Mortgage rates rise again, threatening to slow spring housing market

 Mortgage rates continued their upward trend this week, nearing 7% and piling on the unaffordability crisis that threatens to dampen the typical spring buying frenzy.

Freddie Mac's latest Primary Mortgage Market Survey released Thursday showed that the average rate on the benchmark 30-year fixed mortgage climbed to 6.90% this week, up from 6.77% last week. The average rate on a 30-year loan was 6.50% a year ago.

The rate on the 15-year fixed mortgage also increased, averaging 6.29% after coming in last week at 6.12%. One year ago, the rate on the 15-year fixed note averaged 5.76%.

"Historically, the combination of a vibrant economy and modestly higher rates did not meaningfully impact the housing market," Freddie Mac chief economist Sam Khater said in a statement. "The current cycle is different than historical norms, as housing affordability is so low that good economic news equates to bad news for homebuyers, who are sensitive to even minor shifts in affordability."

Buying activity tends to pick up in the spring following slower winter months, but elevated rates and sky-high home prices have stalled the housing market as more would-be buyers and sellers are priced out or opting not to move.

"Recent surges in new listing activities suggested that we might have a busy spring ahead," said Realtor.com economist Jaiyi Xu. "However, the recent increase in mortgage rates has the potential to slow the market by disrupting the plans of many buyers, especially in a market where a significant number of consumers are anticipating lower mortgage rates, not higher."

Robert Frick, a corporate economist at Navy Federal Credit Union, says rates are climbing because the futures markets have temporarily lost faith in the Federal Reserve cutting the federal funds rate soon, and in a "higher for longer" scenario that means higher mortgage rates, too. 

"But market expectations can turn on a dime, and are always just one Fed meeting or data drop away from shifting," Frick told FOX Business. "We saw that mortgage rates around 7% in January actually boosted existing home sales, and if rates fall below 6% this year, as many forecast, home sales volume should accelerate."

https://www.foxbusiness.com/economy/mortgage-rates-threatening-slow-spring-housing-market

Single Family Built-for-Rent Almost Doubled Since 2020

 Along with the monthly housing starts report for January released last week, the Census Bureau also released Housing Units Started by Purpose and Design through Q4 2023.

The first graph shows the number of single family and multi-family units started with the intent to rent. This data is quarterly and Not Seasonally Adjusted (NSA). Although the majority of units built-for-rent’ are still multi-family (blue), there has been a significant pickup in single family units started built-for-rent (red).

In 2020, there were 44,000 single family units started with the intent to rent. In 2023, that number almost doubled to 85,000 units. For multi-family, there were 327,000 units started to rent in 2020, and 393,000 in 2023. About 18% of the built-for-rent units started in 2023 were single family units.

https://www.calculatedriskblog.com/2024/02/single-family-built-for-rent-almost.html

China cuts mortgage reference rate more than expected to revive property market

 China cut the benchmark reference rate for mortgages at a monthly fixing on Tuesday by more than expected, as authorities ramped up efforts to stimulate credit demand and revive the property market.

Commercial banks' improving net interest margins following recent deposit rate cuts and the reduction to bank reserves earlier this month has paved the way for lenders to reduce borrowing costs to support the economy.

The five-year loan prime rate (LPR) was lowered by 25 basis points to 3.90% from 4.20% previously, while the one-year LPR was left unchanged at 3.45%.

In a Reuters poll of 27 market watchers conducted this week, 25 expected a reduction to the five-year LPR. They projected a cut of five to 15 basis points.

It was the largest cut to the LPR since China revamped its loan pricing mechanism in 2019.

"It is a significant cut, showing policymakers are serious in providing stimulus support to the economy," said Christopher Wong, currency strategist at OCBC in Singapore. "This should provide some support to risk-proxy currencies, including AUD but it remains to be seen if it is sufficient to keep momentum sustained."

China's yuan fell to its lowest since Nov. 20 while property stocks shot up.

Most new and outstanding loans in China are based on the one-year LPR, while the five-year rate influences the pricing of mortgages.

China last trimmed the five-year LPR in June 2023 by 10 basis points.

Market watchers said the rate cut was well expected, but the size of the reduction exceeded their expectations. The central bank-backed Financial News had reported on Sunday that the benchmark LPR could fall in coming days, with the five-year tenor more likely to be reduced.

"Lowering five-year LPR will help stabilise confidence, promote investment and consumption, and also help support the stable and healthy development of the real estate market," the newspaper said on its official WeChat account.

https://finance.yahoo.com/news/china-lowers-mortgage-reference-rate-013001344.html

Systemic Risk Concerns Grow Among Money Managers as Real Estate Woes Cause Turmoil

 

• US CRE, China real estate most likely sources of credit event
• Latest inflation figures have lowered likelihood of rate cuts

Fears of a systemic credit event are growing among fund managers as alarms sound in property markets around the world.

About one in six of those polled considers such a crunch to be the biggest tail risk facing markets, compared to about one in 11 in December, according to Bank of America Corp.’s latest Global Fund Manager survey. The deepening disquiet in US commercial real estate and Chinese property markets means it’s now the third-biggest worry for respondents, lagging higher inflation and geopolitics.

https://www.bloomberg.com/news/articles/2024-02-17/systemic-risk-concerns-grow-among-fund-managers-amid-real-estate-tremors

Adams reverses plans to use luxury Harlem complex as migrant shelter after community outrage

 Mayor Eric Adams stunningly reversed course on plans to turn an abandoned luxury Harlem condominium complex into a migrant shelter when he was met with community outrage Thursday night.

Adams’ change of heart came during a surprise appearance at a St. Nicholas House Resident Association meeting packed with dozens of residents furious over the city’s plan for a building development on Adam Clayton Powell Jr. Blvd once marketed as upscale housing.

The 35-story building was quietly slated to become a homeless shelter that could potentially house migrants — a plan that was only revealed to the community this week when some neighborhood residents saw workers bringing bed frames and mattresses inside.

But in the face of pressure, Adams on Thursday night backpedaled.

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Mayor Eric Adams promised the complex would be used for New York City families, not migrants.CBS News

“I told the team, ‘Find out what’s going on here. We’re not moving folks into a brand new building when you have long-term needs in a community. That’s not gonna happen,'” Adams said at the meeting, according to CBS New York.

“You will not have migrants and asylum seekers in that property,” Adams declared.

The site will instead be used to house long-term New York families experiencing homelessness, a spokesperson for the city Department of Social Services told the outlet in a statement.

The building, originally billed as a lux living space where residents would pay market rates to enjoy an indoor swimming pool and apartments with marble bathrooms, has sat vacant for a decade since developers were forced into foreclosure.

It was then leased to a non-profit that had been working with the city Department of Social Services/Homeless Services to use it as a shelter for either migrants or the Big Apple’s native homeless population.

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Dozen’s of furious residents attended the St. Nicholas House Resident Association meeting on Thursday in Harlem.CBS News

Those in attendance at Thursday’s community meeting let Adams know how they felt about the plans to possibly house migrants.

“You are the mayor. We do not want to hear excuses,” one Harlem resident shouted at Adams, CBS New York reported.

Others expressed hope the complex could be turned into affordable housing for neighbors who are struggling to afford their rent.

“We have a dearth of affordable housing we’re being priced out of the community … The lack of respect is absolutely appalling,” Harlem resident Regina Smith said.

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Residents demanded transparency from Adams after neighbors spotted bunk beds being delivered to the luxury building.CBS News

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The condominium has sat vacant for a decade after developers were forced to foreclose.
Supplied
“These apartments could be used for us to go into,” Leslie Johnson said.

The city Department of Social Services confirmed to CBS New York the building would be transformed into transitional housing for long-term New York families.

“Despite the developer’s initial plans for market rate condominiums, development had been stalled and this building left indefinitely empty– it would not have advanced as luxury housing. Instead of sitting vacant, this site will serve as high-quality transitional housing for long-term New York City families with children experiencing homelessness,” a spokesperson said.

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Adams flashes a smile while attending Thursday night’s meeting in Harlem.CBS News
“We will be working with an experienced not-for-profit provider to help these families stabilize their lives and ultimately move into permanent housing. As we have always done, we will continue to maintain open lines of communication and work closely with the community every step of the way to ensure that we are collaboratively working to provide critical services for our neighbors in need.”    

A timeline for the housing has not yet been established.

https://nypost.com/2024/02/16/us-news/nyc-mayor-adams-reverses-course-harlem-migrant-shelter-after-community-outrage/

Tennis Courts Slated For Empty Manhattan Lot After Office Tower Plans Postponed

 Vornado Realty Trust appears to have abandoned plans for an office tower near Madison Square Garden as the commercial real estate downturn worsens. 

Bloomberg reports the site of the once-planned 61-floor office tower in Manhattan could be "temporarily" converted to tennis courts for the US Open. Vornado's website said the site has the potential for basketball courts, New York Fashion Week, or even a giant billboard. 

The new office tower was set to replace Hotel Pennsylvania at 401 Seventh Avenue (15 Penn Plaza) in Manhattan, across from Pennsylvania Station and Madison Square Garden. The hotel was demolished in 2023, and Vornado has not built the new office tower due to CRE turmoil. 

But Vornado put the tower plan on hold along with parts of the massive redevelopment plan to remake Penn Station last year after high interest rates and the shift to working from home triggered a crisis in the commercial real estate market. -Bloomberg 

A Vornado spokesperson told Bloomberg: "We are currently considering a number of potential interim options for the Hotel Pennsylvania site." 

Chief Executive Officer Steven Roth told investors in an earnings call this week that there's a "total blacklisting of office in the capital markets." Hence, this is why Vornado can't find the financing for the new tower. He also warned about "office apocalypse" spreading across Midtown. 

The construction delay also came as office supply nationwide developed into a sizeable surplus as demand evaporated. This was noted by Morgan Stanley analyst Ronald Kamdem in a note this week titled "Where Is The Highest Supply Risk Across CRE Sectors?"  

What's unfolding is a slow-motion trainwreck in the CRE space. Financing for new office towers is becoming increasingly difficult to secure, and some properties, such as the one in Manhattan, are being repurposed into tennis courts.

https://www.zerohedge.com/markets/tennis-courts-slated-empty-manhattan-lot-after-office-tower-plans-postponed

US Farmland Value Hits Record High Amid Tighter Credit Conditions

 According to a new report from the Federal Reserve Bank of Chicago, farmland values across the Midwest crop belt hit a record high in the fourth quarter despite elevated interest rates. 

Farmland values in the region encompassing all of Iowa and most of Illinois, Indiana, Michigan, and Wisconsin increased by 6% compared to the previous year. Although this represents an increase from a 5% rise in the third quarter, the growth rate is notably slower than the 12% and 22% gains seen in the fourth quarters of 2022 and 2021, respectively. 

An annual increase of 6 percent in the Seventh Federal Reserve District's agricultural land values in 2023 helped them reach a new peak, though the yearly gain shrank to a single digit. Values for "good" farmland in the District moved up 2 percent in the fourth quarter of 2023 from the third quarter, according to 129 agricultural bankers who responded to the January survey. 

Only 6 percent of the survey respondents expected farmland values to rise during the January through March period of 2024, with 17 percent expecting them to fall and 77 percent expecting them to be stable

Farmland values

Annual real change in Seventh District farmland values

Record high farmland values 

"For the third time in a row, there were fewer funds available for lending than in the same quarter of the prior year at survey respondents' banks in the final quarter of 2023," Fed economists David Oppedahl and Elizabeth Kepner wrote in the report. 

The economists cited an Iowa banker who warned of "tough times ahead" for farmers. 

A recent US Department of Agriculture forecast showed farmers are poised for another year of financial misery, facing the most significant decline in incomes in almost two decades as crop prices slide and US dominance in ag exports wanes.

A number of billionaires have been buying hard assets like farmland over the years (read: here & here & here & here). 

https://www.zerohedge.com/commodities/us-farmland-hits-record-high-amid-tighter-credit-conditions