The housing market in November 2023 is characterized by surging mortgage rates, high home prices, and limited inventory. Mortgage rates have reached a 23-year high of 7.79%, causing a decline in existing-home sales for the fourth consecutive month. The Federal Reserve has paused its rate hikes, but experts are more concerned about the Fed's future plans for rates. A potential government shutdown could further impact housing market activity, particularly if Fannie Mae and Freddie Mac can't participate in the mortgage market. Housing affordability remains a significant challenge, and first-time buyers are finding it increasingly difficult to enter the market. While a housing market crash is unlikely, some areas may see price declines. Foreclosures are not expected to surge in 2023. Experts advise prospective buyers to focus on their own financial readiness rather than trying to time the market. For sellers, proper pricing, preparation, and online listings are crucial strategies.

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(Photo by June on Unsplash)

The National Association of Realtors is facing significant changes as CEO Bob Goldberg resigns earlier than expected, amid ongoing challenges. The association recently lost a federal lawsuit, being held liable for conspiring to artificially inflate commissions in the real estate market, resulting in a $1.78 billion damages award. This verdict may impact real estate agent practices in an environment of rising home prices. The association plans to appeal and seek reduced damages. Additionally, the NAR faced criticism in August when its president, Kenny Parcell, resigned due to sexual harassment claims. Nykia Wright will serve as interim CEO while the association searches for a permanent replacement. Goldberg will continue to offer his expertise as an executive consultant during the transition.

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(Image Credits: NAR website) 

The Federal Housing Administration (FHA) has announced updated appraisal requirements for the valuation of manufactured homes certified under Fannie Mae's MH AdvantageTM and Freddie Mac's CHOICEHome® programs. These updates, unveiled by Federal Housing Commissioner Julia Gordon at a conference in Chicago, align FHA appraisal requirements with industry standards, aiming to enhance the valuation of these homes for borrowers seeking FHA-insured mortgages. The changes support the Biden-Harris Administration's Housing Supply Action Plan and its goal of increasing the availability and affordability of manufactured housing. The updated policy allows appraisers to use appropriate site-built-home comparable sales when there are insufficient comparable sales for certified manufactured homes, removing a roadblock to the effectiveness of FHA programs in serving buyers of these energy-efficient and affordable homes.

The United States faces a severe housing shortage, and while some state and local leaders are trying to address it through new construction, the article argues that rehabilitating and reusing older and historic buildings should be a crucial part of the solution. Approximately 40% of America's building stock is at least 50 years old, and many such structures are in need of upgrades and repairs. Rehabbing these older buildings for housing is often more cost-effective and environmentally friendly than new construction. The Advisory Council on Historic Preservation is considering a policy that encourages such rehabilitation and adaptation, and it could guide federal, state, local, nonprofit, and individual actions. The aim is to increase affordable housing and align with the Biden administration's housing goals.

California Governor Gavin Newsom signed a new law aimed at addressing the state's ongoing homeless crisis. The law allows religious institutions and nonprofit colleges to rezone their properties for low-income housing, bypassing local permitting and environmental review rules. This "YIGBY" (Yes in God's Backyard) initiative seeks to utilize surplus land and underutilized parking lots for housing. It is seen as a significant step in combating homelessness, as California is home to nearly a third of all homeless people in the U.S. The law will be in effect from 2024 until 2036 and is expected to unlock opportunities for housing development across the state. Additionally, Governor Newsom signed another housing bill extending the life of a law that streamlines rules for housing projects, further promoting housing construction in California. However, the legislation faced opposition from various cities and environmental groups. The state's ongoing efforts to address homelessness also include the construction of 1,200 tiny homes in four cities.

A coalition of trade associations, including CHLA, NAR, and ICBA, has called on the Biden administration to address the historically large spread between 30-year mortgage rates and 10-year Treasuries. The spread, currently over 300 basis points, far surpasses the historic norm of around 150 basis points. The trade groups have urged the Federal Reserve to change its policy, maintaining its stock of mortgage-backed securities (MBS) and suspending runoff until the spread stabilizes. They also recommend amending preferred stock purchase agreements (PSPAs) to enable Fannie Mae and Freddie Mac to purchase their MBS temporarily. These actions could potentially reduce mortgage rates by 100 to 150 basis points, providing market certainty amid rising rates.

In the first quarter of 2024, home prices increased in 93% of U.S. metro areas, with significant growth observed in 30% of these markets. The national median price for single-family homes rose to $389,400, marking a 5% year-over-year increase. The South led in sales volume, while the Northeast saw the highest price appreciation. Despite high mortgage rates, market conditions improved slightly for buyers due to a marginal decline in required mortgage payments compared to the previous quarter.

After Kathy Hochul's failed New York Housing Compact plan last year, New York State is trying again to tackle its severe housing crisis. According to anonymous sources close to the deal, New York state leaders have reportedly reached a tentative agreement on a legislative plan to tackle the crisis and will be presented to the full Senate and Assembly on Monday. The framework of the deal offers incentives for both developers and tenants. Developers would receive significant tax breaks to develop more affordable units, while tenants would benefit from enhanced protections against eviction in certain cases. Additionally, the agreement would allow landlords of rent-stabilized apartments to raise rents for renovation costs and eliminate size restrictions on new Manhattan apartment buildings, fulfilling long-standing desires of city officials.

The housing market for buyers in California is becoming increasingly challenging. Prices are soaring while the inventory remains limited. Statistics reveal a stark reality: home prices have surged 9.7% over the past year, with the median home price now at $813,980. Meanwhile, inventory levels have plummeted by 48.3%, exacerbating the affordability crisis. Despite historically low mortgage rates, competition remains fierce, leading to bidding wars and further price escalation. Experts suggest that while the market may stabilize in the long term, immediate relief for buyers appears unlikely.

Currently, the average rate for a 30-year mortgage stands at around 6.9%, a significant decrease from late October when it peaked at nearly 8%. Despite expectations of rates declining later in the year, some buyers are opting to act now due to fears of increased competition. The combination of high mortgage rates and soaring home prices has made affordability a major concern, with many households earning less than what's needed to afford a median-priced home. While economists anticipate mortgage rates easing, uncertainty remains.

There are ongoing bipartisan efforts at various levels of government to address housing supply and pricing challenges in the United States. The importance of local action in addressing these issues, particularly through measures such as accessory dwelling units (ADUs), changes in zoning rules, and reduction of lot sizes, is increasingly becoming evident. Despite political differences, lawmakers in some states are collaborating on bipartisan housing legislation. However, challenges such as NIMBYism hinder progress at the local level, prompting calls for state-level intervention to overcome resistance to housing reforms. 

Los Angeles Mayor Karen Bass took office in 2022 and since then, has been making a big push to address homelessness, particularly in Venice Beach. Mayor Bass initiated the Inside Safe program to provide motel rooms for homeless residents, resulting in cleaner sidewalks and parks in Venice Beach. However, challenges persist, including budgetary constraints and the need for permanent housing solutions. Critics accuse Bass of prioritizing aesthetics over long-term solutions, while supporters applaud her urgency in tackling the crisis. Despite progress, concerns remain about the sustainability and effectiveness of current efforts, highlighting the complex nature of addressing homelessness in Los Angeles.

The National Low Income Housing Coalition report shows Texas only has 29 available and affordable rental homes per 100 extremely low-income renters. The report ranks Houston, Dallas, and Austin in the top ten worst major metro cities for affordable housing.

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Source - iStockphotos

With climate change making severe weather events more common and the area’s housing crisis increasing the number of people who need support, the operation of the shelters is taking an increasing toll on county and city officials and budgets, as well as the community volunteers whose labor the region relies on to run the shelters.

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Image credits - Mika Baumeister/Unsplash

On January 10, 2023, Governor Kathy Hochul announced a statewide strategy to address New York’s housing crisis. This new plan, named The New York Housing Compact, aims to build 800,000 new homes over the next decade to meet the state’s historic housing shortage.‍

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Hochul’s Compact would have boosted housing production in New York City’s suburbs, by overriding local planning boards that limit most land to single-family detached homes. However, it didn't make it past the State Budget after heated negotiations at the State Legislature.

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What is next for New York's affordable housing future?

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Imade credits - Mike Groll/Office of Governor Kathy Hochul

In recent years, Florida has become one of the least affordable places to live in the nation, making affordable housing one of the top issues impacting Floridians. While the state’s reputation as a place for leisurely coastal living has made it a popular retirement destination for seniors, Florida has also seen an influx of young, high-earning professionals from states like New York, where the median home price is nearly double that of Florida’s. While individuals from states like New York or California — two states with some of the highest average incomes in the country — may find Florida to be more affordable, everyday Floridians are paid lower wages on average and renters in Florida have historically been more cost-burdened than any other state in the nation. In the span of just two years, median rent prices increased by over 30 percent across the state, from about $1,340 in February 2020 to roughly $1,760 in February 2022. To afford a modest one-bedroom rental home at fair market rent, a person earning $10 per hour (the state’s minimum wage for most of 2022) would need to work 86 hours per week.

According to a new report by State Comptroller Tom DiNapoli, housing costs in and around New York City have surged by 68% between 2012 and 2022, outpacing other major U.S. metropolitan areas, The average household's housing expenses in New York City and Nassau, Suffolk, Rockland and Westchester counties rose from $18,000 to $30,300 during this period. Across the nation, housing costs make up 34% of average household expenses, whereas for New Yorkers, this has reached a record high of 40%. Over half of New York households are now "rent-burdened," spending at least 30% of income on housing. According to Deputy Comptroller Rahul Jain, the deadly combination of too-little housing production and too-high rent is responsible for increased evictions and a high rate of homelessness. Although he believes that the government is making smart policy choices, he emphasizes on the need to speed up efforts. 

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In recent quarters, US bank loans backed by owner-occupied commercial real estate have outperformed those backed by nonowner-occupied properties. This shift began in 2020 when work-from-home policies impacted nonowner-occupied commercial real estate loans. The delinquency ratio for nonowner-occupied properties surpassed that of owner-occupied ones in 2022 and continued to rise in 2023. The trend suggests that loans on owner-occupied properties carry less risk, reflecting property owners' likelihood to stay current on loans. However, the performance varies based on bank size, with larger banks experiencing worse delinquency ratios for nonowner-occupied loans. Notably, some major lenders like Morgan Stanley and Citigroup focus heavily on nonowner-occupied properties.

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Photo by Jorge Salvador on Unsplash

Chicago is facing criticism from federal investigators for hindering affordable housing by allowing City Council members to reject such developments in their wards, by using their aldermanic prerogative. The U.S. Department of Housing and Urban Development suggests that the aldermanic prerogative gives City Council members too much power to veto affordable housing proposals.

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HUD's Lon Meltesen, regional director of HUD’s Office of Fair Housing and Equal Opportunity wrote, "the department’s investigation indicates that the city affords each of its 50 wards a local veto over proposals to build affordable housing and that many majority-white wards use the local veto to block, deter or downsize such proposals.” He further said that veto “disproportionately harms Black and Hispanic households who are far more likely than white households to need and qualify for affordable housing." The investigation was triggered in November 2018, when a complaint was filed to HUD by the Chicago Area Fair Housing Alliance and nine other advocacy groups, against the City Council members' use of the veto power.

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Photo by Matthew Hamilton on Unsplash

The law of supply and demand doesn't seem to be working in the context of the U.S. housing market. As prices hit record highs, available homes remain at record lows. We had visualized the demand and supply gap in our Housing Count project, so you can check out the status of this gap in your own counties.

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The recent surge in housing development, particularly in states like Florida and Idaho, marks a notable departure from the housing crisis of 2007. This time around, the boom is characterized by a shift towards apartment buildings and condo complexes. Notably, South Dakota, Colorado, Florida, and Arizona are emerging as leaders in the production of multifamily housing units, with only D.C. surpassing them. Contrastingly, some of the traditional multifamily housing strongholds, including states like Pennsylvania, Illinois, and New York, are lagging behind in housing production. This shift in dynamics suggests a changing landscape in the housing market, with a move away from high-rise-heavy megalopoli towards a more decentralized approach to housing development.

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• Red counties are permitting more housing development than blue counties
• Part of the reasoning for the above could be because these localities are able to build more cheaply and be more responsive to housing needs
• Another reason could be more restrictive zoning, NIMBYism and environmental regulation in blue counties, which can deter housing growth, as we saw in the failure of the NYC Housing Compact case

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Overall, the analysts didn't find any major correlations between a state’s politics and its housing production.

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(Image credits: Stock photos) 

The housing market is undergoing significant challenges, with 2023 expected to see the lowest home sales since 2010. Despite an anticipated increase in activity in 2024, transactions are projected to remain below average. Mortgage rates, after reaching a two-decade high in 2023, are expected to decrease in 2024 but will likely settle between 6% and 6.5%. This shift may attract both buyers and sellers, reshaping market dynamics.

The trajectory of home prices is uncertain and hinges on the timing of buyer and seller reentry. If sellers enter first, early 2024 could witness modest and short-lived price drops. However, markets with affordability challenges, particularly major coastal areas, face higher risks of corrections. Conversely, a resurgence of buyers before sellers could lead to a competitive market with rising prices.

First-time buyers may initially favor the rental market due to attractive deals, but the strong desire for homeownership, especially among millennials, suggests potential shifts as rates drop and inventory increases in 2024. Demographic factors, including delayed home purchases by boomers and the pent-up demand from millennials, are expected to keep inventory low, supporting firm and growing home prices in 2024.

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While there is optimism, potential wildcards, such as the threat of another coronavirus strain, geopolitical risks, economic recession, and political uncertainties, could impact consumer confidence and influence home buying and selling activity in unforeseen ways.

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In a bold initiative to tackle New York's housing crisis, the city is adopting a novel approach: incentivizing homeowners to convert their garages and attics into additional living spaces by offering to pay them. NYCHPD Commissioner Adolfo Carrion Jr. announced on Nov 21, the launch of a new pilot program called “Plus One ADU”. The pilot program will make available $395,000 in funding through HPD and $2.6 million in grant funding from New York State Homes and Community Renewal (HCR). Applications are now open for qualified homeowners to build “accessory dwelling units,” or ADUs, which have proven to be one of the most effective local solutions to tackle housing affordability and offer additional living space for multi-generational housing.  

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Currently, the program aims at offering 15 owners of single-family homes the funding needed to build detached units or retrofitting basements. Each owner will receive up to $400,000. The eligibility criteria is based on income, and a family of four will have a ceiling of $232,980, with lower-income households being prioritized. The rents in these ADUs will be capped at around $2,600 for a one-bedroom apartment.

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(Image credits: Adobe stock images)