The pandemic-era boom in single-family rental prices is over, according to CoreLogic‘s Single-Family Rent Index.

The index, which analyzes single-family rent price changes nationally and across major metropolitan areas, tracked 13-15% annual growth in rental prices in the first half of 2023, but the index value rose only 2.7% in November, the latest data available.

CoreLogic Principal Economist Molly Boesel told HousingWire the 2022 price boom was largely “a spillover from the for-sale market,” which has been stuck in a prolonged inventory crunch in the present high-mortgage-rate environment. That has kept multifamily and single-family renters from making the jump to home ownership, thereby keeping rental demand high.

The rental and for-sale single-family housing markets mostly move in tandem, though swings in rental prices tend to be more muted, Boesel said.

Year-over-year rent price growth nationally and in most cities is now back within the 2-4% range that persisted for about a decade pre-Covid. Some metros, including Austin and Miami, are even seeing rent prices fall on an annual basis.

Austin is a unique case, Boesel noted. The city’s average rent price rose 30% from early 2020 to mid-2023 as high-earning tech workers moved in, but tens of thousands of multifamily units have since been completed, with tens of thousands more in the pipeline. These shiny new alternatives to single-family rental units, often paired with leasing incentives like a month’s free rent, have sapped single-family demand.

As a result, Austin has experienced five consecutive months of single-family rent price annual declines. While that is an unwelcome trend for Austin’s single-family property managers, the city’s average rent price was still 23% higher in November than it was in February 2020, Boesel noted.

For Boesel, Austin is a unique case that is not indicative of national trends. She expects rental prices nationally to continue to grow 2-4% per year in the near term.

Nationally, multifamily construction has grown at a faster rate than single-family construction. That helps explain why single-family rents are no longer growing at 13-15%, but is not a cause for concern that cities across the country are about to resemble Austin’s market, Boesel believes.

Multifamily completions in December were 47% higher than the 2019 average, according to the latest data available from the U.S. Census Bureau and the Department of Housing and Urban Development. Single-family completions, by contrast, were 17% higher than the 2019 average.

However, single-family builders have continued to start and authorize more units, while multifamily builders have stepped on the brakes. Multifamily permits in December were 8% below the 2019 average, while single-family permits were 16% above the 2019 average.

In addition to multifamily and single-family completions, an increase in homes listed for sale should mute rent price growth and keep it within the 2-4% annual growth rate window, Boesel added. However, that depends in large part on how quickly and steeply mortgage rates fall. Boesel doesn’t anticipate a significant increase in inventories until mortgage rates – currently around 6.7% – reach 5.5%.

Related

Last month, DataDigest explored market experts’ expectations for 2024, with the consensus calling for a moderately better housing market than 2023.

But a meeting of the Federal Open Market Committee the following week set off a market frenzy over expectations of interest rate cuts, moving mortgage rates down well ahead of experts’ forecasts and prompting a subsequent DataDigest that asked whether the picture for 2024 had changed.

On Jan. 18, Fannie Mae weighed in: yes.

Fannie Mae’s latest monthly forecast for the housing market predicts much lower mortgage rates than its December forecast — and thus more home sales and mortgage originations.

Mortgage rates, which dropped precipitously the week of the FOMC meeting, are key to Fannie Mae’s rosier view of the road ahead in 2024. Fannie Mae’s quarterly rate forecasts this month were far lower than last month’s and were its lowest forecasts in at least six months.

“Following the Fed ‘pivot’ in December, an anticipation of more dovish policy, and the recent decline in interest rates, our mortgage rate forecast has been revised meaningfully lower this month,” Fannie Mae wrote in its forecast release.

Mortgage rates have hovered around 6.7% — Fannie Mae’s December forecast for 2024’s average — since mid-December, and the company’s forecast for 2024’s average is now 6.1% with rates dropping below 6% by year end. This should prompt a “gradual recovery” in home sales and single-family mortgage origination, according to Fannie Mae Senior Vice President and Chief Economist Doug Duncan.

“Inflation’s decline and the resultant Fed pivot to signaling future rate cuts lead us to believe that home sales and mortgage originations likely bottomed out in the second half of 2023 and that a gradual improvement is now underway,” he said in a statement.

“We expect mortgage rates to dip below 6 percent by year-end 2024 and for homebuilders to continue to add new supply, both of which should aid affordability. Additionally, the decline in mortgage rates is likely to push refinancing volumes upward, along with some pickup in purchase financing.”

The company’s quarterly forecasts for existing and new homes are up significantly from its forecasts from recent months.

Its forecasts for single-family purchase and refinance originations are also above its recent forecasts, although not as dramatically higher as with home sales.

Although Fannie Mae’s outlook for 2024 is up, Duncan warned against getting too carried away.

“However, even at less than 6 percent, we think rates will still have a significant way to go in order to meaningfully reduce the ‘lock-in effect’ experienced by homeowners who refinanced or bought during the pandemic,” he said.

Traders disagree

The yield on 10-year U.S. Treasury notes — a major factor in setting mortgage rates — opened December at 4.2%. On the heels of mid-month FOMC meeting, the rate fell to a low of 3.8% on Dec. 27.

That drop has been completely erased already in 2024, with the latest rate above 4.1%.

The steep rebound was fueled in part by comments Federal Reserve Governor Christopher Waller made at a virtual event hosted by the Brookings Institution on Jan. 16. Waller said rates should be cut “methodically and carefully” and added, “I see no reason to move as quickly or cut as rapidly as in the past.”

Equity traders, too, have been skittish regarding interest-rate-sensitive stocks — the same stocks that fueled a late December stock market rally. Traders sold off stocks of real estate investment trusts and speculative tech companies last week, but share prices have rebounded so far this week.

The pullbacks signal bond and equity traders are becoming less optimistic about a March rate cut. We’ll have to wait until February’s forecast to see if Fannie Mae’s optimism holds or if traders’ skepticism spreads.

Related

As 2023 draws to a close, housing professionals hope for relief from the high mortgage rates, terrible inventory levels and slow sales that characterized the year.

They may find that relief for mortgage rates next year, according to forecasts from various industry experts compiled by HousingWire.

Sales, however, may see only mild improvement in the year ahead, while prices will remain more or less historically high, the forecasters believe. Home starts forecasts, meanwhile, don’t offer much certainty about the pace of construction next year.

Among all the experts’ forecasts for 2024, there is no number more tightly watched than mortgage rates, as those rates will undoubtedly impact sales, prices and construction as well.

Mortgage rates

The experts unanimously foresee lower mortgage rates in 2024, although none expect rates to fall below 6%. Expectations for the first quarter of the year range from 7% to 7.6%, and expectations for the final quarter of the year range from 7.1% to 6.05%.

The average of expectations from Fannie Mae, Redfin, the National Association of Realtors (NAR), the Mortgage Bankers Association (MBA) and Wells Fargo were:

• Q1: 7.28%
• Q2: 6.9%
• Q3: 6.62%
• Q4: 6.43%

If mortgage rates fall within these expectations next year, they would not be within shouting distance of 3.2% rates seen as recently as January 2022, before the Federal Reserve began raising interest rates in March 2022 to combat inflation.

The Federal Reserve ultimately hiked rates 11 times for a total increase of 5.25 percentage points, the fastest pace of hikes in four decades. Mortgage rates rose in tandem with interest rates; they briefly crossed the 8% mark this October but currently hover around 7%.

Lawrence Yun, NAR’s chief economist, believes data showing easing inflation will motivate the Fed to reverse course next year.

“I think that the Federal Reserve will cut interest rates four times in 2024,” Yun told HousingWire. “Inflation will be much calmer, [and] the abnormal spread between mortgage rates and the 10-year treasury [yield] will begin to normalize or narrow.”

High mortgage rates have had a doubly adverse impact on home sales. The higher borrowing costs have deterred would-be buyers by making homes less affordable, and the higher rates have made homeowners loathe to sell their current homes given that their mortgage rates are far lower than the market rate, keeping inventories tight and prices high.

“With lower mortgage rates, buyers will come back,” Yun said. “I think that some sellers will give up on their low interest rate because of life events, such as a new child, retirement, marriages, divorces, etc. Mortgage rates going down will be a clear positive sign.”

Home sales

Forecasters universally predicted home sales rising throughout 2024, but opinions were divided as to whether home sales would exceed the levels seen in the first half of 2023.

Fannie Mae was the least optimistic forecaster for both existing home sales and new home sales, while NAR was the most optimistic for both. Expectations for existing home sales ranged from a seasonally adjusted annual rate of 4.21 million to 5.07 million by the end of 2024, and a range of 680,000 to 840,000 for the rate of new home sales.

Netting higher home sales than 2023 is not exactly a high bar for 2024.

“2023 was probably the worst year in origination volume and in home sales that we have seen in a long time,” MBA Chief Economist Michael Fratantoni told HousingWire. “2023 was an extraordinarily slow year; 2024 will just be a little bit better.”

Forecasts are rosier for new home sales than existing home sales as new home sales have become a higher share of total home sales amid tight inventories of existing homes and as homebuilders have more levers to pull to incentivize sales.

Home prices

Record-breaking home prices continue to inch higher month after month, with the S&P CoreLogic Case-Shiller Home Price Index hitting another all-time high in September.

Forecasters believe homebuyers will see only modest relief next year, if any. Of three quarterly forecasts for existing home sales next year, one predicts a small increase in prices by year end, another predicts home prices to start and end the year at the same level and one predicts a modest decline.

Homebuilders are more likely to net price gains over the course of the year, the forecasters prognosticate.

Home starts

The experts appear more divided on home starts in 2024, although most expect builders to continue to build at a higher rate than they did pre-pandemic.

NAR anticipates a steady quarterly increase throughout 2024, while Wells Fargo, MBA and Fannie predict a dip in the first half of the year.

Will Robinson is a data journalist at HousingWire. Sarah Marx is a general assignment reporter at HousingWire.

Related

Record high home prices continue to inch higher, even as homebuilders offer discounts and build a higher rate than pre-pandemic levels, according to a host of data releases over the last week.

Prices were highest in the South and West, the same regions in which builders are most active.

New home sales

The seasonally adjusted annual rate of new single-family home sales in October landed at 679,000, according to data published on Monday by the U.S. Census Bureau and the Department of Housing and Urban Development.

The figure – up 17.7% year-over-year – was dominated by the South, which the Census Bureau defines as 16 states spanning from Texas to Maryland. The region was responsible for almost 65% of the adjusted rate of home sales, up about 10 percentage points from the same month in 2018.

Homebuyers of new homes received some relief on prices, with the share of the annual rate of homes sold priced between $300,000-$399,000 growing more than five percentage points month-over-month to 34%. The median sales price for new homes likewise fell 3% to $409,300 from September.

Cutting prices is one of several mechanisms homebuilders have employed to keep buyers interested since rates began skyrocketing. Homebuilders are also pacing the number of homes they bring to market.

Home construction

New home construction ramped up early in the pandemic but moderated as interest rates ticked up and mortgage rates followed. That moderation continued in October, according to data published by the Census Bureau and HUD on Monday.

The seasonally adjusted annual rates of homes permitted, started, under construction and completed all remain well above pre-pandemic levels but below the peaks reached in the last three years. The rate of homes under construction has roughly plateaued since April 2022.

Builders seem to be prioritizing the South and West, with the seasonally adjusted annual rate of homes permitted per thousand residents highest in Idaho, North Carolina, Arizona, Florida and Texas and lowest in Rhode Island, Illinois, Alaska, New York and Connecticut.

Home prices

Nationally, home prices continue to inch upward, according to the S&P CoreLogic Case-Shiller Home Price Index published on Wednesday. The index, which pegs January 2000 at 100, reached a seasonally adjusted all-time high of 311.175 in September as tight inventory continues to keep prices elevated.

However, the price gains are hardly uniform across the 20 cities with their own indices. Miami led the nation at 423.19, while Detroit tallied the lowest index value at 180.54.

Similarly, the Federal Housing Finance Agency‘s Purchase-only House Price Index, which pegs January 1991 at 100, reached an all-time high of 414.76, and its gains, too, are geographically disparate.

The Census Bureau’s Mountain Division, which included eight states, has by far the highest index value in the country at 582.12 for the third quarter of 2023. By contrast, the East North Central Division, which includes Midwestern states like Michigan and Indiana, had the lowest value in the country at 335.91.

Related

For the fourth consecutive month, homebuilder confidence sank in November, according to the National Association of Home Builders/Wells Fargo Housing Market Index published last week. The pessimistic streak is especially notable given that the fall months have recently been lucrative for builders.

The index fell to 34 in November, well below the 50 mark that divides bullish and bearish sentiments. However, the dour mood was not universal. Confidence rose in the Northeast to 53, signaling that builders there are slightly optimistic about market conditions.

In fact, builders in the Northeast were almost twice as optimistic as those in the West, where the HMI sank to 28.

Builders’ pessimism may be tied to price cuts, which were common in the West in the last month but comparatively rare in the Northeast. Almost half – 47% – of Western builders say they cut prices, about triple the Northeast’s 16%.

The Western pessimism is also unsurprising given the year-over-year declines Western states have seen in home values.

Price cuts are not the only way builders are fighting for sales. Builders reported covering closing costs, offering discounted or free features, helping buyers sell their existing home and providing other incentives.

Builders have used these incentives in recent months to avoid an inventory glut.

The sales boom that followed the onset of the pandemic caused the months’ supply of new homes to fall roughly 40% from September 2019 levels, inviting builders to bring more units to market. They did, just in time for a slew of interest rate hikes to depress buyers’ appetites.

With mortgage rates slowing homebuying, the monthly supply for July 2022 reached a level 87% higher than Sept. 2019. But builders persevered in selling units, getting inventory off their balance sheets through price cuts and other methods, and have brought months’ supply down to only 28% above the Sept. 2019 level.

But boosting sales is only one part of keeping supply in check. Builders also have to consider how many new units to bring to market.

Builder activity surged as sales soared, then nosedived as rates increased. Builders ended 2021 with seasonally adjusted annual rates of units started and units authorized that were 34% and 27% higher than October 2019 levels, respectively.

In the months that followed, units authorized cratered to 12% below the October 2019 level and remain below it as of October 2023, although housing starts rose modestly that month.

If the nation’s largest homebuilder, D.R. Horton, is any indication, 2024 will look a lot like 2023, the company stated in its annual report last week.

“To adjust to changing market conditions and higher mortgage interest rates during fiscal 2023, we increased our use of incentives and reduced home prices and sizes of our home offerings where necessary to provide better affordability to homebuyers,” the report states. “Based on current market conditions, we expect to continue offering a higher level of incentives in fiscal 2024.”

The company has also slashed its inventories by about a third in recent quarters, dropping from almost 60,000 homes in March 2022 to 42,000 this September.

Related

“Significant untapped growth potential,” touts a slide in an Offerpad Solutions Inc. presentation to investors in the blank-check SPAC that took the company public in 2020.

Offerpad is an instant buyer, or iBuyer, a company that gives sellers cash offers for their homes and attempts to resell the homes for a profit, sometimes after making renovations.

The slide, presented in March 2021, forecasted that Offerpad would sell nearly 15,000 homes in 2023. In reality, Offerpad has sold fewer than 3,000 homes through the first three quarters of the year, about a fifth of its projection for the entire year, the company reported last week.

“The largest, undisrupted market in the U.S.,” reads an Opendoor Technology Inc. presentation slide for investors in the SPAC that took it public, also in 2020.

The Opendoor presentation projected sales of more than 37,500 homes in 2023. The actual results for the first three quarters of 2023: about 16,500 homes, less than half of its projection for the year, according to its earnings report last week.

Opendoor set out on its disruptive journey in 2014, and Offerpad followed soon after in 2015. In 2018, Zillow and Redfin joined the fray with their own iBuying business segments.

In the years that followed, Zillow and Redfin shuttered their iBuying divisions, and the two remaining iBuyers accounted for a mere 0.61% of existing home sales through the first nine months of the year, based on the companies’ reported home sales and unadjusted existing home sales data published by the National Association of Realtors.

While home sales are down nationwide in 2023’s high-mortgage-rate environment, sales data suggests the aspiring disruptors are losing ground to industry stalwarts.

Shrinking share, continuing losses

The leading iBuyers have accounted for more than 1% of existing sales in only one year: when Zillow was clearing its books of the ill-fated Zillow Offers’ inventory.

The share of existing sales transacted by Opendoor and Offerpad appears to have shrunk so far this year, based on the first nine months of the companies’ reported sales and NAR’s existing home sales data.

iBuyers have consistently produced steep losses as the companies seek to establish national footprints. Zillow Offers’ last full year of home sales netted a loss of $881 million. Opendoor lost about $1.4 billion last year.

In November 2021, about four years after its first home sale, Zillow decided to close its iBuying division. By the time it sold its final home in September 2022, the division had lost more than $1.5 billion.

In a letter to shareholders in 2021, executives cited unexpected market conditions – “a global pandemic, a temporary freezing of the housing market, and then a supply-demand imbalance that led to a rise in home prices at an unprecedented rate” – as a major factor in closing Zillow Offers. The volatility and unprecedented nature of the market, weakened Zillow’s price forecasting, crippling its ability to buy low and sell high.

But additionally, executives noted, customers did not seem happy with the iBuying experience.

“A final factor in the wind-down decision is that, to date, we have been able to convert only about 10% of the serious sellers who ask for a Zillow Offer, and have tended to disappoint the roughly 90% who didn’t sell to us,” the letter read.

The executives further expressed their belief that there are “better, broader, less risky, more brand-aligned ways of enabling all of our customers who want to move” than iBuying.

Redfin, too, threw in the towel on iBuying, completing their winddown of RedfinNow in June 2023. Redfin only began reporting the net loss attributable specifically to its iBuying segment in recent years, making its total losses less clear. However, the company lost more than $65 million in RedfinNow’s final six quarters.

Although they didn’t exit iBuying like Zillow and Redfin, both Opendoor and Offerpad as well as non-public iBuyers like Knock, Ribbon, Flyhomes and Homeward have also made significant job cuts in recent years.

Growth prospects

At the end of September 2022, Opendoor had 16,873 homes in inventory. For the same period this year, the company has 4,007. That is a 76% drop in inventory, despite the fact that Opendoor expanded to two new markets in the past year.

The company purchased about 5,000 fewer homes in the third quarter than the same period a year ago, although it noted in its shareholder letter that purchases increased 17% on a quarter-to-quarter basis.

With fewer homes to sell, Opendoor offered fourth quarter revenue guidance of $800-$850 million. At $850 million, that would be a decline of 70% year-to-year, or 13% quarter-to-quarter.

Despite the cuts to inventory and home purchases an annual basis, CEO Carrie Wheeler touted the company’s market share growth in the company’s earnings presentation.

She pointed out that Opendoor bought more homes quarter-to-quarter despite an 8% drop in the number of homes for sale in Opendoor’s markets. Thus, the company’s share of the available inventory increased on a quarterly basis.

Wheeler also noted the company netted a positive “contribution margin” in the third quarter for the first time in several quarters. Contribution margin is a non-GAAP, supplemental measure used “to assess Opendoor’s ability to generate returns on homes sold during a reporting period after considering home purchase costs, renovation and repair costs, holding costs and selling costs,” the company’s filings state.

“We feel like we’ve done the hard work to be well-positioned for next year, which is about growing our volumes, getting back to cash flow positive, leveraging the partnership channels we’ve been expanding all year and just continuing to manage our balance sheet appropriately,” Wheeler told HousingWire.

The company forecasts an adjusted EBITDA loss of $95-$105 million for the fourth quarter.

Similarly, Offerpad acquired half the homes in the third quarter as it did in the same period a year ago and is forecasting an adjusted EBITDA loss of $10 million or potentially breaking even. CEO Brian Baird offered investors an upbeat attitude about the company’s future.

“We have proven we can perform in a difficult market, and we have exciting opportunities ahead of us,” he said in a statement accompanying the company’s earnings materials. “We are well positioned for further solid performance in 2024 as we take the friction out of real estate.”

Offerpad recently announced it is partnering with real estate conglomerate Anywhere to expand its services nationwide. Opendoor, too, recently announced a partnership with eXp Realty.

Investors seem skeptical of the companies’ growth and opportunities in 2024.

Opendoor’s stock closed at $2.09 on Nov. 3, the day after the company’s earnings presentation. That is down 80% from when the company went public in June 2020 and down 94% from its all-time high.

Offerpad’s stock closed at $8.48 the same day, down 94% from when it went public in December 2020 and down 97% from its all-time high.

For years broker channel evangelists told me that a down market would give them an edge on their retail brethren. Well, it’s certainly been a down market. How has the broker channel fared in the wake of the Fed rate hikes?

I asked the good folks at mortgage data technology firm InGenius to run the numbers. Take a look.

“From the first six months of 2022 to first six months of 2023, brokers have increased their percentage from 23% to 28% while retail has decreased by that same percentage,” Jeff Walton, CEO and co-founder of InGenius, told me. “There’s definitely a shift and while we know there is a lot of movement going on with people losing jobs because of mergers or closures, a certain percentage are moving to brokerage instead of another retail company.” 

It doesn’t surprise me that wholesale has gained market share as refi activity has slowed. A significant number of retail lenders were purpose-built to pump out huge refi volumes with a call center model. Broadly speaking, the broker space tends to be more relationship focused, which lends itself better to a purchase environment.

Though virtually every mortgage lender is down because of the high-rate environment (excepting homebuilder-affiliated mortgage firms, of course), purchase volumes are still above 2019 levels. It’s refinancings that have fallen off a cliff, and they are unlikely to return in force in 2024. Should current market conditions remain, I expect the broker channel to gain a couple more points of market share over the next year (even after several notable lenders exited the channel and United Wholesale Mortgage exerts its dominance).

Setting channel side, where are we in terms of the overall LO landscape? Let’s look at InGenius’s data on the number of loan officers and corresponding production levels.

The InGenius data dating back to Q1 2019 points to some sobering trends. In Q2 2023, the number of valid LOs fell to 89,094. That’s well below the high of 181,656 achieved in Q3 2021 and even the four-plus year average of about 146,000.

Since Q1 2021, the average LO has pumped out just under 16 loans per quarter at $4.8 million in origination volume. In Q2 2023, the average LO generated 9 loans worth $2.9 million. Not great.

If you’re looking for a silver lining, it’s undoubtedly that purchase volume per LO has remained consistent. The average LO achieved $2.2 million in purchase volume in Q2 2023, besting the average since Q1 2019.

It’s not crazy to think that the LOs who haven’t been able to generate enough purchase business have already washed out. About 20,000 LOs have dropped out per quarter since Q2 2022, per InGenius data. While the next year will likely continue to be a relative struggle for even high producers (many of the best of the best are down about 50%), the opportunities for purchase-tested LOs when the market rebounds could be fantastic. All they have to do is survive.

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].