A report from Deseret News. “The Federal Reserve is expected to raise interest rates this week — likely by 0.25% — for the first time in three years. As a result, mortgage rates will rise, too. ‘It’s bad,’ said Dejan Eskic, senior research fellow at the University of Utah who specializes in housing research. ‘A good two-thirds of Utah cannot afford the median-priced home anywhere because of how fast rates rose in the last couple of months. Typically when we see rates rise we do see a slowdown in demand. We see a slowdown in price. Sometimes the price actually falls,’ Eskic said.”
From Reuters. “First-time buyers accounted for 27% of existing home sales in January, according to the National Association of Realtors, near 2014 levels. With mortgage rates above 4%, around the highest in about three years, and expected to rise further, buyers on tight budgets may struggle even more to find homes they can afford. Conditions are hitting morale: A survey by Fannie Mae found just 29% of respondents think it’s a good time to buy a home, near a record low for a series launched in 2010.”
“Some people who had been pre-approved for a mortgage may find they no longer qualify for the same maximum loan amount after mortgage rates rise, said Jennifer Beeston, a senior vice president of mortgage lending for Guaranteed Rate. ‘What I spend 50% of my time doing now is pep talks,’ said Beeston.”
“Jason Harrison and Jamar Haggans are just getting started with their home-buying search, but they are already lowering expectations. Their search for a three-bedroom, two-bathroom house in Kansas City, Missouri, priced under $450,000 turns up only 10 to 20 new houses daily. After reviewing the quality of homes listed, they upped their budget by $75,000 and are nervous about over-paying. ‘My biggest fear right now…is that if we want to get a home we’re going to have to pay more than it’s actually worth,’ said Harrison, 36.”
A press release. “Demand for vacation homes dropped sharply in February, with mortgage-rate locks for second homes reaching their lowest level since May 2020, according to Redfin. Demand was still up 35% from pre-pandemic levels, but that’s significantly lower than the 87% increase the month before. ‘Rising mortgage rates, combined with rising home prices, are hitting the second-home market much harder than the primary-home market,’ said Redfin Chief Economist Daryl Fairweather. ‘That’s largely because vacation homes are optional. People don’t need a second home.’”
The Jacksonville Business Journal in Florida. “Zillow has sold at least 180 homes in Jacksonville over the past three months. Public record data for Duval County shows Zillow Homes Property Trust has been involved in 16 transactions since December 2021, as the company looks to sell off the more than 400 homes it owned in Jacksonville. Late last year, Zillow announced it was ending its Zillow Offers business, which was the company’s iBuying operation that would often offer sellers cash for their home. The end of Zillow’s buying program meant it is offloading the 7,000 homes it owned nationwide.”
The Seattle Times. “Leaders of Seattle-based Zillow face another lawsuit in federal court related to the closure of the company’s house-flipping operation, Zillow Offers. Attorneys for shareholder Leah Rosenfeld filed a complaint Thursday alleging, among other things, that Zillow’s board of directors ‘utterly failed to implement and maintain adequate internal controls and corporate governance practices critical to the Company’s success in pivoting from operating as a pure digital platform to competing in the highly competitive iBuying space.’ (iBuying is an algorithm-driven form of house-flipping.)”
“Zillow announced in November it would shutter Zillow Offers after acknowledging the company had been unable to accurately predict future home prices for the business. Share prices tumbled afterward, and shareholders have sued because of their losses. The suit isn’t the first fallout from the closure. Three other shareholder lawsuits against Zillow have been consolidated in federal court.”
The Real Deal. “Digital mortgage lender Better.com cut roughly 3000 employees, or about a third of its staff, citing lower demand for its services in a rising interest rate environment. ‘We have huge opportunities ahead to grow and to serve, but we must adjust to volatility in the interest rate environment and refinancing market to get there successfully,’ CFO and interim president Kevin Ryan wrote in a memo to staff. Employees learned about the latest round of cuts a day early when the company accidentally leaked severance payments. ‘No email, no call, nothing,’ an anonymous employee told TechCrunch. ‘This was handled disgustingly.’”
From Bloomberg. “One of the tallest office towers in St. Louis lost 96% of its appraised value. Denver’s former World Trade Center complex faces foreclosure. An oil company’s vacant Houston workplace sold this year at a $67.4 million loss to lenders. Those properties are among the 30% of U.S. office buildings — worth an estimated $1.1 trillion — that are at high risk of becoming obsolete as tenants’ tastes change in the hybrid-work era, according to Randall Zisler, an independent consultant.”
“As values for those properties slide, some landlords are walking away. ‘We’re not saying bulldozers are arriving en masse,’ Zisler said. ‘But you’re going to see a repricing and, in some cases, reuse of these buildings.’”
“Renovations don’t guarantee success for buildings in weak locations. Empire State Realty Trust Inc. added a gym and dining facility in 2019 to a Norwalk, Connecticut, building that was only 46% occupied as of December. The company stopped paying a $30 million mortgage rather than spend more money to lease up space, Chief Financial Officer Christina Chiu said on a conference call last month. ‘The math favored handing the keys back to the lender,’ said Danny Ismail, a senior analyst at Green Street. ‘Increasingly, that’s a risk going forward.’”
“Values plunge after delinquencies. Reappraisals in the past two years of 60 office buildings with distressed commercial mortgage-backed securities fell by an average 67%, erasing more than $1.2 billion in collateral, according to data compiled by Bloomberg. The biggest wipeout of that group was 909 Chestnut in St. Louis, which was appraised in August at $9.2 million, down from $207.3 million in 2014.”
“In Denver, where downtown offices are 24% vacant, one loser is the former World Trade Center I & II towers, built in 1979 and appraised at $176 million in 2013. The owners failed to find a buyer who would cover the $132 million mortgage and agreed to surrender the property, now called Denver Energy Center. A foreclosure is expected this month.”
“More losses loom for landlords across the country. ‘We’re going to see a substantial decline in prices in buildings that are obsolete,’ Zisler said. ‘You’ll see it over the next four years, maybe even sooner.’”