 locations, according to the companies. The pandemic sped up the integration of online and in-store shopping, as mandated closures and infection concerns forced retailers to offer curbside and pickup services, Saunders said. Now, many customers expect these options, which often allow them to avoid shipping fees and get their sunblock and dish soap sooner than waiting for delivery. Source: Wall Street Journal
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Where are Mortgage Rates Going?
As we entered 2024, inflation was trending downward, and the Fed had indicated rate cuts could be coming soon. Since then, though, inflation has ticked up for two months running, forcing the Fed to keep rates higher for longer. Wall Street investors expect that trend to continue for the next few Fed meetings, with rate cuts potentially coming in September or later. Policymakers at the Fed have also indicated they plan to leave rates elevated as long as necessary to get inflation under control.
Mortgage rates climbed for most of 2023, at one point reaching nearly 8%—a level not seen in two decades before dropping closer to 6.5%. We’re well into 2024 now, and after falling a bit in early March, mortgage rates are now back above 7%. Still, most economists think mortgage rates will reverse course once again this year—if only by a modest amount. Should those predictions ring true, the question is when will rates drop and will it be enough to shift housing affordability in the right direction?
The general consensus among industry professionals is that mortgage rates will slowly decline in the last quarter of 2024. The projected declines have shrunk, though, in recent months. At the start of the year, for instance, Fannie Mae predicted rates would drop to 5.8%. The mortgage purchaser has since adjusted its forecast to 6.4%. The Mortgage Bankers Association, a trade group, also adjusted its rate prediction upward. But to make a big difference in affordability for most buyers, rates would have to fall more drastically than industry forecasts currently call for. The lowest current rate projection is 6.4% Source: Wall Street Journal
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Wealthy Not Selling Their Homes
Sellers are locked into low rates. Construction costs are about 40% higher than before Covid, putting a damper on new construction. Buildable land is getting ever more scarce. These are just some of the reasons why some luxury housing markets nationwide are facing inventory crunches and high prices, despite an overall housing slowdown. From California to Connecticut, deep-pocketed buyers are competing over a limited supply of luxury homes, amid a historic decline in listings caused by long-term owners hanging on to properties and home builders failing to keep pace with population growth and demand.
As of Jan. 31, for example, the St. Louis metro area had a three-month rolling average of 1.73 months of luxury supply—defined as homes in the top 5% of the market—far below the roughly five months that is generally considered to be a sign of a healthy market, according to real-estate brokerage Redfin. Meanwhile, in Oakland and San Jose, Calif., just 0.8% of the area’s total luxury housing stock was listed on average over the three months ended Jan. 31, according to Redfin, which analyzed luxury inventory in the 50 most populous U.S. metro areas for The Wall Street Journal. The average in the 50 metros was 2.56% during that time period, Redfin data show.
Since 2000, the average monthly number of active existing-home listings has dropped 45%, according to a recent report by Compass, which said the U.S. population has grown about 20% in that time. Even though luxury buyers tend to be less rate-sensitive, the mortgage lock-in effect is pervasive, said Chen Zhao, head of economic research at Redfin. Some would-be sellers believe if rates come down, buyer demand will increase further, so they may be hanging on to homes until that happens. At the same time, owners whose property value skyrocketed in recent years may opt to keep the property rather than pay capital-gains taxes—unless they are motivated by life circumstances. “It’s very location specific,” Zhao said. Source: The Wall Street Journal
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