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  • Juanita Schwartzkopf

What is Happening to the Residential and Commercial Real Estate Markets?

Focus Management Group - real estate

The lenders and investors who are dealing with residential and commercial real estate markets are continuing to experience uncertainty. In this article we explore trends and statistics that are impacting residential real estate.

March Residential Real Estate Report

The March 2022 residential real estate statistics were released on April 20, 2022 and showed cooling in the residential real estate activity frenzy.

  • The inventory of active listing declined 18.9% compared to last year and was down 62.3% compared to March 2020. For every 5 homes available for sale in 2020, there are 2 available today.

  • The total inventory of unsold homes declined by 12.5%.

  • Newly listed homes were down 3.4% compared to a year ago, and down 5.0% in large metro areas.

  • The March 2022 national median listing prices was $405,000 up 13.5% year over year, and up 26.5% compared to March 2020. In the large metro areas, the median listing price grew by 9.1% year over year.

  • A home spent 38 days on the market in 2022 compared to 49 days as of March 2021 and 59 days in 2020.

The rising interest rates and the continuing increases in listing prices have served to moderate the activity related to home sales. Price reductions have become more common as sellers react to the moderation in demand. But home sales activity is still higher than the recent years.

Interest rates, according to Freddie Mac, were 4.17% for a fixed rate conventional 30-year mortgage in March 2022. This compares to 3.76% in February 2022 and the 2021 full year average rate of 2.96%.

First time home buyers accounted for approximately 30% of home sales in Q1 of 2022, with March at 30% and February at 28%.

Cash sales were 18% of homes in March, which was down from 19% in February 2022 but up from 15% in March 2021. All cash sales were 28% of transactions in March, 25% in February 2022, and 23% in March 2021.

Distressed sales, which are foreclosures and short sales, were less than 1% of March sales, which is the same is February 2022 and March 2021.

Regional Impacts Vary

The next table shows the annual sales level and the year over year change in the sales level, as well as the median price and the year over year change in the median price.

Focus Management Group - real estate

New Home Sales

March 2022 new home sales will be released on April 26, 2022.

The February reporting from the US Census Bureau showed 772,000 new homes were sold, 407,000 new houses are for sale, the median sale price was $400,600, and the average sales price was $511,000.

The rate of new home sales in February 2022 was down 2.0% from the January 2022 rate and 6.2% below the February 2021 rate.

The rate and price of new homes sales are impacted by the interest rates, commodity prices and inflation outlooks. New home sales directly impact the stock values of large home builders or the homebuilders ETF. In addition to tracking individual home builders, such as DR Horton, Lennar or KB Homes, there is also an ETF for home builders, the SPDR S&P Homebuilders ETF.

What should lenders and investors be aware of as related to residential homes?

  • Geography impacts value and turnover.

  • Interest rates are rising impacting affordability of homes. A rate increase from 3% to 5% on a $500,000 30-year mortgage increases monthly payments from $2,108 to $2,684, which is a 27% increase in the monthly payment.

  • Inflation is impacting home costs.

  • Commodity prices are impacting home costs. Lumber prices have ranged from a 52-week low of 454.2 to a 52-week high of 1,670.5, with the current price as of April 20, 2022 at 938.6.

  • Labor rates and availability are increasing home costs and impacting availability of stock.

  • Individual home buyers are competing with investors for the available new and existing homes at a higher rate than previously. The Wall Street Journal addressed this move to investors as purchasers of new homes in an April 11, 2022 article, which reported that 25% of new homes were purchased by a rental investor in Q4 2021 compared to 3% in Q3 of 2019.

Overall, the residential real estate market is still strong; however, some of the frenzy appears to be dying down. There are going to be continuing impacts in geographic regions that will vary.

It is also important to remember that if there is another real estate bubble, which some experts say will happen in 2023, lenders may have another round of foreclosures and short sales to deal with. This may be a time to evaluate specific regions and their run up in value, compared to required down payments for home purchases.


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