Real Estate Newsletter 5.6.24
- Crackdown on Wall Street Real Estate
- Housing Market Outlook
- Big Tech Downsizing Office Space
Crackdown on Wall Street Real Estate
New legislative proposals represent an attempt by elected officials to regulate Wall Street’s appetite for single-family homes. These lawmakers say that investors that have scooped up hundreds of thousands of houses to rent out are contributing to the dearth of homes for sale and driving up home prices. They argue that investor buying has made it harder for first-time buyers to compete with Wall Street-backed investment firms and their all-cash offers.
Companies that buy single-family homes say their businesses provide renters the opportunity to live in desirable neighborhoods where they otherwise couldn’t afford to buy. With home prices and rents near record highs around the U.S., legislators and officials at all levels of government have become more active on housing issues. States have passed new measures to fund more affordable housing, to allow builders to bypass local zoning laws and to make the eviction process more favorable to tenants.
Proposals to curb investors might be popular with voters, but so far they haven’t gained much traction in legislatures. None of the bills in Congress or in any of the state houses has reached a floor vote. Advocates for the single-family rental industry blame rising prices on an undersupply of new-construction homes. They also point to the relatively low number of homes owned by institutional investors, with some research estimating these companies own 3% to 5% of American rental homes. Source: Wall Street Journal
Housing Market Outlook
Elevated mortgage rates, out-of-reach home prices and record-low housing stock are the challenges home buyers can expect to contend with this spring—and beyond. U.S. home prices declined in January for the third consecutive month due to high borrowing costs, according to the latest S&P CoreLogic Case-Shiller Home Price Index. But prices year-over-year jumped 6%—the fastest annual rate since 2022. Though down from its 2023 high of 7.79%, the average 30-year fixed mortgage rate in 2024 remains well over 6% amid rising home values.
As a result, home buyers continue to face affordability challenges. With many homeowners “locked in” at ultra-low interest rates or unwilling to sell due to high home prices, demand continues to outpace housing supply—and likely will for a while—even as some homeowners may finally be forced to sell due to major life events such as divorce, job changes or a growing family. Housing stock remains near historic lows—especially entry-level supply—which has propped up demand and sustained ultra-high home prices.
According to data from its first-quarter 2024 U.S. Home Affordability Report, property data provider Attom found that median-priced single-family homes remain less affordable than the historical average in over 95% of U.S. counties. Expenses are eating up more than 32% of the average national wage. Common lending guidelines require monthly mortgage payments, property taxes and homeowners insurance to comprise 28% or less of your gross income. At the same time, home prices and homeownership expenses continue to outpace wage growth.
The latest expense-to-wage ratio is hovering at one of the highest points over the past decade, according to the Attom report, despite some slight affordability improvements over the last two quarters. Source: Forbes
Big Tech Downsizing Office Space
Big technology companies are cutting back on office space across major coastal cities, leaving some exposed landlords with empty buildings and steep losses. Big tech companies are letting leases expire or looking to unload some offices. Google has listed office space in Silicon Valley for sublease, according to data company CoStar. Salesforce, the cloud-based software company, said in a recent securities filing that it leased or owned about 900,000 square feet of San Francisco office space as of January. That is barely half the 1.6 million of office space it reported having in that city a year earlier.
Office space listed for sublease in 30 cities with a lot of technology tenants has risen to the highest levels in at least a decade, according to brokerage CBRE. The 168.4 million square feet of office space for sublease in the first quarter was down slightly from the fourth-quarter 2023 peak but up almost threefold from early 2019. When the pandemic upended the U.S. office market, large tech companies were initially a bright spot. That changed in 2022. Remote work continued to be popular, and some big tech companies laid off workers, meaning they needed less space than they had thought.
Leasing by tech companies fell by about half between the third quarter of 2021 and the third quarter of 2022, according to CBRE. Since then, companies tied to the booming artificial-intelligence business have leased more space in San Francisco and other cities. But that hasn’t been enough to meaningfully boost the office market. San Francisco’s office-vacancy rate hit a record 36.7% in the first quarter, according to CBRE, up from just 3.6% in early 2019. Source: The Wall Street Journal
