Dana Anderson of Redfin reports on pending home sales, which jumped 3.2% year-over-year, the largest increase since 2021, driven by a dip in mortgage rates in late September. However, rising mortgage rates, now averaging 6.32%, and increasing home prices are beginning to slow buyer demand, with home tours and mortgage-purchase applications flattening. New listings are also growing more slowly, up just 3.6% from last year.

Source: Redfin (October 2024)

Erica Drzewiecki of NMP reports on the above Redfin data, highlighting notable gains in home sales in California and Portland. However, rising prices and rates, now at 6.44%, are starting to cool demand. Redfin’s Homebuyer Demand Index dropped slightly from a recent high, and mortgage-purchase applications declined 7% week-over-week. Despite this, buyers are negotiating more aggressively to offset high rates, and sellers are increasingly willing to accept lower offers as they aim to close deals before the holiday season.

That said, Lance Lambert of ResiClub reports on different sales data, noting that despite an improvement in housing affordability over the past year, existing home sales remain relatively flat and could finish below 2023 levels. Morgan Stanley’s Jim Egan attributes this to the “lock-in effect,” where homeowners with low pandemic-era mortgage rates are reluctant to sell or refinance. While affordability typically boosts home sales, Egan predicts only a modest 5% increase over the next year, as most borrowers still hold lower-rate loans.

Zillow Research recently released a home sales forecast, predicting a modest 2% rise in home values for 2024. Further softening is expected as inventory builds and dampens price growth. Existing home sales are projected to increase gradually, reaching 4.4 million transactions in 2025, up from 4.1 million in 2023 and 2024. Lower mortgage rates and rising inventory are expected to drive this growth.

ATTOM Data Solutions also released a home equity report, showing that home seller profit margins dropped slightly in the third quarter of 2024, with typical returns at 55.6%, down by one percentage point from the previous quarter and two points from the same period last year. Despite this dip, profits remain historically high, with the median raw profit holding steady at just under $130,000. The national median home price leveled off at around $360,000, contributing to the gradual margin decline since peaking at 64% in 2022. Rob Barber, CEO for ATTOM, comments:

“The latest price and profit numbers provided another round of generally good news for homeowners, tempered by a bit of a downside…Home values remained at or near record levels around large swaths of the country, keeping seller profits far above historical levels. At the same time, though, the housing market settled down after a big second quarter, which extended a slow fallback in profit margins that started last year. If history is a good guide, the fourth quarter is likely to bring more of the same as the peak buying season ends.”

Hurricane fallout

Speaking of home sales, Dana Anderson of Redfin reports that home sales fell sharply in Florida, particularly in West Palm Beach (-17.6%), Tampa (-15.5%), and Miami (-14.8%), partly due to the fallout from Hurricane Helene. Coastal Florida’s housing market has been slowing for months as rising insurance and HOA costs, driven by frequent climate disasters, weigh on buyers. The impact of Hurricane Helene, followed closely by Hurricane Milton, may further dampen future sales, with nearly a third of young adults reconsidering relocation plans after witnessing the storm damage,

Logan Mohtashami of HousingWire comments on the hurricane impact, noting that housing inventory, which had seen positive growth earlier this year, recently declined, with a notable drop attributed partly to the back-to-back hurricanes. Areas like Tampa Bay experienced a sharper inventory decline, directly influenced by the storms.

Chris Clow, also of HousingWire, reports that following Hurricane Helene’s devastation in North Carolina, federal property buyout and relocation assistance programs are seeing limited interest from rural communities. Many residents are reluctant to leave due to personal connections to their homes and the lack of affordable alternatives. Cumbersome application processes and political resistance to climate change mitigation are expected to hinder participation. 

Keith Griffith of Realtor.com reports on hurricane Milton’s damage to Florida, which is expected to push U.S. property insurance claims over $100 billion for the fifth consecutive year. Though Florida avoided a worst-case scenario, Milton’s insured losses are estimated between $30 billion and $50 billion, the largest since Hurricane Ian. This comes on the heels of Hurricane Helene, which caused $10.5 billion to $17.5 billion in insured losses. Rising claims from these disasters will likely drive up home insurance premiums nationwide, especially in already costly markets like Florida, where premiums have surged due to climate risk and a growing population in high-risk areas.

Commercial real estate

Andria Cheng of CoStar (subscription required) reports that the commercial real estate industry is growing more optimistic. According to a new survey by the Commercial Real Estate Development Association (NAIOP), professionals expect lower borrowing costs to boost deal activity over the next 12 months. Industrial, multifamily, and data center properties are expected to be the most active sectors.

Indeed, the commercial real estate market is entering a “normalization period,” according to Kevin Fagan of Moody’s on Yahoo! News. While rents and vacancies have struggled, prices have remained stable. Fagan notes a shift in demand, with the Sun Belt cooling down and the Snowbelt improving. As interest rates stabilize, transaction volumes are starting to rise. Despite improved demand for office space, it’s still below pre-pandemic levels, and companies are adjusting to hybrid work, making it unclear how much space will be needed per employee in the long term.

Jennifer Sor of Business Insider reports specifically on the office sector, which is facing a wave of distress as vacant, underperforming properties struggle against work-from-home trends and maturing debt. Experts predict a surge in office-to-apartment conversions, potentially adding over a billion square feet of housing supply. While costly, these conversions are a solution for struggling landlords, particularly in cities like New York and Washington, D.C., which have already started numerous projects. This shift reflects declining office demand and could help address the nation’s housing shortage.

Fergal McAlinden of MPA reports that the commercial real estate market continues to face challenges as it adjusts to high borrowing costs despite some optimism in the broader mortgage market. Greg Friedman, CEO of Peachtree Group, notes that assets with strong cash flows can still access capital, but properties in transition struggle to secure loans. With over $1 trillion in loans maturing by 2025, refinancing is difficult in the current high-interest-rate environment. 

Finally, CBRE released a report on the U.S. retail market, highlighting that it is set to remain strong in 2024, driven by limited new construction and growing demand for suburban open-air retail centers. The retail availability rate is expected to drop to 4.6%, while rent growth will rise above 2% in the fourth quarter after a slower start. High construction costs, which rose 6.5% in 2023, will continue to restrict new development, with only a few markets able to justify new projects. Meanwhile, consumer spending will moderate due to economic headwinds like high interest rates and resuming student loan payments, affecting retail sales growth, projected to slow to 2.6%.

Source: CBRE (October 2024)

“Not all retail formats will prosper in 2024. Retailers that have traditionally been mall-based have been closing underperforming stores and are now looking to smaller-format open-air suburban centers for expansion. Neighborhood, community & strip centers will maintain stable occupancy throughout 2024, but availability rates for mall & lifestyle centers will rise by nearly a full percentage point.”