In April, new home sales and calls for use continued their decline after two years of a similar trend and after a consecutive 14-month streak of declines.
The purchase and sale of newly built houses fell 7.7% compared to the same month in 2023. Regarding the resale of properties, the figure was 2%.
In 2023, 4.09 million homes were sold, a drop of 18.7% compared to 2022 and the worst year for sales since 1995.
Since the Federal Reserve decided to raise rates to 5.25% and 5.50%, millions of potential buyers were left out of the real estate market in the United States.
Unlucky combination
The combination of high prices with the highest interest rates in the last 22 years buried the aspirations of millions of Americans who wanted to buy a home or commercial property, from the end of 2022 to date.
The situation has worsened even more as prices, far from falling, have risen in the most attractive cities, counties and states to live in, as in the case of Florida.
Another aggravating factor has been the financial wear and tear on families after three years of inflation, the worst and most extensive in five decades.
More than 64% of Americans can barely make ends meet, while credit card delinquencies are at record highs.
In the main banks the average delinquency rate exceeds 3.4%, while in the rest of the entities the figure exceeds 8%. This is the highest level since records began in 1991.
Unlike mortgages, credit cards generally have variable interest rates, plus additional charges depending on the lender; Therefore, they are the most direct shock in an inflationary crisis.
Between payments for services, insurance, health care, vehicle prices, household products, education, rent expenses, mortgages and food is the greatest impact of inflation and high interests. All of the above causes a chain reaction with negative effects on individual and family finances.
Increases supply in the market
Due to the slowdown in home sales, the total number of properties available in the US real estate market rose 9% compared to the same month last year. At the end of April, 1.21 million homes were for sale, giving the measure of the initial claim.
In 2021, one of the triggers for the price of real estate was the lack of inventory and the variety in the offer with very low mortgage interests between 2.7% and 3.5%.
Today that supply shortage barrier is declining, but not with the speed that many buyers desire; while high prices and high interest rates dominate the market. Hence, the frustration for those trying to acquire a property
The interest rate for real estate loans was again above 7% in April for a 30-year fixed-rate loan (the most popular), according to data from the mortgage refinancing agency Freddie Mac.
In South Florida, in Miami-Dade and Broward counties, one of the most complex and at the same time most attractive regions for buyers and investors in the US, the number of new contracts signed for single-family homes decreased by 6.5% in April.
In condominiums the figure doubled: 13.3%, according to the most recent Elliman Report, a monthly study that details the sales of single-family homes, apartments or “townhouses” in the most populated states in the country.
The statistics are revealing of the crisis, but also that the market is heading towards its realistic position and towards a readjustment in search of balance. However, there is still a lot of time left in the midst of the current economic situation generated by the policies of the Joe Biden administration.
New home prices remain high, with a median (the figure that leaves half of the properties ahead and behind) at $433,500 in April compared to $430,700 in March, while the average price fell slightly from $524,800. dollars in March to 505,700 in April.
Banks and loans
According to the National Association of Builders (NAHB), Americans spend on average 38% of their income paying off a home loan if they buy at the median price.
However, for economists, the mortgage expense – on a three-bedroom, two-bathroom home with current prices, interest, taxes and insurance – can exceed 55% of the income of a couple with one or two children; That is, more than half of the monthly budget just on a roof to live on. Added to this are all the usual expenses for four weeks: vehicle and health insurance, food; electricity, water, telephone, education, fuel, household products, etc. services.
A central axis in the purchase and sale of residential and commercial homes are the banks.
More than a year ago, the financial bankruptcy of several banks, including Silicon Valley, heralded a strong storm with the global heavyweight Credit Suisse.
In the summer of last year, massive withdrawals from banking entities greatly decreased, but in February of this year the New York Community Bank (NYCB) reaffirmed that the crisis is not over and that the silence of many regional banks is not a symbol of solidity.
NYCB lost $2.4 billion, fired its CEO, and faced downgrades of its credit ratings from rating agencies Fitch and Moodys.
“I think there is more to come,” Peter Earle, a senior analyst at the American Institute for Economic Research, said in an interview.
Amid the turbulence, many regional banks have large commercial real estate (CRE) loan portfolios in serious difficulty.
Earle says most try to get by through a process called “stretch and fake,” in which they give insolvent borrowers more time to pay in the hope that things will improve.
However, what is done is to delay the problem in a more fragile financial system in the medium term.
As of earlier this year, New York Community Bank had more than $18 billion in loans for multifamily developments.
The relevance of this bank within the US financial system is that it was the rescuer of Signature Bank, one of the entities that went bankrupt in March 2023.
Corporate and high net worth clients, who were not insured by the Federal Deposit Insurance Corporation (FDIC) because they were too large, was one of the causes that unleashed the crisis along with the inability of these banks to sustain themselves in the face of politics. aggressive of the Federal Reserve by increasing the reference interest rate 11 times.
As stock traders rushed to sell shares of banks with high exposure to interest rate risk, customers rushed to withdraw their money.
In the case of Signature, for example, 90% of the accounts were not insured and depositors rushed to withdraw their money in great panic, when the bank faced heavy losses in the cryptocurrency market.
Tensions over the crisis
Concerns about the health of banks have not ended, especially due to inflation and new regulations imposed by the federal government on asset control, bonds, increased reserves and risk operations, among other indices.
Although Commercial Real Estate Loans (CRE) represent 13% of the financial balance of large banks, among regional banks the figure rises to 44%.
This type of lending has reduced the overall capacity of the 130 regional institutions in the country, which in turn have increased the rigor of their standards for clients to obtain credit. However, they have found a profitable niche in lending to real estate investors in the US.
According to an April report from Commercial Edge, the country’s office vacancy rate was 18.2% in March, an increase of 1.5% from a year earlier, which had skyrocketed.
The report states that demand for office space among technology and financial companies has decreased dramatically in places such as San Francisco, Seattle, Dallas, Charlotte and Boston.
Therefore, these potential losses are also transferred to the construction sector and generate greater rigidity in residential loans, because in the last two years the risks of default for banks have doubled.
The Federal Reserve and the FDIC say they monitor the lending situation and banks to fix mishaps in their loan portfolios.
“We have identified banks that have high concentrations of commercial real estate, particularly office and retail, and others that have been hit hard,” Federal Reserve Chairman Jerome Powell told the Senate Banking Committee in March.
“There will be bank failures, but not the big banks,” Powell reiterated in his attempt to calm concerns in Washington DC and persistent uncertainty or pessimism among companies and investors.
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