Like many other investors, J.D. and I are fans of taking the slow, sure path to wealth. We invest much of our money in index funds. An index fund is a low-maintenance, low-cost mutual fund designed to follow the price fluctuations of a broader index, such as the S&P 500 or the Wilshire 5000. They’re boring investments, but they work. (If you’re investing for the excitement, you’re doing it for the wrong reason.)
Because of their low costs, index funds have been shown over and over to dominate the majority of their competition. Yet many investors shy away from index funds with the reasoning that “the stock market is too risky for me.”
People seem to think that index funds are simply mutual funds that track the U.S. stock market. And that’s not particularly surprising given that S&P 500 index funds are:
the largest index funds,
the index funds mentioned most frequently by the media, and
the index funds most likely to show up as an choice in your 401(k).
But there are all kinds of index funds aside from those that track the S&P 500. There are bond index funds, real estate index funds, commodities index funds, international stock index funds, and so on.
In other words, you can create a thoroughly diversified portfolio using nothing but index funds.
In fact, I’d suggest doing exactly that. By created a diversified, all-index fund portfolio, you’ll achieve a list of benefits relative to other types of portfolios.
Lower Risk Which sounds safer: Having the stock portion of your portfolio invested in 10 different companies, or having the stock portion of your portfolio invested in several thousand companies from more than 10 different countries? I know some people disagree, but to me it’s a no-brainer.
By constructing your portfolio from index funds, you’ll achieve far greater diversification (and therefore be exposed to less risk) than you would if you constructed your portfolio from individual stocks and bonds.
Lower Costs Both common sense and historical data tell us that one of the best ways to improve investment returns is to reduce costs. Conveniently, index funds carry significantly lower costs than actively managed mutual funds. For example:
Vanguard’s Total Bond Market Index Fund has an expense ratio of 0.22%. That’s less than one-fourth of the average expense ratio among bond funds (1.04%, according to Morningstar’s Fund Screener tool).
Vanguard’s REIT Index Fund has an expense ratio of 0.26%, or less than one-fifth that of the average real estate fund (1.45%).
It’s quite possible that you could cut your total costs by 1% or more. And while 1% per year may not sound like much, it can really add up over an extended period.
Lower Taxes Index funds have much lower portfolio turnover than other mutual funds. (That is, they buy and sell investments within their portfolios far less frequently than actively managed funds do.) This makes them more tax efficient than other mutual funds for two reasons:
The capital gains they distribute are primarily long-term in nature (and thereby taxed at a lower rate than short-term capital gains), and
Their capital gains distributions are minimized, meaning that you get to defer a significant portion of taxes until you sell the fund.
Added Bonus: You’ll understand what you own. With an actively managed mutual fund, you never know exactly what the fund manager is investing in. With index funds, it’s all out in the open.
Do you (like both me and J.D.) have a portfolio made up primarily of index funds? If not, why? Is there a particular concern that’s holding you back?
Fears over turbulence in commercial real estate is creating opportunities for well-capitalized investors, according to Blackstone Inc. co-head of global real estate Kathleen McCarthy.
“When sentiment gets really negative, prices decouple from fundamental value,” she said in a Bloomberg Television interview with Francine Lacqua. “We have a practice of trying to quiet that noise and look at the information in front of us.”
High vacancy rates in U.S. office markets and the impact of rising interest rates on property values in Europe have prompted a brutal selloff in publicly traded real estate stocks and bonds. The depth of the downturn implies investors are expecting prices to collapse, though a standoff between buyers and sellers means the pain has yet to fully filter through to asset values.
Blackstone has deployed about €3.5 billion ($3.8 billion) in Europe so far this year, sticking mostly to properties where it sees the best potential for rents to rise and offset higher borrowing costs, like warehouses, student housing and lab space, McCarthy said.
“We have more data than any other investor on the planet,” she said. “That informs where we transact.” Blackstone is being very selective but is still prepared to “lean in to where we see strength in the short term and over the long term,” she added.
The volume of German commercial real estate deals in the first half of the year was about two-thirds below the long-term average. But pressure is building on landlords that need to sell assets in order to reduce their relative indebtedness, which is rising as asset values fall.
“It takes a period of time for sellers to recognize that it is maybe time to move on or settle in to new pricing,” McCarthy said.
We had a few times in the previous cycle where the 10-year yield was below 1.60% and above 3%. Regarding 4% plus mortgage rates, I can make a case for higher yields, but this would require the world economies functioning all together in a world with no pandemic. For this scenario, Japan and Germany yields need to rise, which would push our 10-year yield toward 2.42% and get mortgage rates over 4%. Current conditions don’t support this.
The backstory
The lifeblood of my economic work depends greatly on the ebbs and flows of the 10-year yield, even more than mortgage rate targeting, which is unusual for a housing analyst.
When I first dipped into 10-year yield and mortgage rate forecasting in 2015, during the previous expansion, I said the 10-year yield will remain in a channel between 1.60%-3%. I’ve stuck to that channel forecast every year since — and for the most part that 10-year yield channel stuck. That range dictated that mortgage rates would roughly stay between 3.5%-4.75%.
When COVID-19 was about to hit our economy, I forecasted that the 10-year yield recessionary yields should be in a range between -0.21%-0.62%. We got to as low as 0.32% on that Monday morning in March when the crisis was hitting the markets the hardest. About a month later, I published my AB (America is Back) recovery model, which said that the 10-year yield should get back toward 1%. We got there in December of 2020 so I was able to retire my America is Back recovery model.
I said that when the economy was beginning the new expansion, the 10-year yield would create a range between 1.33%-1.60%. This couldn’t happen in 2020 but should happen in 2021. Even with the hot economic growth, the hottest inflation data in decades, and the Fed rate hike discussion picking up, this range of 1.33%-1.60% has held up nicely for most of 2021, meaning mortgage rates were going to be low in 2021.
My forecast for the 10-year yield range in 2021 was 0.62%-1.94% which translates to a bottom-end range in mortgage rates of 2.375%-2.5%, and an upper-end of 3.375%-3.625%. Single mortgage rate target forecasts have not fared well over the decades because these forecasters did not respect the downtrend in bond yields since 1981.
The X factor
Can there be a bond market sell out short term, sending yields above 1.94%, like what we saw early in the COVID-19 crisis? Yes, but if the markets do overreact for any reason, typically bond yields would fall back. Why do I not believe bond yields will push higher aggressively? The economic rate of growth peaked in 2021. The economy was on fire this year, and inflation data was super-hot. Even so, the highest the 10-year yield got was 1.75%. The economic disaster relief that boosted the recovery in 2020 and 2021 has been drawn down.
Government spending plans have also been watered down and new legislation might not even pass at all. Economic growth peaked in 2021 and some of the hotter inflation data has the potential to fall next year. The Federal Reserve wants to hike rates to cool the economy. Typically what happens before the first Fed rate hike is that the U.S. dollar has its biggest percent move higher ,which tends to hurt commodity prices and world growth. This is something to watch for next year as it could slow down world growth.
The economy won’t be as hot in 2022 as it was in 2021, but it will remain in expansionary mode. This type of backdrop will make it challenging for rates to rise in a big way and stay higher. The key with all my 10-year yield channel work is how long the 10-year stays in that channel during the calendar year. I have always believed this type of forecast is more useful than targeting a mortgage rate.
Existing-home sales
The forecast
For 2022, I am forecasting the same sales trend range as 2021 of about 5.74 million to 6.16 million. If monthly sales prints are above 6.16 million for existing homes, then I would consider the market more robust than expected. If sales trend toward 5.3 million then we will be back to 2019 levels. This would still be healthy sales considering the post-1996 trend, but it will mean housing demand has gotten softer.
This has happened before when higher rates have impacted demand. This is why since the summer of 2020 I have written about how if the 10-year yield can get above 1.94%, then things should cool down. However, as you can see it’s been hard to bond yields over that level and thus mortgage rates above 3.75%.
The backstory
If the last two reports of the year on existing home sales are above 6.2 million, I will admit that sales have slightly outperformed what I predicted for 2021. Early in 2021, I wrote that home sales would moderate after the peaks caused by the COVID-19 shutdown make-up demand and that readers should not overreact to this slowing. I wrote that sales would range between 5.84 million and 6.2 million, and that we could anticipate a few prints under 5.84 million — but sales would consistently be above the closing level of 2020 of 5.64 million. We got one print below 5.84 million and a few recent prints over 6.2 million, with two more reports. Mortgage demand was solid all year long and has picked up in the last 15 weeks.
One of my longer-term forecasts in the previous expansion was that the MBA Index would not reach 300 until 2020-2024. We got there in the early part of 2020, then the Index got hit by the COVID-19 delays in home buying to only have a V-shaped recovery that led to the make-up demand surge, moderation down and back to 300.
As you can see, it’s been like Mr. Toad’s wild ride here. We will still have some COVID-19 year-over-year comps to deal with up until mid February and then we can get back to normal. However, one thing is for sure: demand has been solid and stable in 2020 and 2021. Also, the market we have today doesn’t look like the credit boom we saw from 2002-2005.
I didn’t believe total home sales could get to 6.2 million in the years 2008-2019, this is new and existing home sales combined. We simply didn’t have the type of demographics in the previous expansion. We are in different times.
New home sales and housing starts
The forecast
My long-term call from the previous expansion has been that we won’t start a year at 1.5 million total housing starts until the years 2020-2024 and we have finally gotten here much like the 300 level in the MBA index. My rule of thumb has always been to follow the monthly supply data for new homes, and as long as monthly supply is below 6.5 months on a three-month average, they will build.
The backstory
Housing starts, permits and builders confidence are ending the year on a good note. Even though new home sales aren’t booming this year, it’s good enough to keep the builders building more homes even with all the drama of labor shortages, material cost and delays in finishing homes.
As you can see below, the uptrend has been intact even with the slowdown in 2018 and the brief pause from COVID-19.
The new home sales sector gets impacted by rates much more than the existing home sales marketplace. The last time this sector saw some stress from mortgage rates was in 2018 when rates were at 5%. Today’s 3% mortgage rates are good enough to keep things going. We should see slow growth in new home sales and housing starts as long as the monthly supply of new homes is below 6.5 months on a 3-month average. This sector has legs to walk forward slowly. I have never believed in the housing construction boom premise as mature economies don’t have construction booms with slowing population growth. More on that here.
The X factor
The one concern I have for this sector in 2022 is if the builders keep pushing the limits of home price growth to make their margins look better. When rates are low, they have the pricing power to do this. This is why the sector has done so well in 2021. If I am wrong about mortgage rates staying low in 2022, and rates go above 3.75% with duration, then demand for new homes should get hit. The longer-term concern for this sector is price growth because if demand slows down, this means a slowdown in construction and the builders really maximized their pricing power in 2020 and 2021.
Home prices
The forecast
I am looking for total home-price growth to be between 5.2% and 6.7% for 2022. This would be a meaningful cool down in price growth but would still be a third year straight of too much price growth for my taste.
The backstory
My biggest fear for the housing market during the years 2020 to 2024 was that real home-price growth can be unhealthy. When you have the best housing demographic patch ever recorded in history occurring at the same time as the lowest mortgage rates ever, with housing tenure doubling as it has in the last 12 years, it’s the perfect storm for unhealthy price growth.
Housing inventory has been falling since 2014 and mortgage purchase applications have been rising since then. As you can see below, 2021 wasn’t looking good for me regarding my fear for home prices rising too much.
The X factor
When I talk about real home-price growth being too hot, I mean that nominal home price growth is above 4.6% each year during the five-year period of 2020 to 2024, for a cumulative 23% growth. This would not be a positive for the housing market. If we end 2021 with 13% home price growth, (and it looks like we will do that or higher), then we have already achieved 23% of the price growth that I am comfortable with in just two years.
While I do believe home-price growth is cooling from the extreme high rate of growth we had earlier in the year, I would very much like to see prices get back in line with my model for a healthy market. In order for this to happen, we would need to have no increase in home prices for the next three years. Because inventory levels are falling again, and we are at risk of starting the 2022 spring season at fresh new all-time lows, this outcome is very unlikely.
Early in 2021, I had raised concerns that prices overheating should be the main concern, not forbearance crashing the market. When demand is stable, it’s extremely rare for inventory to skyrocket and American homeowners have never looked better on paper. In fact, a few months ago I talked about inventory falling again should be the concern going out.
Housing demand
The forecast
Everyone is talking about rates going higher and no one, it seems, is talking about the possibility that mortgage rates could go under 3% in 2022, except me. This is front and center in my mind. I want to see a B&B housing market: boring and balanced. In a B&B market, buyers have choices, sales move at a reasonable pace without bidding wars, and the whole home-buying experience is less stressful and more sane. I would like to see inventory get toward 1.52 – 1.93 million, (which is still historically low). However, this will be a more stable housing market.
The backstory
Millions of people buy homes each year. The only thing that cooled demand for housing in the previous expansion was mortgage rates going over 4% with duration. The increase in rates didn’t crash the market or even facilitated negative year-over-year home price declines; but it did increase the number of days homes stayed on the market.
Currently the biggest demographic patch ever recorded in U.S. history are ages 28-34, the first-time homebuyer median age is 33. When you add move-up, move-down, cash and investor demand together, demand will be stable and hard to break under the post-1996 trend of 4 million plus total sales every year in the years 2020-2024.
The X factor
Frankly, I’m getting tired of calling this market the unhealthiest since 2010. This is not due to a massive credit boom or exotic loan products contaminating the market with excess risk — it’s the lack of choice for buyers. If mortgage rates go under 3%, which I believe they can, it just keeps the low inventory story going on. The Federal Reserves wants to cool down the economy, the government is no longer providing disaster relief anymore and the world economies should get hit if the U.S. dollar gets too strong. So, my concern is about rates falling in year three of my 2020-2024 period. This is also a first-world problem to have and we aren’t dealing with the housing market of 2005-2008 when sales were declining and the U.S. consumer was already filing for bankruptcy and having foreclosures before the great recession started in 2008. This is to give you some perspectives here with my thinking.
The economy
The forecast
I expect the rate of change to slow in 2022 but the economy will still be expansionary. Retail sales have been off the charts, and this data line, which I expected to moderate, still hasn’t. The rate of growth will cool. Replicating the growth we saw in 2021 will be nearly impossible. As the excess savings have been drawn down and the additional checks that people got are no longer coming, this data line will find a more suitable and sustainable trend in 2022. Still I am shocked that moderation hasn’t happened already and I was the year 2020-2024 household formation spending guy, too.
The backstory
The U.S. economy has been on fire this year. Even with the excess savings, good demographics, and low rates, not even I thought we would see economic growth like we did in 2021. However, like all things in life, despite the peaks and valleys, the overall trend will prevail.
The X factor
I recently raised one of my six recession red flags after the most recent jobs report as the unemployment rate got to a key level for myself. These red flags are more of a progress checklist in the economic expansion, and when all six of my flags are raised, I go into recession watch. The economy is in a more mature phase of expansion since the recovery was so fast. Like everything with me, it’s a process to show you the path of this expansion to the next recession.
For housing, a strong labor market means more people are getting off forbearance, which is already under 1 million, much smaller than the nearly 5 million we had early in the crisis. I want to wish a Merry Christmas to all my forbearance crash bros who promised a housing crash in 2020 and 2021. You guys are the best trolling grifters ever!
More jobs and more robust wage growth mean the need for shelter will grow. The housing market is already dealing with too much rent inflation, but as wage growth picks up on the lower end, this means landlords will charge more rent. Again, this the problem you want to have, a tighter labor market means wage growth will pick up and we have 11 million job openings currently.
So, look for the rent inflation story to be part of the 2022 storyline, as well as the rate of growth of home prices cooling down.
There is nothing like a fifth wave of COVID-19 and a new highly transmissible variant to crank up the personal stress meter. While the continuing COVID crisis can cause havoc on some short-term data lines for the economy, we will, as we have done, get through this and move forward. Our reality is that, as a nation, we have learned to consume goods and services with an active virus infecting and killing us every day.
The St. Louis Financial Stress Index, which was a key data line to track for the America Is Back recovery model, has still been in a calm zone for the entire year, currently at -0.8564. When we break over zero — which is considered normal stress — then we have some market drama. However, that wasn’t the storyline in 2021 and we didn’t have a single day where the S&P 500 was in correction mode. It’s not normal to not have a stock correction, so a stock market correction in 2022 is in the works and this can lead more money into bonds and drive rates lower.
For more discussion on this index and the America is Back recovery model, this podcast goes over everything that has happened in 2020-2021.
Conclusion
What a ride it has been for all of us since April 7, 2020 when I wrote the America Is Back economic recovery model for HousingWire. We end 2021 with one of the greatest economic recovery stories ever in the history of the United States of America, and a terrible, dark, two-year period of failure for the extreme housing bears. Now we are well into a recovery and looking forward to a new year with its new challenges.
The job of the analyst is to forecast the positive or negative impacts that a whole slew of variables have on the economy based on carefully formulated economic models. The variables, such as demographics, the unemployment rate, what the Federal Reserve is doing, commodity prices and so many others, are constantly in flux and feed off of and influence one another. Additionally, new economic variables pop up all the time. My job, with every podcast and article, is to show you how the changes in these variables light the path to where the economy and the housing market is heading.
Take a deep breath — in through the nose and out through the mouth. The last two years have been crazy, but I am glad you are here to read this. This is our country, our world and our universe, and everyone is part of team Life on Earth. Merry Christmas, Happy Holidays and have a wonderful Happy New Year. We will get through 2022 one data line at a time.
“We have always held to the hope, the belief, the conviction that there is a better life, a better world, beyond the horizon.” Franklin D. Roosevelt
Minutes from the latest Federal Reserve meeting released on Wednesday show the Fed feels the country’s inflation rate remains “unacceptably high.”
While the central bank chose to hold the federal funds rate at 5.0% to 5.25% in its latest meeting back in June, the recently released minutes reveal the Fed has further rate hikes planned for the year, even if they won’t come as fast and furious as they have so far.
Don’t miss
If that news, along with sticky inflation, after a long winter of continuously climbing mortgage rates and steadily falling home prices, has you wringing your hands over the future of the housing market, don’t despair yet.
Despite the dreary outlook, data shows the market might not be crumbling just yet.
In fact, the median U.S. home is selling for around $383,000 — only about $4,000, or 0.9%, less than the all-time high set in June 2022. This marks the smallest year-over-year drop in close to four months, according to Redfin.
Here’s what’s keeping prices elevated, and why you shouldn’t worry about a major housing correction in the near future regardless of what the Fed has planned.
Inventory is tight, keeping prices high
High mortgage rates may be keeping some buyers at bay, but they’re also deterring plenty of potential sellers who are locked into low rates from just a couple years ago.
The average 30-year fixed mortgage rate hit 6.71% last week, more than double what it averaged in 2021.
New listings plunged 27% compared to last year during the four weeks ending June 25 — the largest drop since the start of the pandemic. That’s also pushed the total number of homes for sale down by 11% — the first double-digit decline in over a year.
A lack of inventory means that with fewer options for buyers to choose from, they’re snagging homes faster than they’re being listed, which in turn keeps prices afloat.
Read more: 3 big mistakes people make with cash back credit cards that cost them every time they swipe
What does this mean for Americans entering the market?
It may not be a proper housing correction, but it’s safe to say buyers and sellers alike are finding the conditions challenging.
“The market isn’t nearly as fast as it was 18 months ago, when homes were flying off the market for well over asking price, and it’s not as slow as it was six or seven months ago, when mortgage rates first shot up,” said Oakland, California Redfin Premier agent Andrea Chopp.
Trying to follow the trends on a national level can be tricky. The typical property may be going for its asking price, but June was only the second month this has occurred since August 2022. And although sale prices are dropping the most in big metros like Las Vegas and Phoenix, areas like Milwaukee and Miami are seeing a rise.
Chopp says buyers should be aware that some desirable homes are attracting several offers and selling above asking.
“And sellers should know that their home may not attract as much competition as their neighbor’s home did two years ago, but it will sell if they price it fairly and put effort into marketing,” Chopp adds.
“Things like making small repairs and staging are important again.”
What to read next
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
There was a viral tweet going around from YouTube housing influencer Nick Gerli. You’ve probably seen it. Gerli cites data from a company called AllTheRooms to make the case that the Airbnb/short-term rental market is “crashing” and it will have a big impact on inventory.
Indeed, the chart he shared is alarming.
A nearly 50% drop in revenue in some markets!
But the data looks dubious. I interviewed Jamie Lane, the chief economist and head of analytics at AirDNA. He looked at the AllTheRooms data and ran a mirror analysis with AirDNA’s data and, well, just look.
Revenue per listing is down, but it’s not down by a third or more in those markets, according to AirDNA.
AllTheRooms didn’t respond to my requests for comment, but Gerli, who runs Reventure Consulting, said he was aware of the discrepancies in the data and had reached out to Airbnb “to provide their own data for these cities so we can get the most accurate figures.” (Airbnb itself said in a statement that the data was “not consistent with its own” and added that “more guests are traveling on Airbnb than ever before.”)
Gerli, however, did offer high level thoughts on the situation. His outlook remains bearish.
“Both data sources agree that the Airbnb supply in America has surged over the last 2-3 years since the pandemic started, particularly in cities like Phoenix. In some markets there are now 2-3x more homes listed on Airbnb than for sale, a situation that has robbed the housing market for inventory,” Gerli wrote in an email. “However, now that the Airbnb correction has started, we will likely see struggling Airbnb owners look to sell their properties. Look for the downturn to be worse in cities where 1) the revenues declined the most and 2) there’s the highest surplus of Airbnb inventory relative to homes for sale.”
Lane at AirDNA doesn’t see a ‘crash’ happening, even though revenue is trending down from last year and it is a relatively saturated marketplace in some metros (the number of listings was up 18% over the same period last year).
“I see that as an entirely false narrative,” he said. “The short-term rental industry has very healthy performance right now. If you look at overall occupancies for 2023, the industry is going to run 57%. That compares to a pre-COVID [level] of 55%. So we’re well above pre COVID occupancy levels. We are down from the 2021 highs, but that was a COVID anomaly in terms of industry performance.”
AirDNA expects modest Airbnb revenue declines throughout the rest of the year – a 1% drop for the rest of the year and no growth in 2024.
Let’s dive in a little further. Lane maintains that the fundamentals in STR remain strong – we see lower churn today than we saw pre-pandemic, the travel desire is absolutely real, a large segment of the population is more mobile than ever (thanks, remote work!), and about 20% of listings are private or shared rooms, not entire houses.
More importantly, revenue for most hosts across the country is still strong nationally, reducing the likelihood of forced sellers, Lane said.
“If you look at revenue today, average revenue per listing compared to pre-pandemic, we are 30% higher, and that has barely come down off the highs in 2022. The earnings of short term rental operators have not collapsed by any means.”
But let’s say demand nosedives due to a recession and the numbers no longer pencil out for some operators. What impact would that have on the market?
It’s hard to say, but an STR crash like the one Gerli describes already did happen, back in 2020.
“In 2020, listings fell by 25%, we saw many markets essentially decline by half, with no disruption to the broader housing market,” Lane said.
Inventory, as ever, is key to all this. Currently, there are about 1.4 million short-term rental listings in the U.S. While there are about 600,000 active for-sale listings. Even if all the 1.4 million STR listings hit the market at the same time, I don’t think that would crash the market.
“Active listings in a normal period would be between 2 to 2.5 million,” said HousingWire’s Lead Analyst Logan Mohtashami. “Even if all those homes came to market overnight, they would need to not get a bid over 60 days to allow the active inventory to return to historical norms.”
Added Lane: “When you look at major cities, let’s say the 50 largest metros, most of that [Airbnb] inventory is not available full time. Over 50% was available for rent less than 180 days over the previous year. So it’s not full time short term rental investments.”
Lane argued that a flood of Airbnb’s wouldn’t crash heavily saturated markets either.
“So you look at a market like Phoenix and how many new homes are being built any given year, that’s larger than the entire short term rental industry,” Lane said.
The broader housing market needs more inventory any which way it can get it, but I don’t see much coming from non-viable Airbnbs. What do you think? Share your thoughts with me at [email protected].
In our weekly DataDigest newsletter, HW Media Managing Editor James Kleimann breaks down the biggest stories in housing through a data lens. Sign up here! Have a subject in mind? Email him at [email protected]
There was a viral tweet going around from YouTube housing influencer Nick Gerli. You’ve probably seen it. Gerli cites data from a company called AllTheRooms to make the case that the Airbnb/short-term rental market is “crashing” and it will have a big impact on inventory.
Indeed, the chart he shared is alarming.
A nearly 50% drop in revenue in some markets!
But the data looks dubious. I interviewed Jamie Lane, the chief economist and head of analytics at AirDNA. He looked at the AllTheRooms data and ran a mirror analysis with AirDNA’s data and, well, just look.
Revenue per listing is down, but it’s not down by a third or more in those markets, according to AirDNA.
AllTheRooms didn’t respond to my requests for comment, but Gerli, who runs Reventure Consulting, said he was aware of the discrepancies in the data and had reached out to Airbnb “to provide their own data for these cities so we can get the most accurate figures.” (Airbnb itself said in a statement that the data was “not consistent with its own” and added that “more guests are traveling on Airbnb than ever before.”)
Gerli, however, did offer high level thoughts on the situation. His outlook remains bearish.
“Both data sources agree that the Airbnb supply in America has surged over the last 2-3 years since the pandemic started, particularly in cities like Phoenix. In some markets there are now 2-3x more homes listed on Airbnb than for sale, a situation that has robbed the housing market for inventory,” Gerli wrote in an email. “However, now that the Airbnb correction has started, we will likely see struggling Airbnb owners look to sell their properties. Look for the downturn to be worse in cities where 1) the revenues declined the most and 2) there’s the highest surplus of Airbnb inventory relative to homes for sale.”
Lane at AirDNA doesn’t see a ‘crash’ happening, even though revenue is trending down from last year and it is a relatively saturated marketplace in some metros (the number of listings was up 18% over the same period last year).
“I see that as an entirely false narrative,” he said. “The short-term rental industry has very healthy performance right now. If you look at overall occupancies for 2023, the industry is going to run 57%. That compares to a pre-COVID [level] of 55%. So we’re well above pre COVID occupancy levels. We are down from the 2021 highs, but that was a COVID anomaly in terms of industry performance.”
AirDNA expects modest Airbnb revenue declines throughout the rest of the year – a 1% drop for the rest of the year and no growth in 2024.
Let’s dive in a little further. Lane maintains that the fundamentals in STR remain strong – we see lower churn today than we saw pre-pandemic, the travel desire is absolutely real, a large segment of the population is more mobile than ever (thanks, remote work!), and about 20% of listings are private or shared rooms, not entire houses.
More importantly, revenue for most hosts across the country is still strong nationally, reducing the likelihood of forced sellers, Lane said.
“If you look at revenue today, average revenue per listing compared to pre-pandemic, we are 30% higher, and that has barely come down off the highs in 2022. The earnings of short term rental operators have not collapsed by any means.”
But let’s say demand nosedives due to a recession and the numbers no longer pencil out for some operators. What impact would that have on the market?
It’s hard to say, but an STR crash like the one Gerli describes already did happen, back in 2020.
“In 2020, listings fell by 25%, we saw many markets essentially decline by half, with no disruption to the broader housing market,” Lane said.
Inventory, as ever, is key to all this. Currently, there are about 1.4 million short-term rental listings in the U.S. While there are about 600,000 active for-sale listings. Even if all the 1.4 million STR listings hit the market at the same time, I don’t think that would crash the market.
“Active listings in a normal period would be between 2 to 2.5 million,” said HousingWire’s Lead Analyst Logan Mohtashami. “Even if all those homes came to market overnight, they would need to not get a bid over 60 days to allow the active inventory to return to historical norms.”
Added Lane: “When you look at major cities, let’s say the 50 largest metros, most of that [Airbnb] inventory is not available full time. Over 50% was available for rent less than 180 days over the previous year. So it’s not full time short term rental investments.”
Lane argued that a flood of Airbnb’s wouldn’t crash heavily saturated markets either.
“So you look at a market like Phoenix and how many new homes are being built any given year, that’s larger than the entire short term rental industry,” Lane said.
The broader housing market needs more inventory any which way it can get it, but I don’t see much coming from non-viable Airbnbs. What do you think? Share your thoughts with me at [email protected].
In our weekly DataDigest newsletter, HW Media Managing Editor James Kleimann breaks down the biggest stories in housing through a data lens. Sign up here! Have a subject in mind? Email him at [email protected]
Bonds sold off somewhat abruptly on Wednesday with little by way of overt justification. While it’s true that the Fed released the Minutes of its most recent meeting (3 weeks ago), there were no revelations and no new ways to think about the points that have been hammered home ad nauseum in recent weeks. Perhaps more important is the fact that the sell-off was largely over by the time the Fed Minutes came out. Were traders bracing for impact? It’s actually easier to imagine that sort of trepidation in advance of the next two days of economic data. After all, we know the Fed wants to resume its rate hikes if the economy evolves as expected and Thu/Fri data can do quite a lot to let us know how the economy is evolving.
Boringly flat in the overnight session. Losing some ground now with 10yr yield up 1.8bps at 3.878. MBS still up 2 ticks (.06) in 5.5 coupons
01:41 PM
Weaker into the PM hours with US Treasuries leading the way. 10yr up 7.4bps at 3.934. MBS down only 6 ticks (.19) on the day, but more than a quarter point from the highs.
02:20 PM
Additional weakness after Fed Minutes, but not necessarily because of them. MBS down 3/8ths. 10yr up almost 9bps at 3.945.
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High mortgage rates forcing sellers to accept lower offers on homes – Zoopla
Research shows 42% agreeing to discounts of 5% or more on asking price – the highest level for five years
Soaring mortgage rates and the cost of living crisis are forcing more sellers to accept lower offers to secure a property sale, according to Zoopla.
The property website latest house price index showed that 42% of sellers were accepting discounts of 5% or more on the asking price of their home in the week ending 18 June – the highest level since 2018 – as buyers are driving a harder bargain.
Meanwhile, 15% of those trying to sell their home were accepting discounts of more than 10% on the initial asking price in the same time period. Buyers are pushing for lower prices because of higher mortgage rates and the cost of living crisis.
The average price of two- and five-year fixed-rate mortgages has hit the highest level for seven months, putting further pressure on borrowers reaching the end of their deals and on the buying power of those looking for a new home.
The latest data from the financial information firm Moneyfacts showed the average two-year fixed residential mortgage rate was 6.26% on Tuesday, up from 6.23% on Monday. The average five-year fixed residential mortgage rate was 5.87%, up from 5.86% on the previous day.
Mortgage rates have continued to climb after the Bank of England increased interest rates by half a point to 5% in June in an attempt to curb inflation.
Zoopla said higher rates would result in a 10-20% hit to buying power – the amount of money a buyer can afford to borrow to purchase a property – compared with when they were at 4%.
Richard Donnell, an executive director at Zoopla, said: “Demand for homes remains but those households looking to move home in 2023 need to be very realistic on pricing and get the view of agents on where to pitch their asking price to secure a sale.”
Buyers can attempt to offset the impact of higher mortgage rates and monthly repayments by either increasing their deposit or agreeing to longer mortgage terms. However, those are not options for all would-be buyers, and the further mortgage rates rise above 5%, the more buyers are squeezed out of the market.
This trend has been borne out in the data so far, with 14% fewer buyers in the market over the last four weeks compared with a year ago, Zoopla’s research showed.
Meanwhile, annual house price growth slowed to 1.2% in June and Zoopla predicted a return to “modest” quarterly house price falls in the second half of 2023.
Average UK house prices are on track to fall by up to 5% by the end of the year, although the drop depends partly on mortgage rates and inflation over the coming months.
A sudden increase in the number of homes for sale would also probably weigh on house price growth, and there are signs that supply is starting to grow at a higher rate. There were 18% more homes listed for sale in the past four weeks compared with the five-year average.
An uptick in supply would boost choice for buyers and give them more room to negotiate, driving larger house price falls.
While there are thousands of mortgage companies nationwide, only a select few land in the top 10.
Today, we’ll examine U.S. Bank Mortgage, which ranked 9th in 2019 for total home loan origination volume.
Being a very large depository institution, they’ve got advantages that other, smaller competitors don’t have.
Namely, lots of liquidity and the ability to keep loans on their books, instead of having to sell them off and rely on short-term financing.
This means they can offer mortgage products that the other guys can’t, and potentially lower mortgage rates too.
Let’s learn more about U.S. Bank’s mortgage division.
U.S. Bank Mortgage Fast Facts
9th largest mortgage lender in 2019 based in Minneapolis, Minnesota
Operates both a retail direct-to-consumer and correspondent lending business
Funded $32 billion in home loans last year
A third of total loan volume took place in California
Nearly half of their volume consisted of jumbo loans
Originate a large share of adjustable-rate mortgages
Available in all 50 states and D.C., branches located in 40 states
How to Apply for a Mortgage with U.S. Bank
You can apply online or by phone via digital mortgage application powered by Blend
A faster pre-qualification or loan estimate is also available if simply shopping around
Can request a call from a loan officer or visit a retail branch if located near you
Once approved you can track loan progress via the U.S. Bank Loan Portal
Those who want to apply for a mortgage with U.S. Bank can do so via their website, without human interaction.
So if you’re the impatient type, or simply know what you’re doing, you can get started straight away.
Their digital mortgage application is powered by Blend, a fintech vendor used by many of the top mortgage companies in the country.
Known as the U.S. Bank Loan Portal, it allows you to link financial accounts and speed through the application process without having to gather paperwork and upload documents.
You can connect payroll, tax, and bank account information securely to ensure your application is accurate and complete.
And once approved, you can track loan progress, get status updates, and send messages to your loan team if you have questions.
Alternatively, you can call them up or request a phone call, or visit a brick-and-mortar branch if you want a more hands-on, personal touch.
If you’ve been referred to someone specific, or want to work with someone in your neck of the woods, they have a loan officer directory as well.
You can filter by both address or by name to find someone you know or an individual who works nearby. Then you can apply for a mortgage directly from their personal website.
It’s also possible to generate a quick pre-qualification via their website if you’re not quite ready to apply, but want to see where you stand.
Or if you’re just shopping around, they offer the ability to generate a loan estimate using limited borrower information (look out for a link to this option on the bottom of the application page).
All in all, U.S. Bank makes it easy to get pricing or apply for a home loan.
What Does U.S. Bank Mortgage Offer?
Home purchase loans, refinance loans, home equity loans/lines
Conventional financing (Fannie/Freddie) and government (FHA, USDA, VA)
Fixed-rate mortgages and ARMs
Jumbo home loans up to $3 million loan amounts
Construction home loans and lot loans
Portfolio loans (non-QM)
Physician mortgages
Available on primary homes, second homes, and 1-to-4-unit investment properties
One thing that separates U.S. Bank Mortgage from other mortgage lenders is its expansive menu of home loan offerings.
You can get a home purchase loan, a refinance loan, both rate and term and cash out, a streamline refinance such as a VA IRRRL, or a home equity loan/line.
As noted, they are a large depository bank, which allows them to offer things their competitors can’t.
Namely, portfolio loans that they keep on their books, with their own set of rules and guidelines that may go above and beyond what others have available.
Sure, you can get a conventional 30-year fixed mortgage from U.S. Bank, like anywhere else. But you can also get a 10/1 ARM, a jumbo loan, a construction loan, or a physician’s mortgage.
Additionally, they’ve got a full menu of adjustable-rate mortgage options, such as a 3/1, 5/1, or 10/1 ARM. It’s unclear if they offer interest-only mortgages at this time.
Those looking to purchase a home can sign up in the U.S. Bank Loan Portal and apply for a mortgage eligibility letter, which is their version of a mortgage pre-approval.
Existing homeowners can take advantage of both home equity lines of credit (HELOCs) and home equity loans if you’re happy with your first mortgage but want to tap equity.
You may also be eligible for a discount on closing costs if you’re an existing U.S. Bank customer or if your company participates in the U.S. Bank Corporate Employee Mortgage Program.
Ultimately, they’ve got you covered no matter what type of financing you need.
U.S. Bank Smart Refinance
U.S. Bank Mortgage also offers a so-called “Smart Refinance,” which is their take on the no closing cost refinance.
It allows you to refinance an existing home loan without incurring the typical closing costs, at least out of pocket.
Interestingly, you can only get a loan term as long as 20 years on the Smart Refinance, which is probably intended to keep your loan payoff on track.
But you can take cash out, so even if your loan balance grows as a result, your payoff should come faster, or at least not be extended.
This can save you interest, though monthly payments will be higher to compensate for the shorter loan term.
And there’s a good chance the mortgage rate will be higher to offset the lack of closing costs, unless those are rolled into the loan.
U.S. Bank Mortgage Rates
One plus is that U.S. Bank openly advertises its mortgage rates right on their website. And they are updated daily as the market changes.
You can see both purchase and refinance rates, along with rates by loan type, such as 30-year fixed or 5/1 ARM, or an FHA loan rate.
I checked them out and their fixed mortgage rates seemed pretty competitive relative to what other lenders are offering.
Their jumbo loans were priced only a little bit higher than their conforming loans, and their government home loans were similarly priced.
Their adjustable-rate mortgage rates were actually pricing higher than their fixed offerings, which is a bit of an oddity, though common at the moment.
Typically, these would be offered at a discount, so if applying with U.S. Bank, a fixed-rate mortgage may be the way to go.
Be sure to pay attention to the loan assumptions – when I checked, many of the loan rates required discount points of 0.862% for the advertised rate.
Additionally, they assumed you were buying or refinancing a single-family, primary residence with 20% down and a FICO score of 740+.
U.S. Bank Mortgage Reviews
U.S. Bank Mortgage has a 4.98 rating out of 5 on Zillow, which is as close to perfection as I’ve seen, especially since it’s based on over 4,000 customer reviews.
That’s a pretty large sample size for such as high rating – many customers indicated that the interest rate and fees were lowered than expected.
The nice thing with the Zillow reviews is you can also see how an individual loan officer performs since most of the reviews show who the customer worked with.
You may want to search for specific loan officers since U.S. Bank is such a large company to ensure you’re matched with one of their best employees.
Their reviews on Trustpilot aren’t nearly as good, though some are for products other than mortgage. Be sure to filter reviews for home loans to get a better idea of what to expect.
They are Better Business Bureau accredited, and have been since 1970. While they have an A+ BBB rating, they’ve only got a 1-star and change rating based on customer reviews.
Again, with a mega bank you’re going to have mixed experiences, which is why comparing individual loan officer reviews is key.
U.S. Bank Mortgage Pros and Cons
The Good Stuff
Available in all 50 states and D.C.
Completely digital loan application with ability to link financial accounts
They advertise their mortgage rates (and provide daily pricing updates)
Discounts for existing U.S. Bank customers
Lots of home loan programs to choose from
Free mortgage calculators to determine affordability
They may service your loan as opposed to selling it off to a different company
The Possible Bad Stuff
No mention of lender fees (may have to pay an origination fee)
May need a high FICO score to get approved
Customer experience may vary since it’s such a large bank
Possibly bureaucratic since you’re dealing with a huge company
With the news this month that the housing market hit a milestone by showing the first year-over-year price decline in recent memory, homeowners who’d considered finally selling their home this year are finding themselves discouraged yet again.
What happened, they might wonder, to the not-so-distant glory days of frantic bidding wars and over-ask offers? Plenty of frustrated owners seem worried that the window for a fast and lucrative home sale might be shutting fast.
But here’s the reality: The U.S. housing market is no monolith. Although it’s true that many of the hottest markets of the past few years have seen prices fall in the wake of higher mortgage interest rates that broadly dampened home shoppers’ buying power, there are still cities where buyers continue to snatch up homes quickly and where sellers are getting their full asking price—or more.
This is why the Realtor.com® data team dug in to find the U.S. real estate markets that most favor sellers. (Sorry, buyers!)
The best places for sellers generally have persistently low housing inventory, strong demand from buyers, and often—but not always—lower prices that have room to swell. These are generally affordable metropolitan areas in the Northeast with a few in the Midwest.
Three of the metros on our list—Hartford, CT, Worcester, MA, and Providence, RI—are so close, you could tour homes in all of them in a single day. Our ranking also has one spot in the South and a somewhat bizarre outlier in California—more on that later.
To figure out if an area is a buyer’s or seller’s market, Pamela Ermen likes to track the change in the number of closed sales per month, compared with the change in the number of new listings per month.
“When sales are going up and inventory is going down, that’s a real seller’s market,” says Ermen, a Virginia Beach–based Realtor® at Re/Max and a speaker and coach at Real Estate Guidance.
Still, sellers who focus solely on low inventory can wrongly conclude that they can list their home at a higher price than an agent might advise. That can lead to their property languishing on the market not receiving strong offers. Meanwhile, buyers who focus only on the number of sales going down might wrongly think there’s less competition. That might result in heartache when they find out the hard way that many homes are still getting multiple offers.
To find true seller-friendly places, the Realtor.com data team looked at the May 2023 listing data for the 100 largest metropolitan areas. Then we ranked each based on the number of days that the median listing is on the market, combined with the portion of listings that have had the price reduced. These metrics tell us where homes are selling faster than average and with fewer sellers having to reduce their price to make the sale.
We selected just one metro area per state to ensure geographical diversity. (Metros include the main city and surrounding towns, suburbs, and smaller urban areas.)
Here’s where sellers can expect the market to be most tilted in their favor this summer.
Median list price: $265,000 Median days on the market: 13 Listings with a price reduction: 1 in 17
Rochester, on the western edge of New York along the southern shore of Lake Ontario, not only is at the top of our seller’s saviors list—it’s also in a class of its own. Rochester had both the lowest number of days on the market and the lowest portion of listings with a price reduction. But this is nothing new for the so-called Flower City.
The metro area has become a mainstay of the Realtor.com hottest real estate markets list. It’s also where sellers are usually still getting their asking price, and where buyers can find one of the largest selections of homes for less than $200,000. Plus, home prices are well below the national median list price of $441,500 in May.
These affordable homes have made the area appealing to locals, out-of-towners, and investors.
“If you’re priced right in our market, you can expect to still sell in about one week,” says Jenna May, a local real estate agent at Keller Williams Realty.
When the market was at its pandemic peak in 2022, and even before anyone had heard of COVID-19, Rochester was still leading the nation in the low number of days on the market. Demand here for homes is high and seems destined to stay that way.
“There are people who are offering $80,000 over listing price and not getting the home,” says May. “It’s that competitive.”
Median list price: $424,925 Median days on the market: 19 Listings with a price reduction: 1 in 14
The capital city of Connecticut is also no stranger to the Realtor.com list of the nation’s hottest real estate markets. Hartford is the largest population hub in the state, with 1.2 million residents.
It also boasts home prices that are about 5% below the national median.
“The Northeast has been well undervalued compared with other markets—and not just for years, but for decades,” says Lisa Barrall-Matt, a senior broker at Berkshire Hathaway in West Hartford.
Homes in the Hartford area have been priced $100,000 less than comparable homes in other markets, Barrall-Matt says, for so long that she began to take it for granted.
Now, she’s feeling vindicated: “I used to say, ‘Why aren’t prices higher?’ Now I’m saying, ‘Where’s the ceiling?’”
Median list price: $622,500 Median days on the market: 24 Listings with a price reduction: 1 in 13
Portland became a popular pandemic destination for Northeasterners looking for a scenic, coastal city with some great restaurants, entertainment, and a brewery scene. The area has a rich history, having a Native American presence dating more than 10,000 years before becoming an early Colonial settlement.
The above-average prices in this artsy city on Casco Bay aren’t keeping sellers from enjoying quick sales. In fact, few listings are getting marked down. The demand for housing here is just so strong. Portland has been featured on our list of the best places to retire in 2022, and it has one of the last year’s hottest neighborhoods: Windham, just on the northwestern edge of Portland proper.
Prices in Portland have grown significantly faster during the pandemic—from May 2019 to now—than they did in most of the country. Where prices rose about 40% nationally, prices in Portland have grown by about 62%. Just since this time last year, prices rose 17%.
A newer four-bedroom home in South Portland that’s within walking distance of Fore River is listed for $650,000, close to the area average.
Median list price: $517,450 Median days on the market: 19 Listings with a price reduction: 1 in 10
Worcester, about 40 miles west of Boston, was nicknamed the “Heart of the Commonwealth” because of its central location in Massachusetts.
This medium-sized metro has a name that’s fun to say, like “rooster” but with a W. But it simply doesn’t have enough homes to match the high interest from potential buyers, according to Nick McNeil, a local Realtor with the Lux Group.
“The amount of demand and the absolute lack of inventory is nuts,” he says. “And there’s not much room for new construction in this area, with tight regulations on what can be built.”
Until there’s some kind of change in the supply and demand dynamic in the area, McNeil says, it’s going to be hard for buyers, and relatively easy for sellers—as long as they’re not also trying to buy.
“The best situation you can be in is if you can sell now,” he says.
Median list price: $384,250 Median days on the market: 25 Listings with a price reduction: 1 in 10
Amid the rolling hills of Eastern Pennsylvania’s Lehigh Valley, about 60 miles northwest of Philadelphia, Allentown has a few things going for sellers right now. The portion of homes with a price reduction is about half the national average, and homes are selling about 40% faster.
Like some other places on this list, the homes in this historic steel town are priced below the national average. But local incomes are a bit higher than average, offering buyers more affordability. That’s helping the real estate market to remain competitive as buyers seek out deals.
Allentown offers a mix of urban, suburban, and rural lifestyles, making it broadly attractive for buyers.
What’s especially notable about the area is the price growth over the past several years. Allentown metro prices have risen by 78% since before the pandemic, ahead of all the other places on this list.
For about the local median price in Allentown, buyers can find a five-bedroom bungalow in the Hamilton Park neighborhood west of downtown Allentown.
Median list price: $374,950 Median days on the market: 29 Listings with a price reduction: 1 in 11
Perched on the western shore of Lake Michigan in southeastern Wisconsin, Milwaukee is known for its breweries, including Miller and Pabst. It’s also where Harley-Davidson was founded. And it’s been a staple of housing affordability for some time.
However, prices have been rising in Milwaukee’s metro area: They rose by around 11% compared with this time last year.
The median number of days on the market is below the average now, just like it was before the pandemic. The same goes for the portion of listings with a price reduction. This is all very good news for home sellers hoping for a quick, profitable sale.
For $375,000, a buyer can get a large, four-bedroom home just 5 minutes from hiking trails, a golf course, and a dog park, all along the shoreline.
Median list price: $386,973 Median days on the market: 29 Listings with a price reduction: 1 in 9
The Virginia Beach metro area, a popular vacation spot for beach, maritime history, and seafood lovers, is another place where incomes are higher than average and home prices are lower.
Last year, sellers could count on getting multiple offers, usually leading to potential buyers bidding up the price, says Virginia Beach–based Realtor Ermen. Now, it’s not as easy to figure out that pricing sweet spot. If the home is listed too high, that’s when there’s eventually pressure to reduce the price.
In the month of May, even with a low number of price reductions, Erman says, “90% of price reductions were made before the listing hit the average time on market.”
That indicates sellers are getting antsy, and probably would have been better off pricing the home lower to begin with. But homes that are priced to sell are still moving briskly.
Median list price: $1,530,000 Median days on the market: 25 Listings with a price reduction: 1 in 9
San Jose is the oddball on this list.
Nestled in the heart of Silicon Valley, it is one of the most expensive real estate markets in the nation. Homes in this San Francisco Bay Area hot spot cost more than triple the national average, which means real estate attracts a very specific buyer.
Because San Jose is a global technology hub, its population is very diverse, and not just racially or ethnically. Roughly 40% of residents were born outside of the U.S., according to the U.S. Census Bureau. Most significantly, many residents have tons of money to spend, whether they’re high-salaried tech employees or they have had an entrepreneurial startup windfall.
Local real estate agents will tell you that San Jose is simply insulated from many of the market dynamics because the clientele is so wealthy. If they’re making an all-cash purchase, they don’t have to worry about higher mortgage rates. And that’s a big boon for sellers.
Median list price: $539,950 Median days on the market: 31 Listings with a price reduction: 1 in 10
Providence, home to Brown University and the Rhode Island School of Design, is a bustling town filled with older homes. About 50 miles southwest of Boston, it’s one of the medium-sized, Northeastern metros on our list that are enjoying especially strong housing markets right now.
Providence prices are significantly above the national average, but compared with nearby Boston, where the median list price is north of $850,000, Providence is a downright bargain.
Plus, it’s got a lot going for it. It boasts beautiful scenery along the Seekonk River, a thriving arts scene, and good jobs. The headquarters for CVS is located in nearby Woonsocket.
In Providence, for $550,000, a little above the local average, buyers can find a midcentury two-bedroom home with classic brick construction about 15 minutes from downtown.
Median list price: $229,950 Median days on the market: 31 Listings with a price reduction: 1 in 9
Home prices in this Rust Belt city, which has struggled in more recent years, are still dramatically lower than the national average—about 45% less expensive. And with the focus of buyers on affordability, it’s no wonder that Toledo has taken off.
In the past year, median list prices in Toledo have risen by 25% (10% per square foot), which is quite a bit higher than before the pandemic.
For less than the median list price in Toledo, buyers can get a massive, six-bedroom home in Toledo’s Old West End neighborhood, just northwest of downtown.