1 big thing: Mortgage and housing market update for August
According to CoreLogic’s latest reporting, high mortgage rates are continuing to weigh on the housing market, with affordability concerns shaping buyer behavior and market trends.
By the numbers:
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First-time homebuyers steady: The share of first-time homebuyers (FTHBs) held at 37% in July 2024, reflecting fewer move-up buyers locked into low mortgage rates.
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Rising piggyback loans: Piggybacked FHA loans surged from 10.8% to 18% between June 2022 and June 2024 as buyers grapple with affordability issues.
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Inventory trends: Active housing inventory grew by 15% year-over-year in July, with 31% of homes selling above list price, indicating strong demand despite higher costs.
State of play: Loan-to-value (LTV) ratios have decreased, signaling more cautious borrowing, while debt-to-income (DTI) ratios remain high. Investors are stepping back from flipping due to slower price appreciation and increased buyer uncertainty.
Why it matters: Rising mortgage delinquency rates—now at 3%, the highest since December 2023—highlight growing financial strain among homeowners. This could signal broader economic challenges ahead.
What’s next: The market remains tight with more buyers than sellers, which is expected to elevate home prices. As affordability continues to be a major hurdle, expect more creative financing solutions like piggyback loans to gain traction.
The bottom line: The housing market is navigating through a period of adjustment, with affordability and high mortgage rates reshaping buyer behavior and investment strategies. Real estate professionals should stay alert to these trends as they impact market dynamics.
2. Child-care deserts linked to housing shortages
The U.S. is grappling with a severe child-care crisis driven by real estate challenges.
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Over half of Americans live in “child-care deserts,” where there are far more children than available care slots.
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The scarcity is particularly acute in densely populated and rural states, and regulatory and financial barriers make it difficult to establish new centers.
Why it matters: The cost of building child-care facilities is soaring, with new centers costing up to $9 million.
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Regulatory requirements, high construction costs, and land prices are major factors.
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This has deterred landlords from leasing space to child-care providers compared to other commercial tenants who can pay higher rents.
Driving the news: According to The Business Journals, The Learning Experience — a daycare franchise — has seen construction costs spike 40% since the pandemic, pushing the total cost of opening a new center to around $5 million. Despite the high demand, these costs make it difficult for providers to secure financing, and many are forced to operate in suburban areas where land is cheaper.
Zoom out: The post-pandemic commercial real estate market, marked by vacant office spaces, presents a potential opportunity to repurpose these spaces for child-care centers. However, the high cost of upfitting these properties remains a significant barrier.
What’s next: Innovative approaches like the Care Access Real Estate Investment Trust (CARE), which leases spaces at affordable rates to child-care providers, offer some hope. Additionally, universities are exploring partnerships to add child-care facilities on campuses, though financial viability remains a challenge.
The bottom line: As the child-care crisis continues, real estate adaptation will be crucial in addressing this growing need, with potential opportunities arising from the current shifts in the commercial real estate landscape.
In this installment of Ask Joe Anything on the Trust This podcast, I’m explaining how Fannie Mae’s and Freddie Mac’s guidelines allow conventional loans to land trusts.
Listen in or watch on your favorite streaming platform.
3. Catch up fast
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A new study by researchers at Stanford, Columbia, and Northwestern universities found that — in the long run — the NAR commission settlement will likely cause an increase in home prices. MSN
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Mortgage rates drop to another new low for 2024. HousingWire
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Investor home purchases post the largest increase in two years. Title Report
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Core inflation ticks up slightly along with unemployment claims, solidifying thoughts of a Fed Rate cut next week, but by how much is up in the air. MPA Mag
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How Americans voted their way into a housing crisis. Bloomberg CityLab (gift link good for 7 days)
4. Closing Thought: Disruption-Proofing Your Team
You can disruption-proof your business by preparing your crew members for resiliency.
Why it matters: Entrepreneurs face constant disruption in today’s ever-evolving business landscape. Cy Wakeman’s podcast on “Disruption-proofing your team” highlights critical strategies to prepare organizations for these inevitable changes, focusing on business readiness and resilience.
The shift from change management: Traditional change management is reactive — focused on making transitions as smooth as possible for employees. Wakeman argues this approach is outdated.
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Instead, entrepreneurs should foster a culture of readiness, where teams are proactive, adaptable, and prepared to meet change head-on.
Reality check: Change is only difficult for those unprepared. Wakeman emphasizes that businesses should not try to eliminate disruption but instead build teams that thrive amidst it.
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Readiness is the cornerstone, achieved through standardization and eliminating unnecessary process preferences.
How to apply this:
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Standardize for scalability: Standardization reduces the chaos and allows businesses to scale effectively. Encourage your team to follow proven processes instead of reinventing the wheel with every project.
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Empower through resilience: Resilience is not about enduring hardship alone. Instead, it is about individuals leveraging collective intelligence and collaborating to overcome challenges. This reduces burnout and enhances the organization’s agility.
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Balance expertise and opinion: Opinions can stall progress. Encourage a culture where decisions are based on expertise and facts rather than personal preferences, helping teams move faster and more efficiently.
The bottom line: By focusing on readiness and resilience, entrepreneurs can future-proof their teams against inevitable disruptions, creating adaptive organizations that thrive on change.
Go deeper: Disruption-proofing your business.
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