Robust demand has come first and foremost from the massive monetary and fiscal stimulus that has pumped trillions of dollars directly into the pockets of consumers. Americans have used this money along with cheap and readily-available mortgages to finance houses in suburban and rural locations as they fled cramped and expensive big-city apartments, and also to avoid long commutes.

Millennials are helping to drive demand since many are in their 30s, prime ages for first-time homebuyers. On top of that, publicly-traded real estate investment trusts, big investment firms and pension funds are buying houses to rent out. In March, homes up for resale market spent a record-low 18 days on the market on average, according to the National Association of Realtors.

Although demand for single-family houses has surged, supply has not kept up. The market is 3.8 million units short of what is needed to meet demand, according to Freddie Mac, an increase of 50% since 2018. After the collapse of housing with the demise of subprime mortgages in 2008, the builders that survived have become more disciplined.

Also, new construction has been restrained by temporary shortages of materials and surging prices of key building materials such as lumber.

The supply of existing houses for sale has been curtailed as more homeowners decide to stay put. Many aren’t sure where they’d live next in these uncertain times. Also, the availability of cash-out refinancing opportunities has encouraged homeowners to hold on to their abodes instead of moving.

Freddie Mac reports that in the first quarter, $49.6 billion in home equity was cashed out, up 80% from a year earlier and the most since 2007. Another limit on the supply of existing houses for sale has been the pandemic-induced moratorium on foreclosures.

This has spawned feeding frenzies for available homes as eager buyers, some with all-cash offers, engage in bidding wars. Prices of existing home soared 16.2% in the first quarter from a year earlier, and in March, 39% of houses under contract sold for more than their list price, up from 24% a year earlier.

The bonanza conjures up memories of the mid-2000s when the subprime mortgage bubble pushed up prices to levels that were followed by a 35% plunge. Speculation is certainly part of today’s activity, but unlike then, lenders require high credit scores and sizable downpayments.

Still, housing is a highly leveraged asset, so a rise in financing costs can be lethal. But I don’t foresee a big leap in U.S. Treasury yields and, therefore, 30-year fixed mortgage rates even though supply-chain disruptions and inefficiencies in restarting the economy are causing a temporary spurt in inflation.

Even so, the gap between 10-year Treasury yields and 30-year fixed-rate mortgages is so narrow that home-loan rates could rise a full percentage point or more and still be within the historic range.

Even without a rise in financing costs, affordability is becoming an issue. In December, before the big run-up in prices, the median price for single-family houses and condos was less affordable than historic averages in 55% of U.S. counties, up from 43% a year earlier and 33% three years earlier, according to ATTOM Data Solutions.

And unless households get further rounds of federal stimulus money, that earlier source of funding for housing will no longer be present. With some 7 million fewer Americans employed now than before the pandemic, household income growth in future quarters probably won’t be sufficient to replace stimulus checks. Plus, much of the excess homeowner equity that can be withdrawn may already be gone.

As the pandemic eases, many Americans will probably continue to prefer single-family houses away from major cities, but some will return, reducing the demand for suburban houses. Meanwhile, high prices will spur supply in the form of new construction.

Furthermore, demand for single-family houses may continue to be curtailed by “doubling up.” Pew Research Center found that 52% of Americans ages 18 to 29 were living with at least one of their parents last year, up from 47% in 2019.

Numerous signs of a slowdown are already apparent. The number of months to exhaust the supply of existing homes on the market at current sales rates rose in each of the first four months of 2021.

Lenders’ willingness to issue mortgages is at its lowest level since 2014, according to the Mortgage Bankers Association, and those with less than pristine credit scores and without sizeable downpayments are finding it harder to obtain financing. In 2020, 70% of new mortgages were issued to borrowers with credit scores of at least 760, up from 61% in 2019, according to the Federal Reserve Bank of New York.

Building permits, a harbinger of future housing starts, are nowhere near where they need to be to slake demand. A Conference Board survey finds that plans to purchase houses over the next six months fell from 7.1% in April to 4.3% in May, the biggest drop since monthly numbers began in 1977. Mortgage applications for new purchases are down 18% year-to-date, according to the Mortgage Bankers Association.

History suggests that when bubbles begin to leak, small tears usually enlarge as more and more weakness in their fabric is revealed, ultimately leading to collapse. The current enthusiasm for single-family housing has reached such extremes that a deflation of the bubble seems likely—and may be commencing.

The Housing Market’s Fever Shows More Signs of Breaking

It turns out there is a limit to how high prices can go.

Housing Fever: The Breakening

In “The Sun Also Rises,” Mike Campbell famously says he went bankrupt “Two ways: Gradually, then suddenly.” The housing market’s mania might end similarly.

We’re getting evidence of the “gradually” part, anyway. Last month Conor Sen pointed out homebuilders were responding to exorbitant lumber costs by just dropping their toolbelts and grabbing a sandwich. This isn’t what you do if you think you’re about to sell a lot of houses at high prices. Now Gary Shilling has found a few more hints of a slowdown, from the rising number of homes on the market to a drop in permits for new construction to consumers balking at ludicrous prices.

Gary also notes the pandemic trends driving the market recently — stimulus money, plunging interest rates, New York City being dead forever — are stalling or reversing. There may soon be a better time for you to buy that sprawling New Jersey estate.

Updated: 6-20-2021

For Many Home Buyers, A 5% Down Payment Isn’t Enough

Half of mortgage borrowers put down at least 20% in April. That is locking many people out of homeownership.

Would-be home buyers without big piles of cash are getting left on the sidelines.

In the turbocharged housing market, prices are surging and homes on the market are routinely selling for far more than the listing price. Those who can’t afford big down payments are often the ones losing out.

Half of existing-home buyers in April who used mortgages put at least 20% down, according to a National Association of Realtors survey. In 10 years of record-keeping, that percentage has hit or exceeded 50% three times, and all have been since last fall. A quarter of existing-home buyers in April paid cash, the highest level since 2017, NAR said.

Oscar Reyes Santana has been house hunting with his parents and siblings for more than a year in California’s San Fernando Valley. They are all first-time buyers and budgeted for a 5% down payment.

The family bid on at least five homes, each time offering at least $30,000 above the asking price, but they lost out every time, said Mr. Reyes Santana, who is 23.

“It’s been really tough to try to beat everyone else,” he said.

They have all but given up the search for now, and are focused on saving up for a bigger down payment.

Home prices are surging. The median existing-home price rose 19% from a year earlier to $341,600 in April, a record high, according to NAR. That is largely because there aren’t enough homes on the market to meet demand.

In such a housing market, sellers can often choose among multiple offers. Cash buyers have an advantage because they don’t need to secure mortgages, which can make the transaction go faster. Sellers sometimes worry that offers with smaller down payments are likelier to fall through during the loan-closing process, agents say.

Many borrowers who can afford only small upfront costs get loans insured by the Federal Housing Administration or the Department of Veterans Affairs. In an April NAR survey of real-estate agents, 27% said sellers were unlikely to accept an offer with an FHA or VA loan, and another 6% said sellers would refuse such an offer. These loans are less attractive to sellers because they have stricter closing conditions, real-estate agents say.

While mortgage originations of all types rose last year as home buying surged, FHA and VA loans lost market share to conventional loans. FHA loans, which often go to first-time buyers, accounted for 10% of home purchases in the first quarter of 2021, the second-lowest level since 2008, according to Attom Data Solutions.

“It’s very hard to get my FHA offers accepted,” said Olivia Chavez Serrano, a real-estate agent in Los Angeles.

Bigger down payments can cushion the housing market in a downturn. In the 2007-09 recession, home buyers who had made tiny down payments were quickly underwater as soon as home prices started to fall.

A lump sum of 20% or more can be hard to come up with as home prices skyrocket, especially without help from family members. “I’d say at least 50% of my first-time home buyers are getting gifts right now,” said Chris Borg, a mortgage broker at Vantage Mortgage Group Inc.

Low-down-payment loans and down-payment assistance programs are touted by affordable-housing advocates as crucial tools for increasing the homeownership rate, particularly for minority buyers. In 2019, a higher proportion of FHA and VA borrowers were Black or Hispanic compared with conventional-loan borrowers, according to the Urban Institute. Some congressional Democrats have proposed new down-payment assistance initiatives to help first-time buyers.

Surging home prices are also complicating appraisals, which means some buyers are being forced to shell out more cash than they had expected.

Appraisals are based partly on recent sale prices for comparable homes in the area. When housing prices rise quickly, appraisal values don’t always keep up. Mortgage lenders will typically lend only enough to cover the appraised value of a home, so when an appraisal comes in low, the buyer has to make up the difference or let the deal fall through.

For example, a buyer who plans to put 20% down on a $500,000 purchase expects to pay $100,000. But if the home is appraised at $450,000, the cash payment goes up to $140,000—the sum of the $50,000 shortfall plus a $90,000 down payment.

Many buyers are still getting offers accepted without putting 20% down. First-time home buyers who used mortgages paid 9.1% down on average year-to-date through mid-May, though that is up from 8.4% for all of 2020, according to CoreLogic. Repeat buyers paid 16.6% down on average.

Briana Stansbury, who works at a community college in Portland, Ore., recently made an offer on a two-bedroom house. She used a 5%-down loan program that Freddie Mac offers for first-time buyers, and she agreed to go through with the purchase even if the appraisal came in as much as $10,000 below her purchase price of $371,500.

That put Ms. Stansbury at risk of having to come up with extra cash in a hurry, but she had lost out on bids for other houses and thought it would give her a leg up.

Ms. Stansbury lost sleep while she waited for the appraisal. But it came back above the sale price, and she closed on the house in May.

Danyell Allen of Cedar Park, Texas, felt ready to buy a house this year. She had saved up for a 5% down payment. Her children wanted to paint their walls and adopt a pet, which they can’t do in their rental house.

But after losing out on more than 10 offers, she called off the search. “The lowest I heard I was beat out on any home was $30,000 over asking price,” she said. “That’s not something I can do.”

Updated: 6-29-2021

U.S. Home-Price Growth Rose To Record In April

S&P CoreLogic Case-Shiller national index of average home prices up 14.6%.

U.S. home prices surged at their fastest pace ever in April as buyers competing for a limited number of homes on the market pushed the booming housing market to new records.

The S&P CoreLogic Case-Shiller National Home Price Index, which measures average home prices in major metropolitan areas across the nation, rose 14.6% in the year that ended in April, up from an 13.3% annual rate the prior month. April marked the highest annual rate of price growth since the index began in 1987.

Home prices have surged this year due to low mortgage-interest rates, which have spurred strong demand, and a continued shortage of homes for sale. Many homes are getting multiple offers and selling above asking price. The home-price surge is widespread around the U.S., affecting buyers and sellers in big cities, suburbs and small towns.

The median existing-home sales price in May rose almost 24% from a year earlier, topping $350,000 for the first time, the National Association of Realtors said earlier this month.

Home sales have started to decline in recent months, because there aren’t enough houses on the market for all the buyers looking to buy. Rising prices have also deterred buyers, and many builders are capping sales to manage their costs and production pace. Some economists expect the pace of home-price growth to slow as well by the end of the year.

But real-estate agents say in many areas, the market is so frenzied that a slight slowdown in activity wouldn’t make a big difference.

“It’s been crazy within the last year,” said Scott Chase, chief operating officer at Intero Real Estate Services, who is based in Los Altos, Calif. “My thinking is, is this going to slow down with people being vaccinated and wanting to go on vacation? [But] it is still incredibly active.”

While the national pace of price gains is now faster than during the housing boom in the early 2000s, this market is less prone to a downturn, economists say. Ultralow mortgage interest rates mean that the typical home buyer’s monthly payment hasn’t risen as rapidly as the typical house price. Lending standards are also stricter.

But fast-rising home prices and the limited inventory are making homeownership less attainable for first-time buyers or those with limited budgets.

“Affordability is worsening,” said Mark Fleming, chief economist at First American Financial Corp. “That’s what will eventually cause house prices to not continue to accelerate and then eventually begin to slow down.”

Some workers may also decide to hold off on moving until they know their companies’ plans for returning to the office. The rise in remote work during the pandemic spurred many households to move farther from their offices.

“Folks that were looking to buy a home, thinking that they were going to work remotely, are now increasingly putting those decisions on hold,” said Mark Vitner, senior economist with Wells Fargo & Co. “I would expect that home prices are going to moderate all over the country later this year and in 2022.”

The Case-Shiller 10-city index gained 14.4% over the year ended in April, compared with a 12.9% increase in March. The 20-city index rose 14.9%, after an annual gain of 13.4% in March. Price growth accelerated in all of the 20 cities.

Economists surveyed by The Wall Street Journal expected the 20-city index to gain 14.5%.

Phoenix had the fastest year-over-year home-price growth in the country for the 23rd straight month, at 22.3%, followed by San Diego at 21.6%. Charlotte, N.C., Cleveland, Dallas, Denver and Seattle all recorded record-high annual price gains.

Andy Rodrigues and Karibel Montero started looking for a house in the Seattle area last fall, because they were renting a one-bedroom apartment and wanted more space.

“People were going crazy with the offers they were making,” Mr. Rodrigues said. “At some point, we actually decided to stop house hunting and just go and rent because we found it was really difficult.”

The couple eventually bought a three-bedroom home in April in Lynnwood, Wash., farther from Seattle than they had originally looked.

A separate measure of home-price growth by the Federal Housing Finance Agency also released Tuesday found a 15.7% increase in home prices in April from a year earlier, a record in data going back to 1991.

Updated: 7-4-2021

For Millennials, A Starter Home Is Hard To Find

Shortage of small, single-family homes leaves some first-time buyers frustrated and out of luck in a hot housing market.

The shortage of available starter homes feels like yet another hurdle blocking some millennials’ path to traditional money milestones.

“It just feels like every little thing keeps getting put on hold,” said Samantha Berrafato, a 27-year-old house hunter searching for her first home in the Chicago area. “I’ve been putting having kids on hold, and I had put having a wedding on hold because we just couldn’t afford it. Now it’s like [that with] the house buying.”

The first rung on the homeownership ladder has long been an affordable “starter home.” These houses, with their smaller footprints and selling prices, allowed young homeowners to build wealth and upsize as they started their families.

But a number of factors are complicating this decadeslong trend.

Supply of “entry-level housing”—which Freddie Mac defines as homes under 1,400 square feet—is at a five-decade low.

Surging prices and stiff competition mean there aren’t enough smaller, more affordable starter homes to go around in many regions. The pandemic and subsequent recession, along with the student debt crisis and delayed family formation, contributed to frustration and despair among younger house hunters.

“There just aren’t enough of these homes to fulfill the demand,” said Ed Pinto, director of the AEI Housing Center at the American Enterprise Institute. “It’s creating this ‘Great American Land Rush,’ as I call it. People are moving around and there’s tremendous demand, but the inventory is down.”

Three months ago, Ms. Berrafato and her fiancé began looking to buy their first home with a budget of around $300,000. They secured a 3.25% rate on a 30-year mortgage and with a 5% down payment.

They widened their search to include fixer-uppers and foreclosures further out in the suburbs. In June, their offer for a 1,200-square-foot home was accepted.

As of 2020, the median age of a first-time home buyer was 33 years old, up from 30 years old a decade ago, according to the National Association of Realtors.

Delaying homeownership has far-reaching consequences for buyers’ financial lives. Those who became homeowners between the ages of 25 and 34 accumulated $150,000 in median housing wealth by their early 60s, according to an analysis from the Urban Institute. Those who waited until between the ages of 35 and 44 to buy netted $72,000 less in median housing wealth.

“This is a big deal,” said Sam Khater, chief economist and head of Freddie Mac’s Economic and Housing Research division. “We need to think about how we talk about affordable housing, because for most people, when they hear affordable housing, there’s an instant negative reaction. They think ‘low-income,’ right? The issue now is these fissures have not just invaded the middle class. It’s now going up into the upper-middle-income strata.”

Lately, data from the National Association of Home Builders shows new construction is again giving priority to higher square footage for single-family homes, a trend likely spurred by the widespread shift to working from home and house hunters’ need for more space.

“It’s been the hardest kind of home to build over the last five, six or seven years,” Robert Dietz, chief economist at the National Association of Home Builders, said of starter homes.

In addition to competing with other buyers, house hunters are sometimes competing with investors, hedge funds and other huge firms, according to previous reporting from The Wall Street Journal.

As the summer selling season winds down, some house hunters feel they may soon have to find a rental that can bridge the gap or simply save their energy so they can resume looking when prices cool off.

Matthew Libassi, a 35-year-old public relations professional, is looking to buy with his husband on Long Island. He recently sold his apartment and moved in with family to save money. In his search for a home around $500,000, he has been disappointed in the lack of affordable small homes for a young couple.

“We don’t have a crazy list of demands,” he said. “But the stuff that we’re seeing is just major overhauls and with putting all the money that we have in, it’s just not doable.”

Mr. Pinto of the AEI Housing Center predicts the wait could be longer for many buyers. He expects more people to continue moving outside of metro areas in search of more space and greater affordability as employers expand their work-from-home policies post-pandemic.

“We think this is going to continue for some time, for years,” Mr. Pinto said. “Bottom line is, if you’re in an area like Phoenix or Raleigh or Austin, the people who are the current residents who would normally want to get on the first rung of that ladder—they’re going to have a much harder time.”

When the hunt finally comes to a close, relief isn’t always immediate. Though Ms. Berrafato got her starter home, there remain many costs to consider, including moving expenses and getting out of their rental lease early.

“We are so relieved and excited, but now comes new stresses,” she said.

Updated: 7-9-2021

Homebuilder Rally Turns To Rout On Signs Of Fading Housing Boom

The outlook for U.S. homebuilder stocks is darkening as investors see slowing home sales and skyrocketing prices as a sign the housing boom may fade.

An S&P index of 16 builders had surged nearly 250% between March 2020 and early May as the housing market proved one of the rare bright spots in an economy paralyzed by the pandemic. But the index has slumped about 12% since then, with industry bellwethers DR Horton Inc. and PulteGroup Inc. among the 11 companies that saw double-digit declines.

The retreat came as multiple metrics showed that the real estate market is cooling off. New home sales and housing starts undershot median economist estimates for April and May, while mortgage applications fell to their lowest in more than a year.

With home price surging at the fastest rate in more than three decades, more than half of consumers surveyed by the University of Michigan said in May that it was a bad time to buy a house, the highest share since 1982.

These disappointing housing data prompted analysts to slash ratings and forecasts. DR Horton and TRI Pointe Homes Inc. were downgraded by RBC Thursday on concerns that order growth will slow as backlogs pile up. PulteGroup was cut to neutral last week by Goldman Sachs Group Inc., which cited a lack of upside to the company’s valuation.

“To the extent the data continues to weaken, I think there would be further risk to the stocks,” RBC analyst Mike Dahl said in an interview. The housing market is reaching pricing levels “that in the past have corresponded with a slower demand environment.”

For now, homebuilders are still able to command high prices due to low inventories and rock-bottom mortgage rates. The prices of about 72% of base floor plans were raised in June, according to RBC data, well above 47% last year. Companies including Lennar Corp. are even experimenting with auctions in some areas where demand is outstripping supply.

But BTIG analyst Carl Reichardt said he is telling homebuilders not to be overaggressive. He is “nervous” that builders may end up in a negative feedback loop where builders have to cut prices to retain buyers that are discouraged by ferocious bidding wars.

“We have to make sure the builders don’t kill the goose that lays the golden egg,” Reichardt said in an interview.

Bull-Bear Tussle

Evercore ISI’s Stephen Kim, who labeled himself at the “extreme bullish end” of his peers, disagrees that decelerating home sales indicate a slowdown in demand. Instead, he argued that builders are holding back inventories deliberately even though new homes are needed. The gap between supply and demand is still wide, he said.

Kim expects sales to accelerate by September and sees the recent share-price drops as a buying opportunity. Following the latest round of selling in homebuilder shares, “there isn’t any name that I would say is not worth owning,” he said.

In the long run, the economic recovery, low mortgage rates and millennial buyers may benefit builders, though Reichardt said stock trading is likely to be “choppy” before homebuilders work through their backlogs and fix supply-chain issues.

“Concerns are going to stay with us for a little while,” Reichardt said. “You’re going to have this tussle between long-term bull and short-term bear through the summer and into the fall, which means stocks will be relatively range-bound.”

These Tenants Want Rent Relief. But They Also Want Lasting Change

Renter assistance and affordable housing funds are starting to come through in some parts of the U.S. But some tenants organizations see this as the moment to ask for more.

With the end of a federal moratorium on evictions fast-approaching, some renters are looking beyond immediate relief funds for what they see as more lasting solutions to the U.S. affordable housing crisis.

In California, that means pushing back on the dominance of big landlords; in Missouri, it’s pushing to keep developers and bankers out of the affordable housing decision-making process.

Both examples are an evolution of activists’ movement to cancel the rent at the start of the pandemic in the U.S. last year. With the eviction moratorium expiring at the end of July, state and local governments are racing against the clock to distribute billions of dollars in federal relief funds.

Tenants associations made up of residents in the San Francisco Bay Area and Los Angeles are resisting applying for government rent relief. Instead, they’re asking their buildings’ large property managers — Mosser Living and Veritas Investment — to forgive their rent entirely.

Though some of the members of the tenants associations are thousands of dollars in debt, their fight is about more than just their own rent payments. Their goal is to demand these landlords cover the cost of Covid financial losses, and to make sure public rent relief dollars flow to tenants with landlords who they perceive as unable to forgive rent entirely.

“We’re not just negotiating for ourselves but for the whole city,” says Eric Brooks, who’s been a tenant in a San Francisco property operated by Veritas for 27 years.

California Governor Gavin Newsom has said that the state’s $5.2 billion rental assistance program will cover every eligible renter in need. But some housing advocates say that there could still be thousands who fall through the cracks, particularly in some cities like San Francisco.

Whether or not that will prove to be enough funding, the activists say they are making an ideological argument, not just a practical one: In bailing out tenants, they say, the government shouldn’t also bail out the city’s largest landlords.

The San Francisco Board of Supervisors laid out a similar case in April, when it passed a resolution that urged corporate landlords to step back and let smaller landlords have first dibs on the city’s rent relief funds.

A San Francisco–based company, Veritas oversees some $3.5 billion in assets, including more than 7,000 apartment units, making it one of the largest apartment managers in California. As it contended with Covid layoffs, Veritas went home with $3.6 million in federal Paycheck Protection Program loans while expanding its rental housing portfolio. The company also issued its own moratorium on evictions across its properties.

Veritas has maintained that all of its eligible tenants should apply for government relief. “Veritas residents who are eligible for public funds are just as deserving as other residents throughout the city who are applying for financial relief from hardship caused by the pandemic,” said Jeff Jerden, COO of Veritas Investments, in a statement. “If all state and city funds are expended, we have committed publicly to work with all residents that have remaining past due balances and would have qualified for rental relief under the state’s definition of need to ensure they can stay in their homes.”

A spokesperson from Mosser Living declined to comment.

In addition to state and federal funds, there is additional money newly earmarked for for San Francisco rent relief via a recent ballot initiative, Prop 1.

That funding is sourced from taxes on the city’s most expensive property transfers, which is why the tenants associations say they will reject that, too.

“Our goal would be to prevent those funds from simply circling back to the entities who were taxed in the first place, like Veritas,” said Brad Hirn, the lead organizer of the Housing Rights Committee of San Francisco, who has been working with tenants associations at Mosser and Veritas. “[T]he Prop I funds should benefit small landlords and their tenants.”

Tom Bannon, the CEO of the California Apartment Association, which represents apartment landlords, doesn’t see any grounds for making that distinction, and stresses that only a fraction of California’s multi-billion-dollar fund has been depleted so far.

“If a landlord, large or small, has not been paid rent because their tenants have been impacted financially by Covid, then no matter who you are, you should get the rental assistance, that’s why the dollars are there,” he said.

Kansas City: A Pitch For Tenant-Led Development

In Kansas City, Missouri, a progressive tenants association is pushing for a structural overhaul to a new affordable housing program that would given decision-making authority to tenants instead of banks or investors.

The group, KC Tenants, is pitching a plan for a People’s Housing Trust Fund, essentially a tenant take-over of a nascent city program to fund building and preserving housing for the most vulnerable families. The city’s housing trust fund was established in 2018 but only funded in May, when it was seeded with $12.5 million from the federal American Rescue Plan.

Housing Trust Funds Are Not Novel: The federal government and 47 states, including Missouri, have housing trust funds, which subsidize housing for extremely low income families.

The Missouri Housing Development Commission, which administers the state’s housing trust fund, comprises four elected leaders (including the governor) and six appointed commissioners, all of whom are currently bankers or investors.

Although an advisory committee for the Missouri Housing Trust Fund includes many nonprofit leaders and community advocates, activists with KC Tenants want to see more grassroots representation.

They are calling for a board of renters installed at the helm of the newly funded municipal housing trust fund. They also want the program to be funded by a combination of funds diverted from law enforcement and tax and fee revenue from real estate transactions.

These changes would facilitate other goals for the group: defunding police and taxing gentrification. According to the activists, a People’s Housing Trust Fund would build affordable housing while also drawing resources away from the entities that make marginalized communities more vulnerable.

“We want to make sure that there aren’t developers at the lead or others interested in making profits off people,” says Erin Bradley, a leader with KC Tenants.

All Landlords or Small Landlords?

That anti-corporate sentiment is common among tenant associations and their allies. In California, tenants fighting to stay in their buildings also fear that if the larger property managers are able to weather the storm better than smaller landlords, they’ll gobble up distressed properties and monopolize the city’s rental homes.

Progressive lawmakers often take care to distinguish the need for rent relief for small landlords versus for all landlords. Compared to larger landlords, small landlords are more likely to be people of color, have lower incomes themselves, and be retirees who rely on rental income.

“They’re going to become massive giants in San Francisco,” said Maria Torech, through a Spanish translator, referring to Veritas, her landlord. Since losing her income last March, she’s racked up $30,000 in rent debt.

Another tenant, Mario Perez, said he applied for rent relief to cover unpaid rent accrued when he lost his job at a restaurant.

But based on conversations with the Mosser Tenants Association, he’s ready to withdraw his application, he said through a Spanish translator.

Another consideration for tenants who may lack official documentation is the fear that interacting with a government official, rather than a known private entity, could make them vulnerable to deportation.

Neither tenants association would say publicly how many members they had. The Veritas Tenants Association has been organizing since 2017, with members in “close to 130 buildings in San Francisco, the sole Veritas building in Alameda, several buildings in Oakland, and going on 10 in L.A.,” said Hirn.

Among the dozen tenants CityLab spoke to, three said they’re up to date on payments and aren’t at an immediate risk of eviction. They consider themselves part of the broader push for what they see as a more just and efficient distribution of funds.

The California Apartment Association’s Bannon stresses that large or small, landlords have mortgages and insurance and staff to pay. “How can you ask a landlord to just forgive rent? That doesn’t make any sense.”

Updated: 7-22-2021

The Shortage of Starter Homes Extends Beyond Major Cities

Supply of entry-level housing in U.S. is near a five-decade low, according to research by Freddie Mac.

For first-time buyers looking for starter homes in this year’s hot housing market, a decadeslong trend could further delay this long-awaited money milestone.

The supply of entry-level housing, which Freddie Mac defines as homes up to 1,400 square feet, is near a five-decade low, and data on new construction from the National Association of Home Builders shows that single-family homes are significantly bigger than they were years ago.

Homeowners from previous generations had access to smaller homes at the start of their financial lives. In the late 1970s, an average of 418,000 new units of entry-level housing were built each year, according to data from Freddie Mac. By the 2010s, that number had fallen to 55,000 new units a year. For 2020, an estimated 65,000 new entry-level homes were completed.

“You can really draw a straight line from the 1940s down to the most recent years, which is really striking and also very concerning,” said Sam Khater, chief economist and head of Freddie Mac’s Economic and Housing Research division.

A pre-markets primer packed with news, trends and ideas. Plus, up-to-the-minute market data.

Mr. Khater said he initially expected to see this drop most acutely in historically expensive metropolitan areas such as New York and San Francisco. But looking across the country, he saw that house hunters in many different areas were facing the same problem.

“What was really striking to me was the consistency in the decline in the share of entry-level homes, irrespective of geography,” Mr. Khater said. “The thing that struck me the most was that really, it’s all endemic. It’s all over the U.S. It doesn’t matter where.”

This phenomenon is affecting real estate in 10 of the largest states, according to an analysis from Freddie Mac. In Florida, for example, the share of homes with living area up to 1,400 square feet was 58% of new housing supply in 1985. Thirty years later, the share plummeted to 12%.

Homeownership leads to greater wealth for those who buy earlier. An analysis from the Urban Institute estimates that those who became homeowners between the ages of 25 and 34 accumulated $150,000 in median housing wealth by their early 60s. Meanwhile, those who waited until between the ages of 35 and 44 to buy netted $72,000 less in median housing wealth.

When Kevin Crowder, a 52-year-old homeowner and economic-development consultant, bought his first starter home in 2003, he found a 1,000-square-foot apartment in the Miami area. In 2006, he bought what he said is his largest home ever: a two-bedroom house at 1,250 square feet.

“It’s insane what you see in the single-family market here with the pricing,” he said. “I would disagree that larger is needed. I think smaller is needed.”

Eager buyers have sparked bidding wars in many places, as remote work allows them to expand their house hunts. Further challenges—the crush of the student-loan crisis and ongoing wage stagnation—make it difficult for some to save a competitive down payment.

“We’ve got a record number of entry-level, demand buyers: the millennials coming into the market,” Mr. Khater said. “And yet we’ve had a seven- or eight-year decline in entry-level homes, and that’s not going to change.”

U.S. Median Home Price Hit New High In June

Median price rose to $363,300 as sales increased 1.4% on strong demand.

Continued strong demand pushed the median U.S. home price to a record high in June, though the national house-buying frenzy cooled slightly as supply ticked higher.

Existing-home sales rose 1.4% in June from the prior month to a seasonally adjusted annual rate of 5.86 million, the National Association of Realtors said Thursday. June sales rose 22.9% from a year earlier.

The median existing-home price rose to $363,300, in June, up 23.4% from a year earlier, setting a record high, NAR said, extending steady price increases amid limited inventory.

Separate figures on the labor market showed that the number of people receiving jobless benefits fell to the lowest level since early in the pandemic as states withdrew from participation in federal pandemic relief. First-time applications, meanwhile, rose as supply constraints persisted in the auto industry.

The housing-market boom is easing slightly, as rising prices are prompting more homeowners to list their houses for sale. Homes sold in June received four offers on average, down from five offers the previous month, said Lawrence Yun, NAR’s chief economist.

But the number of homes for sale remains far lower than normal, and robust demand due to ultralow mortgage-interest rates is expected to continue pushing home prices higher.

As more homes come on the market, they are quickly snapped up by buyers, said Robert Frick, corporate economist at Navy Federal Credit Union.

“Demand is trumping everything,” he said. “Higher inventory isn’t going to take the brakes off price increases.”

Many homes are selling above listing price and receiving multiple offers. The typical home sold in June was on the market for 17 days, holding at a record low, NAR said.

Dana Laboy and John Niehaus of Columbus, Ohio, started shopping in February for a house costing $400,000 or less, but they raised their budget after losing out on multiple offers, Ms. Laboy said.

“When we were losing out on houses left and right every weekend for eight weekends in a row, it was very demoralizing,” Ms. Laboy said. “I did not think that we would offer up to $40,000 over and still not get it, like we did in some cases.”

The couple’s rental lease ended in March and they moved in with Mr. Niehaus’s parents while they continued house hunting. They bought a three-bedroom house in June for $447,200.

There were 1.25 million homes for sale at the end of June, up 3.3% from May and down 18.8% from June 2020. At the current sales pace, there was a 2.6-month supply of homes on the market at the end of June.

Market watchers expect the housing frenzy to continue to cool in the coming months, as the number of homes for sale increases and high prices force some buyers out of the market.

“I don’t believe you’ll see the kinds of [price] increases you’ve seen in the last 12 months,” said Sheryl Palmer, chief executive of home builder Taylor Morrison Home Corp. “That’s not sustainable.”

First-time buyers or those who can only afford small down payments are struggling the most to compete. More than half of existing-home buyers in June who used mortgages to buy a property put at least 20% down, according to a NAR survey. Buyers are also making their offers stand out in this competitive market by agreeing to buy houses without contract terms that typically protect buyers, such as inspection requirements.

Alex Wolf and Maggie Jasper bought a two-story home in the Denver suburbs in June after a few months of hunting. Mr. Wolf and Ms. Jasper didn’t waive the home-inspection requirement in their offers, which made it harder to compete.

“I’m not willing to take on quite that much risk,” Mr. Wolf said. “We had a lot of things working against us, so we got really lucky.”

Existing-home sales rose the most month-over-month in the Midwest, up 3.1%, and in the Northeast, up 2.8%.

Sales were especially strong at the high end of the market. Sales of homes that were priced at more than $1 million more than doubled in June compared with a year earlier, according to NAR.

Building activity has increased due to the strong demand, but home builders are limited by labor availability, land supply and material costs. A measure of U.S. home-builder confidence declined in July, the National Association of Home Builders said this week.

Housing starts, a measure of U.S. home-building, rose 6.3% in June from May, the Commerce Department said earlier this week. Residential permits, which can be a bellwether for future home construction, fell 5.1%.

News Corp, owner of The Wall Street Journal, also operates Realtor.com under license from the National Association of Realtors.

Updated:7-26-2021

New Aid Coming For Mortgage Borrowers At Risk Of Foreclosure

Biden administration aims to reduce monthly payments by up to 25% for those with federally backed mortgages who are at the end of forbearance.

Borrowers who fell behind on their mortgages during the Covid-19 pandemic and continue to face economic hardship will get help from a Biden administration program announced on Friday, a bid to prevent a sharp rise in foreclosures over the coming months.

The program would allow borrowers with loans backed by the Federal Housing Administration and other federal agencies to extend the length of their mortgages, locking in lower monthly principal and interest payments. About 75% of new home loans are backed by the federal government, according to the Urban Institute.

Friday’s changes are aimed at homeowners who took advantage of so-called forbearance programs that allowed them to skip monthly payments for up to 18 months, but who can’t resume making those normal payments as that relief begins to expire.

Adding new modification options for struggling homeowners is “an important additional step to give people the opportunity to stay in their homes after they had a hardship during the pandemic,” said Bob Broeksmit, president and chief executive of the Mortgage Bankers Association.

About 1.55 million homeowners are seriously delinquent—meaning they haven’t made mortgage payments in at least 90 days, according to the mortgage-data firm Black Knight Inc. These borrowers, the bulk of whom have forbearance plans, may be most at risk of foreclosure in the coming months. They represent about 2.9% of the 53 million active mortgages, down from a high of about 4.4% in August and September 2020.

Borrowers who entered into forbearance plans early in the pandemic will begin to exit those plans in September and October, when Black Knight forecasts that about a million borrowers will still be seriously delinquent. Meanwhile, a national foreclosure ban is set to expire July 31.

Friday’s changes are the latest move by the Biden administration to prevent a repeat of the wave of foreclosures that followed the 2008-09 financial crisis. The Consumer Financial Protection Bureau last month completed rules that restrict mortgage lenders from foreclosing on a property this year without first contacting homeowners to see if they qualify for a lower interest rate or some other loan change that makes it easier to repay.

The changes aim to reduce monthly payments by up to about 25%, an administration official said, adding they are designed to align with modification options already offered by Fannie Mae and Freddie Mac, the government-controlled mortgage companies.

“If a reduction in monthly costs helps keep that borrower in their home until they are back on their feet, then it is a win for the borrower, policy makers, and Uncle Sam, as he owns the credit risk,” said Isaac Boltansky, director of policy research at Compass Point Research & Trading, which serves large institutional investors.

Many of the borrowers who are still postponing payments have FHA loans and typically have lower incomes and make smaller down payments than people with other government-backed loans, such as those guaranteed by Fannie Mae and Freddie Mac. Job losses during the pandemic have disproportionately affected low-wage workers, including employees of restaurants, hotels and shopping malls devastated by the stay-at-home economy.

The mortgage assistance is a small part of the multitrillion-dollar federal effort to help people and businesses withstand the economic impact of the Covid-19 pandemic, which included supplemental jobless benefits, grants to airlines, forgivable loans to small businesses and direct payments to households. Supporters say the mortgage relief is unlikely to encourage irresponsible borrowing.

“People don’t enter into mortgage borrowing with the notion that they can’t afford the payment,” Mr. Broeksmit said.

A separate, $47 billion federal program is aimed at helping tenants who can’t pay rent because of the Covid-19 crisis. State and local governments are struggling to distribute the money, however, leaving many people at risk of being thrown out of their homes when an eviction moratorium expires on July 31.

Research since the 2008-09 financial crisis has found that deferring mortgage payments, reducing interest rates or extending the term of mortgages—and thus reducing the monthly payments—are effective ways to aid homeowners short on cash.

Updated: 8-11-2021

Covid-19 Rent-Relief Program Marred by Delays, Confusion, Burdensome Paperwork

Treasury counts on more than 450 state and local governments and agencies to distribute nearly $47 billion in aid.

More than seven months after it was launched, the biggest rental assistance program in U.S. history has delivered just a fraction of the promised aid to tenants and landlords struggling with the impact of the Covid-19 crisis.

Since last December, Congress has appropriated a total of $46.6 billion to help tenants who were behind on their rent. As of June 30, just $3 billion had been distributed, though a senior official said the Biden administration hoped at least another $2 billion had been distributed in July.

While the program is overseen by the Treasury, it relies on a patchwork of more than 450 state, county and municipal governments and charitable organizations to distribute aid. The result: months of delays as local governments built new programs from scratch, hired staff and crafted rules for how the money should be distributed, then struggled to process a deluge of applications.

Often, tenants and landlords didn’t know money was available, and many of those who did apply had to contend with cumbersome applications and requests for documentation.

“It’s a recipe for chaos,” said David Dworkin, president and chief executive officer of the National Housing Conference, a Washington, D.C., affordable housing advocacy group. “And that’s what we’ve got.”

The program offers a contrast to other federal aid programs. For example, the Internal Revenue Service started sending $1,400 stimulus payments to American households on March 12, the day after President Biden signed Covid-19 relief legislation. A week later, the IRS said it had made 90 million direct payments totaling $242 billion—more than half the total amount authorized.

Data released by the Treasury Department shows that rental aid has begun to move faster, with more money distributed in June than in the previous three months combined. The Treasury is expected to release data for July around the middle of this month, according to administration officials.

The genesis of the program dates to the early months of the pandemic. In May 2020, Democrats in Congress proposed $100 billion in aid for the growing number of tenants who were out of work as a result of the pandemic and unable to pay rent—an amount that was later cut by more than half.

Democrats wanted the Department of Housing and Urban Development to oversee the program because it had experience distributing housing funds through an existing network of local partners. Republicans felt the Treasury would deliver the money faster, said Diane Yentel, president and CEO of the National Low Income Housing Coalition. Either way, grants would be disbursed on the state and local level.

Then-President Donald Trump signed the bill appropriating the first $25 billion in December. In March, Congress appropriated another $21.6 billion.

The program’s rollout was slow from the start. The New York state Legislature, for example, didn’t create a program to distribute the $2.7 billion allocated to the state until April, and the state didn’t open applications until June.

Tight screening requirements added to delays, housing advocates and attorneys said. Some local officials also said the initial guidelines from the Treasury during the final days of the Trump administration were unclear or confusing.

Tenants had to provide extensive paperwork to demonstrate need. That included apartment leases, documents to show job loss or loss of income, income levels for the previous year and proof of other benefits they might receive from the government. Many tenants were unable to comply because they didn’t have formal leases or earned cash wages.

Some programs reported being overwhelmed with applications or lacked the staff and resources to process them efficiently. Texas, for example, started with about 100 staff but eventually increased the number to more than 1,500, including contractors. Dozens of other programs have also turned to contractors for help.

Many tenants said they didn’t know they were eligible for aid or filled out forms incorrectly. In Texas, which has distributed more aid than many other programs, contractors began a mass text-messaging campaign this spring to reach people who may have mistakenly disqualified themselves when filling out applications.

Some landlords didn’t want to participate in the program, according to tenants, attorneys and local officials. Some landlords were unwilling to agree to temporarily not pursue future evictions against a tenant as a condition of receiving assistance. In Jefferson Parish, La., for example, landlords negotiated a proposed 90-day eviction ban down to 45 days.

Other landlords didn’t want to share required tax information. Many tenants, meanwhile, failed to complete forms or lacked access to computers and internet connections needed to complete applications.

The Treasury Department, under Mr. Biden, released new guidance in late February and again in the spring, among other things, to encourage local programs to pay money directly to tenants in certain cases, instead of just to landlords.

The guidance also encouraged programs to cut down on documentation required of tenants and landlords both. The new guidance allowed tenants to self-attest their need or allowed programs to use proxies in place of proof of earnings, such as the median income in areas where applicants lived.

Many programs ignored the guidance, research from the National Low Income Housing Coalition shows. As of August, only 1 in 4 were handing money directly to tenants. Just over half now allow some form of self-attestation from tenants instead of documents alone.

Many local governments were concerned that loosening the rules would expose them to fraud or charges they had squandered federal money.

Liz Bourgeois, a Treasury spokeswoman, said the department’s new guidance is helping boost the flow of money to renters and landlords. Tools to reduce paperwork, such as self-attestation, are “a common practice across federal and state programs and consistent with responsible management,” she said.

For now, tenants are protected by a national eviction moratorium, which has been extended five times and is now set to expire on Oct. 3.

Landlord groups are contesting the moratorium in federal court, saying the Centers for Disease Control and Prevention exceeded its authority when it first imposed it last September under Mr. Trump. Some states, including New York and California, have imposed their own moratoriums.

Meanwhile, many tenants are falling further behind on rent, and many landlords are being squeezed because they must continue to pay taxes, maintenance costs and other expenses.

“I think we need to rethink our model that we’ve put together here, because I don’t think the model is working as effectively as it could,” said Bob Pinnegar, president and CEO of the National Apartment Association, a landlord trade group.

Updated: 8-19-2021

Landlords From Florida To California Are Jacking Up Rents At Record Speeds

Soaring prices. Competition. Desperation. The dramatic conditions for U.S. homebuyers during the past year are now spilling into the market for rentals.

Landlords from Tampa, Florida, to Memphis, Tennessee, and Riverside, California, are jacking up rents at record speeds. For each listing, multiple people apply. Some renters are forced to check into hotels while they hunt after losing out too many times.

“Any desirable rental is going within hours, just like the desirable sales,” said Shannon Dopkins, a Realtor in Tampa. “One woman passed on a place that was beat up with water damage. Somebody else decided to rent it.”

After weakening early in the pandemic as the economy faltered and young people rode out lockdowns with family, the rental market is now seeing record demand. The number of occupied U.S. rental-apartment units jumped by about half a million in the second quarter, the biggest annual increase in data going back to 1993, according to industry consultant RealPage Inc. Occupancy last month hit a new high of 96.9%.

Rents on newly signed leases surged 17% in July when compared to what the prior tenant paid, reaching the highest level on record, according to RealPage.

High Cost Of Renting

Costs For New Leases Skyrocket As Apartment Hunting Gets Competitive

The gains reflect competition for a resource that’s getting ever-more difficult to obtain: somewhere to live. With prices soaring in the for-sale market, and bidding wars proliferating, would-be buyers on the losing end are being forced back into rentals.

At the same time, young Americans looking for their first apartment are competing with others who delayed plans because of Covid-19. Remote workers — and their high paychecks — are on the move to lower-cost areas. And small single-family home and condo landlords, tempted by high prices, are cashing out, leaving their tenants desperate for another place.

“The entire housing market is on fire, across the board from homeownership to rental, from high-end to low-end, from coast to coast,” said Mark Zandi, chief economist for Moody’s Analytics. “It’s a basic need but it’s increasingly out of reach.”

Eviction bans also are playing a role in keeping the market tight, because about 6% of tenants are normally forced to vacate each year. Zandi estimates the country’s shortage of affordable rentals is the worst since at least the post-World War II period.

Developers are adding new supply. But in the short run, the squeeze will have economic consequences because workers can’t easily move for jobs and will have less to spend on things other than housing. Soaring rental costs also are a contributor to the Federal Reserve’s inflation expectations.

They may not yet be accurately reflected in some measures. Owners’ equivalent rent of residences, which makes up almost a quarter of the consumer price index, rose 2.4% in July from a year earlier. That figure “lags the reality” because it’s based on a survey of homeowner expectations about what their home would rent for, Zandi said.

Nowhere To Go

Rents are rising most for those who sign new leases. But even people renewing them are getting sticker shock. Carmen Santiago, a dental assistant who was paying $1,479 a month for a two-bedroom apartment in Tampa, gave notice to her landlord in March after the rent jumped by $300.

The mother of two then racked up more than $1,000 on non-refundable application fees that she handed to about 10 landlords, sometimes getting in line without even seeing the properties first. A couple days before her lease expired in June, Santiago took a last-ditch drive. She visited five apartment complexes, all filled. The sixth, a vast complex with 22 buildings, had one unit available.

The two-bedroom cost more than $1,900 a month, including a mandatory cable bill — more than Santiago would have paid if she renewed her old lease. She could hardly afford it but took it before it was gone.

“I didn’t know how hard it was to find something,” Santiago said. “Looking back, maybe I should have stayed.”

Dopkins, the Tampa rental agent, said she recently represented a woman who had to shelve her plans to move there for her job. After exhausting her relocation package on rental-application fees, the client is now planning to commute two-and-a-half hours from her home in Ormond Beach, Florida, and maybe stay in an Airbnb or hotel room in Tampa once or twice a week.

The soaring demand is most pronounced in Sun Belt cities that have seen an influx of arrivals from the pandemic. The Phoenix area had the country’s biggest increases in rents for single-family houses in June, with an almost 17% surge from a year earlier, according to data released this week from Corelogic. It was followed by Las Vegas, with a 12.9% gain; Tucson, Arizona, at 12.5%; and Miami, up 12.4%.

It’s a reversal from the pre-pandemic norm of tight housing in denser, pricier cities — places such as New York, Boston and San Francisco, which saw office workers flee during lockdowns. Those areas still have an overhang of inventory of high-end apartments aimed at white-collar professionals. Still, demand is picking up.

Higher Incomes

Renters now crowding the market have higher salaries, in part, because many of them, in normal times, would be buying homes instead. Migration away from the pricey locations also is driving up housing costs for locals, especially those in more affordable cities and in far-flung suburbs.

The average income for new lease signers in July hit a record of $69,252, according to RealPage, which captured data for professionally managed buildings. Year-to-date, their incomes shot up 7.5%.

“It’s always been hard to find a home if you have limited income,” said Jay Parsons, deputy chief economist for RealPage. “What’s crazy now is you can have a relatively high income and still have a hard time.”

Nicolle Crim, vice president of Watson Property Management’s Central Florida division, says she wished she had more to offer. But the for-sale market is so strong that owners are selling for big profits. As a result, Watson now manages about 4,000 single-family home rentals for individual owners, down by a third since the pandemic began, she said.

Even relatively sleepy areas such as Springfield, Illinois, three hours from Chicago, are experiencing shortages.

Landlord Seth Morrison said his only apartment listing attracted a couple dozen calls before he took it down.

“We have 270 units and we don’t have any open,” Morrison said. “In a city like Springfield, in a state like Illinois, to have this sort of demand is just crazy.”

Updated: 8-20-2021

Rising Rents Pose Risks To The Fed’s Inflation Outlook

Housing costs play an important role in inflation, which means that higher rents could put pressure on the Fed to raise interest rates.

The biggest wildcard for U.S. inflation over the next year doesn’t come from used cars or airline fares. Instead, it is housing.

Officials at the Federal Reserve and the White House have highlighted what many forecasters expect will be the temporary nature of elevated price readings stemming from the reopening of the economy following pandemic-related restrictions.

But the degree to which 12-month inflation readings fall back to the central bank’s 2% goal could rest on the behavior of rents and home prices. In recent months, housing-cost trends point to more persistent, rather than transitory, upward price pressures in the coming years.

Core inflation, which excludes volatile food and energy costs, rose 3.5% in June from a year earlier, according to the Fed’s preferred gauge, the personal-consumption expenditures price index. That was the highest rate of growth in 30 years. Rising prices over the April-to-June quarter largely reflected disrupted supply chains, temporary shortages and a rebound in travel—trends that came ahead of the latest virus surge caused by the Delta variant of the Covid-19 virus.

Economists at Goldman Sachs Group Inc. estimate that travel and other supply-constrained categories have added 1.2 percentage points to core inflation this year, and they forecast those contributions should wane to around 0.6 percentage point by the end of the year.

Contributions from rising rents and home prices could partially offset anticipated declines. In a June report, economists at Fannie Mae said they expected the rate of shelter inflation to pick up from around 2% in May to 4.5% over the coming years—and higher still, if house-price growth doesn’t cool off soon.

They forecast that by the end of 2022, housing could contribute 1 percentage point to core PCE inflation, the strongest contribution since 1990, and they forecast core inflation slowing to just 3% by then.

Housing inflation is important because it accounts for a hefty share of overall inflation—around 18% of core PCE inflation, and around one-third of a separate inflation gauge, the Labor Department’s consumer-price index.

Fed officials have held interest rates near zero since March 2020, at the beginning of the pandemic, and they are purchasing $120 billion per month in Treasury and mortgage-backed securities to provide additional stimulus. Just how fast and how far inflation falls back towards the Fed’s target one year from now could weigh heavily on how long to leave interest rates at zero.

Growth in rents slowed sharply during the pandemic as people stayed put or doubled up with family. Residential rents rose 1.9% over the 12 months through June, about half of the rate of growth seen in February 2020.

Before the pandemic hit, “we were treading water,” said Ric Campo, chief executive of Camden Property Trust, which owns and manages 60,000 apartment homes across 15 U.S. markets. Landlords lost any pricing power during the pandemic, as vacancy rates jumped.

But that began to change earlier this year as demand for new leases soared. “In March, it was like a light switch went off,” said Mr. Campo. “We have significant pricing power that we did not have a few months ago.”

Invitation Homes Inc., the largest single-family landlord in the U.S., raised rents by 8% in the second quarter, including 14% on leases signed by new tenants. Invitation reported occupancy of more than 98%, an extremely tight market.

Home prices, on the other hand, never missed a beat. They surged during the pandemic, boosted by a combination of low mortgage rates, pandemic-driven changes in home preferences, favorable demographics and low inventories of for-sale homes. Prices rose 16.6% in May from one year earlier, according to the S&P/Case-Shiller U.S. national home price index, up from around 4% in the year before the pandemic.

Government agencies don’t take soaring home prices directly into account when calculating inflation because they consider home purchases to be a long-lasting investment rather than consumption goods. Instead, they calculate the imputed rent, called owners’ equivalent rent, of what homeowners would have to pay each month to rent their own house.

Owners’ equivalent rents, which rose around 3.3% before the pandemic hit, cooled earlier this year, rising just 2% in the 12 months ended April.

Those measures tend to lag movements in home prices because leases are set for a year. The upshot is that leases signed one year ago, when landlords weren’t expecting to have much pricing power, are now coming up for renewal. As landlords pass along higher rents, annual inflation measures should soon start to pick those up.

“As the labor market improves and we have higher income and more household formation, that’s a lot of potential strength in rental inflation and in shelter inflation more broadly,” said James Sweeney, chief economist for Credit Suisse.

Even if recent eye-popping rates of rental increases can’t be sustained, housing analysts and executives see continued strong growth. Property tax increases from rising home values, for example, could be passed onto renters. Higher home prices could prevent more would-be buyers from becoming owners, which may keep pressure on rents.

Some of the housing market’s challenges reflect anemic new-home building that followed the 2008 bust. “We destroyed three-quarters of the supply chain, and a lot of resources left the business at the same time millennials were starting to emerge,” said Doug Duncan, chief economist at Fannie Mae. The result has been a shortage of houses and apartments in the places where many people want to live.

The pandemic, meanwhile, fueled new demand for housing. A recent study by Fed economists found that new for-sale listings would have had to expand by 20% to keep price growth at pre-pandemic levels.

A majority of economists surveyed by The Wall Street Journal in July projected inflation would decline to at least 2.2% by the end of 2022. If the conventional wisdom among professional forecasters about inflation proves wrong, housing would be a big reason why.

Updated: 8-25-2021

Only A Fraction Of Covid-19 Rental Assistance Has Been Distributed

Just $4.7 billion of almost $47 billion appropriated by Congress had reached tenants and landlords through July.

The U.S. program to help tenants and landlords struggling with the impact of the Covid-19 pandemic is still moving at a slow pace and has delivered a fraction of the promised aid, data released by the Treasury Department on Wednesday show.

Since December, Congress has appropriated a total of $46.6 billion to help tenants who were behind on their rent. As of July 31, just $4.7 billion had been distributed to landlords and tenants, the Treasury said.

Wednesday’s data show that rental aid has begun to move faster in some states, though July’s $1.7 billion reflected only a modest overall increase from the $1.5 billion distributed in June.

Administration officials acknowledge the program has moved too slowly relative to the need. Still, they say it has provided nearly one million payments to households, including about 341,000 in July alone—an indication that it has provided meaningful relief to struggling tenants.

While 70 jurisdictions had distributed more than half of their initial allotment of rental assistance by the end of July, “too many grantees have yet to demonstrate sufficient progress in getting assistance to struggling tenants and landlords,” the Treasury said in a blog post accompanying the release of Wednesday’s data. Hundreds of thousands of aid applications are in the pipeline beyond those that have already been paid, Treasury said, citing public dashboards.

To allow for more time to distribute the money, the Biden administration this month extended a federal eviction moratorium until at least Oct. 3. It had expired at the end of July and had previously been extended several times.

The moratorium has protected millions of tenants but created financial hardships for some landlords unable to collect rental income they rely upon for their own livelihoods. Several states, including California and New York, have imposed their own eviction bans.

In June, the Supreme Court, on a 5-4 vote, declined to lift the national eviction moratorium, but Justice Brett Kavanaugh suggested the court wouldn’t look favorably on another ban if it weren’t approved by Congress.

A federal judge on Aug. 13 allowed the revived moratorium to remain in place, saying she didn’t have authority to block it despite misgivings about its legality. A group of property managers and real-estate agents who lodged legal objections to the new ban the day after it was imposed asked the Supreme Court last week to block the latest moratorium. A decision is expected in the coming days.

Tenant advocates and others involved in distributing the aid say demand for affordable housing has been elevated for years and intensified during the pandemic.

Joshua Pedersen, senior director of United Way Worldwide’s 211 hotline telephone service, said it connected about 6.1 million callers to housing and utility resources in 2020, up 20% from 5.1 million the year before. He said demand tends to surge whenever there is a change in the status of the eviction moratorium.

Biden administration officials have prodded states and localities to move faster to distribute rental assistance, issuing guidance intended to reduce documentation for tenants and landlords and expedite approvals. On Wednesday, the Treasury released additional guidance meant to further reduce processing delays.

The administration has also highlighted jurisdictions that have succeeded in distributing more aid than many other programs.

Treasury officials last week pointed to steps taken by Prince George’s County, Md., to distribute the bulk of its $27 million. The county is beginning to distribute assistance directly to tenants in cases where landlords aren’t willing to participate in the application process. All eviction notices also now include information about applying to the rental-assistance program.

But other programs are lagging, including some large ones. The program run by the Florida state government was awarded about $1.6 billion in aid, but distributed less than $20 million through the end of July, according to the Treasury.

However, several local programs in that state, such as the one run by Miami-Dade County, distributed much larger shares of their funding, Treasury figures show. A spokeswoman for the Florida program said it had distributed more than $31 million as of Aug. 24. The spokeswoman said more than 25% of tenant applications still lack sufficient information to be approved.

The state of New York said this week it had distributed more than $200 million of its more than $2 billion in available assistance and still has a backlog of more than 100,000 applications.

Emmanuel Yusuf, 77 years old, is a retired photo technician in Bronx, N.Y. He is eight months behind on rent and mostly lives on Social Security assistance, he said. Before the pandemic, he made extra money taking tourist photos in Times Square.

Mr. Yusuf said he applied for rental assistance more than six weeks ago, but has yet to be approved. “When we have funding and somebody is just sitting on it, it blows my mind,” he said.

The New York program requires both tenants and landlords to submit separate applications. Verifying both ends has been an often complicated and time consuming task, a spokesman for the program said.

The program has provisionally approved 46,000 tenants for aid, but it could be weeks before those tenants’ applications are matched with documents sent by their landlords and money is paid out. The state added 350 more staff members to handle the load.

“We will continue to make extraordinary efforts to ensure New York’s program provides more timely assistance,” said Michael Hein, commissioner of the state office that is running New York’s rental-aid program.

Updated: 9-11-2021

Real Estate ‘Love Letters’ Spark Concern Over Racial Bias

Home buyers’ personal notes to sellers offer an emotional appeal in a competitive market—but could cause sellers to run afoul of fair housing rules.

When Christina and Alexander Vaughan looked to buy a home this spring, the first open house they attended drew more than 20 families. The couple ultimately bid on three homes, losing on each one.

On their fourth offer, for a four-bedroom house in Fishers, Ind., they wrote the sellers a personal letter. They were first-time buyers, the letter said, and it noted that Mr. Vaughan and one of the sellers both attended Purdue University. Their offer was accepted over higher competing bids.

“Because that was their first home, they wanted to give it to somebody else” who would be a first-time homeowner, Mr. Vaughan said of the rationale the owners gave.

Prospective buyers for years have penned these personalized notes—affectionately known as “love letters”—to introduce themselves to a home seller and make an emotional appeal. The letters can provide the buyer a competitive edge, and rarely has the U.S. housing market been more competitive than it is today.

But in recent months, love letters have come under greater scrutiny for possibly enabling discrimination. Some worry that a seller could violate the federal Fair Housing Act by choosing a buyer based on a protected class, such as race, religion or nationality. The law includes seven protected classes, and some states and localities have additional protected categories.

The National Association of Realtors put out guidance in October recommending that its members not draft, read or deliver love letters written or received by clients. Some state Realtor associations have also put out similar guidance, including in California, Arizona and Ohio.

Typically, home sellers who receive multiple offers choose a buyer based on offer price and contract terms. Love letters can give the sellers additional information about a potential buyer’s identity, including race or whether a buyer has children. The risk for a seller is that they could exercise explicit or implicit bias by choosing a buyer based on this information, violating fair housing rules.

In June, Oregon became the first state to pass a law requiring sellers’ agents to reject love letters and photographs provided by buyers.

“It’s a discriminatory practice that needs to be addressed,” said Oregon state Rep. Mark Meek, who proposed the law and works as a real-estate agent. “A lot of sellers make decisions off of these letters, but is it right?”

The reassessment of love letters is part of a broader effort within the real-estate industry to combat a history of discrimination and increase homeownership rates for nonwhite households. White households in the U.S. had a homeownership rate of 74.2% in the second quarter, compared with 47.5% for Hispanic households and 44.6% for Black households, according to the Census Bureau.

NAR’s president apologized in November for the organization’s past policies that contributed to residential segregation, such as allowing members to be excluded based on race. The Department of Housing and Urban Development has also made fair housing a priority under the Biden administration. HUD and the Federal Housing Finance Agency formed an agreement last month to share resources related to enforcing fair housing rules.

Bryan Greene, vice president of policy advocacy for NAR, said he isn’t aware of any lawsuits against home sellers or complaints filed with HUD alleging discrimination based on a love letter.

“It would be very difficult for any consumer to prove they were denied housing because someone else sent the seller a love letter,” he said. “It’s certainly possible, but it’s not necessarily something that the law can get to.”

Some agents say love letters can help buyers who don’t have enough cash to beat out other offers but have a compelling story, especially first-time buyers. Agents also say it’s possible to write a love letter that focuses on the property and avoids sharing information that could bias a seller.

While love letters have been part of the home-buying process for years, some agents say they have become more prevalent in the current red-hot market. Letters often focus on why the buyer loves the property, or offer details about the buyer’s family and lifestyle. Some send photos or personalized videos after touring a house and try to emphasize a common bond, like a shared love of dogs or Harry Potter.

“The more competitive the market, the more common the letter,” said Beth Traverso, managing broker at Re/Max Northwest Realtors, who said at least half the offers she receives include letters. Ms. Traverso, who is based outside of Seattle, said she shares the letters with sellers but recommends they don’t read them.

A 2018 study by brokerage Redfin Corp. showed that a personal letter could make an offer 52% more likely to be accepted.

Others found that cash speaks louder than words. Letters were the least effective tactic for buyers, behind financial strategies like increasing the down payment or offering a bigger deposit up front, according to real-estate agents surveyed this spring by Zillow Group Inc.

Agents say that while sellers put financial considerations first, letters can still tilt their decision-making when choosing among similar offers. “If they didn’t work, they wouldn’t be used,” said Seth Task, president of the Ohio Realtors, who opposes love letters.

News Corp, owner of The Wall Street Journal, also operates Realtor.com under license from the National Association of Realtors.

Updated: 9-17-2021

Rust Belt City’s Pitch For A Hot Housing Market: Free Homes

The mayor of Monessen, Pa., is trying to reverse the city’s long decline by giving away vacant homes to people willing to fix them up.

Houses are more expensive than ever. Matt Shorraw is giving them away for free.

Mr. Shorraw is the mayor of Monessen, Pa., a small city set in a curve of the Monongahela River, which has hundreds of vacant homes. Many of them are in disrepair and have accrued thousands of dollars in back taxes. Property values are low. It is easier for owners to walk away than to sell.

So Mr. Shorraw extended an open invitation earlier this year: Find a vacant house in Monessen—not difficult considering they make up about 10% of the properties. Track down the owner and ask her to sign the place over. Many are happy to wash their hands of the house and the back taxes. Mr. Shorraw’s administration will clear the taxes if the new owner commits to giving the house a face-lift.

“It’s like hitting the reset button for these properties,” said Mr. Shorraw.

Roughly 1.3 million houses, or 1.4% of U.S. properties, are vacant, according to Attom Data Solutions, a real-estate data firm. Some long-neglected areas are riding the housing boom’s coattails. Mr. Shorraw is betting that the same thing can happen in Monessen, and that the lure of free homeownership can help reverse decades of disinvestment.

Monessen’s home values have risen 21% over the past year, but the city has a long way to go. A typical home in the city is worth around $80,000, roughly a quarter of the typical home value nationally, according to Zillow Group Inc.

Other cities facing hard times have turned to a similar playbook over the past half-century. Land banks like the one in Detroit have been auctioning off vacant homes for years at rock-bottom prices. Buffalo, N.Y., and Gary, Ind., have tried selling them for basically nothing. Struggling villages in Italy have tried to lure foreigners by auctioning abandoned homes for about a dollar.

It can be tough to revive a local economy when the housing stock is in disrepair. At the same time, it is challenging to attract investment to the homes unless the area is already an economic draw for residents.

“It always comes back to economics,” said Alan Mallach, a senior fellow at the Center for Community Progress, who focuses on the revitalization of cities and neighborhoods. “Do enough people want to live in this place to make it work?”

It often costs more to rehab run-down homes than many new owners expect, he added.

Monessen, about an hour south of Pittsburgh, was once a vibrant steel town. But the factories have been shut for decades. The city’s population has dwindled to just over 7,000.

The city picked up a reputation for gangs and drugs, Mr. Shorraw said. Some sidewalks went almost 50 years without being replaced. The volunteer fire department now has to fundraise for new equipment.

In 2016, Donald Trump, then a Republican presidential candidate, used Monessen as a backdrop when he promised to bring back American manufacturing. The factories haven’t returned, but Mr. Trump’s appearance led Mr. Shorraw, now 30, to run for mayor. Mr. Shorraw, a Democrat, was elected in 2017 and is near the end of his four-year term.

He is a local history buff who grew up in town with his grandparents and watched as the last of the steel industry left. Before his political career, he worked odd jobs, and continues working as the assistant band director at Monessen High School.

So far, his program has found new owners for about four dozen residential and commercial properties, he says. Demand has been split between investors and owner-occupiers. Monessen requires new owners to spend three times the back taxes that the city forgives on rehab.

The city also requests the school district and county to clear their own unpaid taxes, which they have generally done, according to John Harhai, the city administrator.

Mr. Shorraw has worked his personal connections to make some transactions happen. His second cousin, Jenna Sivak, is one of the new owners. She grew up nearby in Belle Vernon and now lives in Pittsburgh, though her grandparents are from Monessen. With Mr. Shorraw’s encouragement, she took a spin through the city and found a Victorian that was more than 100 years old.

Just getting into the house was tough. There was no key, so she got permission from the owner to climb in through a second-floor window. “It looked like a tornado had gone through,” Ms. Sivak said.

But she liked the house, and the price was right. The owner agreed to sign it over if Ms. Sivak handled the details. Michelle Walpole, the previous owner, said she and her family left the house in 2018 to move to Tennessee.

The tax bills never reached their new home and back taxes accrued, she said, which complicated her own efforts to buy earlier this year. She messaged the mayor on Facebook, offering to give away the house.

The city completed the transfer in the spring. Now Ms. Sivak is doing the demo work herself. She peeled back the 1970s décor to reveal two hidden fireplaces, tiling and hardwood floors.

Mr. Shorraw hopes that the remote-work boom, and the migration it has spurred across the country, will be a draw for those considering Monessen. The city has a walkable downtown, empty buildings and all. Hiking and white-water rafting are a short drive away.

But there’s no convenient public transportation into Pittsburgh, which makes it a tough sell as a bedroom community. To become an economic magnet once again, the city needs jobs. “That’s the missing piece to the puzzle,” Mr. Shorraw said.

That may be up to the next mayor. In the spring, Mr. Shorraw lost the Democratic primary that typically decides who will be mayor. He is launching a write-in campaign while also preparing for a loss, pushing through as many transactions as he can before this term ends in January.

Ron Mozer, who won the primary, said he approves of transferring ownership of the homes, but that there are better approaches to clearing back taxes and liens.

Maria Marquez picked up one of the vacant houses. She arrived in the area after Hurricane Maria forced her to leave her home in Puerto Rico and now works as a nurse’s aide. She went looking for houses after she saw one of Mr. Shorraw’s Facebook posts.

She found a three bedroom that she thought would be a good fit for her family of five and reached out to the owners.

Geno Sedlak and his four sisters had been owners of the house since their mother died in 2013. None wanted to live there, and they never went to the trouble of selling, Mr. Sedlak said. Unpaid taxes accrued. The siblings agreed to give the house to Ms. Marquez.

Ms. Marquez asked her contractor to put in about $10,000 worth of work to start, and she will save up to finish the rest. She estimates it will cost about $25,000 all told.

Mr. Shorraw is savoring the small signs of progress.

“It’s nice to see a neighbor buy a house and all of a sudden the grass is cut,” he said.

Updated: 9-17-2021

Berlin Buys Apartments For $2.9 Billion To Quell Housing Anger

Berlin agreed to buy 14,750 apartments from Germany’s two biggest landlords for 2.46 billion euros ($2.9 billion) as public pressure to counter rising rents intensifies.

Vonovia SE and Deutsche Wohnen SE are selling the units as part of their effort to merge. The deal includes a commitment from the two companies to limit rent increases until 2026 and build 13,000 new apartments to try to address a housing shortage and ease public concerns about rising living costs.

“The return to municipal ownership gives tenants the necessary security that their apartments will be permanently in the low-cost segment,” Matthias Kollatz, the city’s senator for finance, said Friday in an emailed statement.

“We are buying with care,” he said, adding that the three Berlin real-estate companies that will take on the properties “are in very good shape and able to successfully manage the purchase.”

The combination of Vonovia and Deutsche Wohnen to create a housing giant with more than 500,000 residential units across Germany is being closely watched in Europe’s biggest economy, which has a larger share of tenants than in most other developed nations.

Affordable housing has become a hot-button political issue and particularly in the once-cheap capital. Surging rents in Berlin have sparked mass demonstrations and spurred a referendum seeking to force the city to expropriate large landlords.

The vote on the non-binding measure will take place on Sept. 26, the same day as the national and Berlin elections. Most political parties have vowed to try to control rent increases across the country, with the main focus on building more housing.

What Bloomberg Intelligence Says…

“Timing the proposed deal during a key election year — and with various politicians proposing to restrain rent rises — seems controversial. Yet the two landlords have hedged their future by engaging early with key stakeholders.”

Berlin is particularly exposed to the issue because much of its social housing was sold in the aftermath of reunification. The city’s population growth stemming from its emergence as a startup hub has created a squeeze and attracted investors.

Vonovia Chief Executive Officer Rolf Buch said the deal announced Friday will create “more affordable, needs-based and climate-friendly living space, especially for young families.”

“We will only solve the challenges on the Berlin housing market together with politicians and urban society,” he said in an emailed statement.

Organizers of the Berlin referendum said the deal shows its concept can work to restore balance in the housing market, but criticized the price and how the transaction was negotiated.

“Berlin needs transparent and affordable socialization and not gifts for real-estate companies hashed out in a back room,” said Moheb Shafaqyar, a spokesman for the referendum organizers.

Updated: 9-18-2021

The Biggest Mistakes Home Buyers And Sellers Make

It’s the largest investment many people will ever make—and the most emotional one. That can be a bad combination.

When people say they “fell in love with a house,” they would do well to remember another common saying: Love is blind.

Overcome by strong emotions, potential buyers of the biggest investments of their lives overlook things like a lousy view, choppy floor plan or ancient mechanical systems. Likewise, would-be sellers are often so eager to sell—or so in love with the homes they’re leaving—that they are blind to the house’s fixable flaws, or to the need to plan for capital-gains taxes.

And that’s how it goes in normal times. The current frenzied real-estate market is only exacerbating those emotion-driven mistakes—with buyers feeling they need to do anything to get a house, and sellers cutting corners to take advantage of a hot market. The result is that some buyers are overpaying for the house they’re buying, while some sellers are leaving money on the table.

To help restore some common sense to potential buyers and sellers, we asked financial planners, real-estate agents, interior designers and other professionals to name the five biggest mistakes buyers and sellers make with real estate.

As Matt Celenza, a financial adviser in Beverly Hills, Calif., reminds his clients: “Buying a house is an emotional purchase, but it’s an investment, too.”

1. Picking A So-So Location

Too often, real-estate experts say, people may fall in love with the house, and forgive it for the company it keeps. Maybe it surrounds itself with a lot of noise. Or unsavory characters. Or few places to get out and find peace. In other words, they violate the first rule of real estate: location, location, location.

That has rarely been more true than today, as desperate buyers find themselves pushed out of coveted neighborhoods because of a shortage of available houses.

“Today, in Miami Beach, people don’t care if a house is next to a bridge or if airplanes are flying over,” says Dina Goldentayer, executive director of sales at Douglas Elliman Real Estate in Miami Beach.

Out-of-state buyers have been flocking to Florida in recent years for economic reasons—the state has no income tax or estate tax. Then last year, the pandemic brought in waves of corporate executives who could work remotely from the beach. The inventory of available homes got so low that some buyers felt they had no choice but to make compromises.

Sometimes buyers knowingly purchase homes in poor locations because of economic reasons, Ms. Goldentayer says. Perhaps they’re selling a property in California and want to quickly establish Florida residency for the tax benefits.

A new school year compels some buyers to purchase in their desired school district, even if the home’s location is less than ideal. And in a supercharged real-estate market, sometimes a home in an inferior location is the only option.

A poor location could haunt today’s buyers when they decide to sell. “You can change your floor plan,” Ms. Goldentayer says.

“You can always add a bathroom. You can never change your view exposure or your placement on a street. You may be a seller someday when the market isn’t as hot. Buyers will be more particular in that market.”

2. Buying A House Sight Unseen

An online listing may include professional photography, 3-D floor plans and virtual walk-throughs, but nothing can replace an in-person visit, says Cindy Stanton, an agent with Parks Real Estate in Brentwood, Tenn.

Such listings can look too good to be true. And, as anybody who has followed up with an in-person visit knows, they often are.

How Did They Make That Tiny Room Look So Spacious?

And yet a lot of buyers—especially these days with people buying out of state or not wanting to visit a stranger’s house because of the pandemic—are satisfied with the online presentation. Ms. Stanton’s firm recently had a client from California who bought a house based solely on the listing photos.

The agent toured the property “live” with the client via FaceTime, pointing out carpet stains and other flaws along the way.

Nonetheless, the client waived an inspection and skipped the pre-closing walk-through. After the sale, when the client walked through the house for the first time, she was disappointed, Ms. Stanton says. The house is currently undergoing repairs and upgrades, after which the new owner will put it back on the market.

Buyers’ remorse can also set in when only one person in a couple tours a home, leading to panicked “front-yard decisions,” says Learka Bosnak, a real-estate agent of Heather & Learka at Douglas Elliman in Beverly Hills, Calif.

“The last thing you want is to be standing in the front yard of a house you just toured, trying to call your partner who is not picking up because they are in the middle of a work dinner in London,” Ms. Bosnak says. “That’s not the time to decide if it’s OK for you to submit an offer.”

3. Waiving The Inspection

In this hypercompetitive housing market, many buyers have been skipping preliminary home inspections to make their offers more enticing to sellers. That’s a big mistake, says Vincent Deorio, an executive with Altas, a real-estate investment and management firm based in Denver.

One of his clients wanted to skip a sewer-line inspection that would assess the piping and identify any blockages. Mr. Deorio persuaded the client to have the pipes professionally scoped with a small camera, which revealed a large crack in a pipe under the street and driveway. Because it was detected early, the sellers were responsible for the $15,000 to $20,000 repair.

In other cases, inspections have revealed layers of improperly laid roofing materials, faulty foundations, and subpar wiring and plumbing concealed by wood paneling. What you can’t see can be costly to repair. Mr. Deorio tells clients to never “judge a book by its cover and to always dig as deep as possible when assessing a potential property.”

Inspections are important even if potential buyers want to raze an existing house to build a new one, says Judy Zeder, an agent with the Jills Zeder Group in Miami.

“In an old house, you can have a buried septic tank in the yard or asbestos in the roof or air-conditioning system. Competent inspections are the only way buyers can be sure they can proceed with the teardown and build what they want to build,” Ms. Zeder says.

4. Getting A High-Maintenance Vacation Home

When buying a weekend retreat or vacation home, most people focus on properties they “dream about” and not the cost of ownership, says Will Rogers, a private wealth adviser with Ameriprise Financial in Augusta, Ga. “They often don’t realize that renovations, repairs and ongoing maintenance costs can drain their bank accounts and sap the fun right out of a pleasure property.”

He recently talked a client out of buying a lake house north of Minneapolis that was listed for just under $300,000. It was an older home in need of big-ticket upgrades in the coming years—electrical wiring, the heating system and the roof.

It also had a big yard with lots of grass. Buyers don’t want their second home to become a second job, Mr. Rogers told his client.

5. Tying Your Own Hands

Are you prepared to be told what color to paint your house, where to park your car and how often to mow your lawn? For some people, the answer is no.

That’s why buyers planning to purchase a home in any community controlled by a homeowners association should be sure to review the association’s regulations and restrictions, says Kristi Nelson, a Los Angeles-based interior designer.

“Otherwise, you’re in for a very rough experience on top of what’s already a mentally and emotionally challenging journey,” she says.

Selling Mistakes

1. Showing The House At Its Worst

People are so in love with their own homes that they sometimes don’t see its flaws. But buyers do.

“I’m a big believer in the presentation of a house,” says John Manning of Re/Max On Market in Seattle. “We’re emotional creatures. When we walk into an untidy house, we don’t see the house. We see the stuff—dirty laundry, uncleaned Kitty Litter, dishes in the sink.”

An unkempt house affects the seller’s bottom line, even in a red-hot real-estate market. “If it’s a $1 million house, you could go down $50,000,” Mr. Manning says. “That’s just leaving money on the table.”

Ideally, he says, the homeowners will move out of the house, which is then staged to highlight its best features. “For a seller, the listing is only the beginning of the process. They need to be prepared to show their home throughout the process.”

Cracks In The Housing Market Are Starting To Show

2. Not Planning For Capital-Gains Taxes

If the sellers’ home has appreciated in value, the profit could be subject to capital-gains taxes. Certain home improvements can potentially reduce the tax bill—but only if the sellers have documentation showing that improvements increased the home’s market value, prolonged its useful life or adapted it to new uses, says Mr. Rogers, the financial adviser in Augusta.

He recently worked with a widowed client who sold her home and moved into an assisted-living facility. Her home had been purchased decades ago for $64,000, and it sold for $457,000. The profit exceeded the IRS’s capital-gains exemption of $250,000 for individuals and $500,000 for married couples, meaning the client faced a hefty tax bill.

The client, who had Alzheimer’s disease, had scanty records on improvements that had been made over the years. Luckily, Mr. Rogers had financial records that documented a new roof, a remodeling project and deck extension—and that proof allowed his client to avoid capital-gains taxes entirely.

3. Mishandling The Sale Of An Estate

The impact of a mistake isn’t felt just when the owner is alive. If a homeowner doesn’t provide a detailed estate plan—and have clear communications with heirs—disputes over the estate can delay or even scrub a home sale after the owner dies.

Mr. Manning says his firm recently worked with clients who wanted to buy a rural property listed for about $500,000. But in investigating the title, the firm realized that the property was involved in a legal dispute among siblings.

“There was a strong chance that our client could find himself in a lawsuit fighting claims that the sale to him was improper,” Mr. Manning says. As a result, the potential buyer walked away from the deal.

Similarly, homeowners who bequeath a home to heirs in hopes of keeping it in the family often fail to provide funds to cover the annual costs of maintaining it, says Frank Riviezzo, a New York-based CPA. As a result, the heirs may feel pressured to sell—even if a down market prevents the house from getting top dollar.

4. Fudging Facts And Flaws

Maybe they won’t notice.

How many sellers have said that to themselves, hoping that buyers won’t see the problem with the roof, or the signs of former water damage—even though sellers are required by law to disclose any known deficiencies in a home.

“When you’re selling a home, you have to establish some degree of trust between yourself and the buyer,” says Mr. Manning. “That’s how you get the highest price for your home.” But, he says, “when you withhold information about the condition of a house, the buyer might get more aggressive if they think you’re hiding something.”

That trust is also eroded when sellers withhold or provide incorrect information that could affect a potential buyer’s offer price. Cindy Cole, a real-estate agent in Destin, Fla., has seen sellers who exaggerated the amount of rental income generated by a vacation property.

5. Steamrolling Your Significant Other

There’s nothing that hurts a relationship like a spouse who buys a surprise house for their beloved. Except perhaps a spouse who sells a beloved’s house. Tim Gorter, an architect in Santa Barbara, Calif., recalls a case in which the husband sold a vacation house without first consulting his wife, who cherished the property.

The wife was upset, so the husband hired Mr. Gorter to design her a “dream vacation home” on a property they owned next door.

It took two years to design the home and obtain proper permits. Shortly after construction began, the husband chatted with the owners who had purchased his vacation home—and they were willing to sell it back to him for a profit.

In short, says Mr. Gorter, “my client sold his vacation home without consulting his wife, only to buy the property back at a higher price two years later, while paying a handsome architectural commission to design a project on the neighboring property that he never built. Still, the wife was happy she got her house back, and that made the husband happy.”

Updated: 9-19-2021

The Global Housing Market Is Broken, And It’s Dividing Entire Countries

The dream of owning a home is increasingly out of reach. Democratic and authoritarian governments alike are struggling with the consequences.

Soaring property prices are forcing people all over the world to abandon all hope of owning a home. The fallout is shaking governments of all political persuasions.

It’s a phenomenon given wings by the pandemic. And it’s not just buyers — rents are also soaring in many cities. The upshot is the perennial issue of housing costs has become one of acute housing inequality, and an entire generation is at risk of being left behind.

“We’re witnessing sections of society being shut out of parts of our city because they can no longer afford apartments,” Berlin Mayor Michael Mueller says. “That’s the case in London, in Paris, in Rome, and now unfortunately increasingly in Berlin.”

That exclusion is rapidly making housing a new fault line in politics, one with unpredictable repercussions. The leader of Germany’s Ver.di union called rent the 21st century equivalent of the bread price, the historic trigger for social unrest.

Politicians are throwing all sorts of ideas at the problem, from rent caps to special taxes on landlords, nationalizing private property, or turning vacant offices into housing. Nowhere is there evidence of an easy or sustainable fix.

In South Korea, President Moon Jae-in’s party took a drubbing in mayoral elections this year after failing to tackle a 90% rise in the average price of an apartment in Seoul since he took office in May 2017. The leading opposition candidate for next year’s presidential vote has warned of a potential housing market collapse as interest rates rise.

China has stepped up restrictions on the real-estate sector this year and speculation is mounting of a property tax to bring down prices. The cost of an apartment in Shenzhen, China’s answer to Silicon Valley, was equal to 43.5 times a resident’s average salary as of July, a disparity that helps explain President Xi Jinping’s drive for “common prosperity.”

In Canada, Prime Minister Justin Trudeau has promised a two-year ban on foreign buyers if re-elected.

The pandemic has stoked the global housing market to fresh records over the past 18 months through a confluence of ultra-low interest rates, a dearth of house production, shifts in family spending, and fewer homes being put up for sale. While that’s a boon for existing owners, prospective buyers are finding it ever harder to gain entry.

What we’re witnessing is “a major event that should not be shrugged off or ignored,” Don Layton, the former CEO of U.S. mortgage giant Freddie Mac, wrote in a commentary for the Joint Center for Housing Studies of Harvard University.

In the U.S., where nominal home prices are more than 30% above their previous peaks in the mid-2000s, government policies aimed at improving affordability and promoting home ownership risk stoking prices, leaving first-time buyers further adrift, Layton said.

Housing Affordability Is Getting Worse

In many OECD countries, the price to income ratio has risen dramatically since 1995.

Cracks In The Housing Market Are Starting To Show

The result, in America as elsewhere, is a widening generational gap between Baby Boomers, who are statistically more likely to own a home, and Millennials and Gen Z — who are watching their dreams of buying one go up in smoke.

Existing housing debt may be sowing the seeds of the next economic crunch if borrowing costs start to rise. Niraj Shah of Bloomberg Economics compiled a dashboard of countries most at threat of a real-estate bubble, and says risk gauges are “flashing warnings” at an intensity not seen since the run-up to the 2008 financial crisis.

In the search for solutions, governments must try and avoid penalizing either renters or homeowners. It’s an unenviable task.

Sweden’s government collapsed in June after it proposed changes that would have abandoned traditional controls and allowed more rents to be set by the market.

In Berlin, an attempt to tame rent increases was overturned by a court. Campaigners have collected enough signatures to force a referendum on seizing property from large private landlords. The motion goes to a vote on Sept. 26. The city government on Friday announced it’d buy nearly 15,000 apartments from two large corporate landlords for 2.46 billion euros ($2.9 billion) to expand supply.

Anthony Breach at the Centre for Cities think tank has even made the case for a link between housing and Britain’s 2016 vote to quit the European Union. Housing inequality, he concluded, is “scrambling our politics.”

As these stories from around the world show, that’s a recipe for upheaval.

Argentina

With annual inflation running around 50%, Argentines are no strangers to price increases. But for Buenos Aires residents like Lucia Cholakian, rent hikes are adding economic pressure, and with that political disaffection.

Like many during the pandemic, the 28-year-old writer and college professor moved with her partner from a downtown apartment to a residential neighborhood in search of more space. In the year since, her rent has more than tripled; together with bills it chews through about 40% of her income. That rules out saving for a home.

“We’re not going to be able to plan for the future like our parents did, with the dream of your own house,” she says. The upshot is “renting, buying and property in general” is becoming “much more present for our generation politically.”

Legislation passed by President Alberto Fernandez’s coalition aims to give greater rights to tenants like Cholakian. Under the new rules, contracts that were traditionally two years are now extended to three. And rather than landlords setting prices, the central bank created an index that determines how much rent goes up in the second and third year.

It’s proved hugely controversial, with evidence of some property owners raising prices excessively early on to counter the uncertainty of regulated increases later. Others are simply taking properties off the market. A government-decreed pandemic rent freeze exacerbated the squeeze.

Rental apartment listings in Buenos Aires city are down 12% this year compared to the average in 2019, and in the surrounding metro area they’re down 36%, according to real estate website ZonaProp.

The law “had good intentions but worsened the issue, as much for property owners as for tenants,” said Maria Eugenia Vidal, the former governor of Buenos Aires province and one of the main opposition figures in the city. She is contesting the November midterm elections on a ticket with economist Martin Tetaz with a pledge to repeal the legislation.

“Argentina is a country of uncertainty,” Tetaz said by phone, but with the housing rules it’s “even more uncertain now than before.”

Cholakian, who voted for Fernandez in 2019, acknowledges the rental reform is flawed, but also supports handing more power to tenants after an extended recession that wiped out incomes. If anything, she says greater regulation is needed to strike a balance between reassuring landlords and making rent affordable.

“If they don’t do something to control this in the city of Buenos Aires, only the rich will be left,” she says. —Patrick Gillespie

Australia

As the son of first-generation migrants from Romania, Alex Fagarasan should be living the Australian dream. Instead, he’s questioning his long-term prospects.

Fagarasan, a 28-year-old junior doctor at a major metropolitan hospital, would prefer to stay in Melbourne, close to his parents. But he’s being priced out of his city.

He’s now facing the reality that he’ll have to move to a regional town to get a foothold in the property market. Then, all going well, in another eight years he’ll be a specialist and able to buy a house in Melbourne.

Even so, he knows he’s one of the lucky ones. His friends who aren’t doctors “have no chance” of ever owning a home. “My generation will be the first one in Australia that will be renting for the rest of their lives,” he says.

He currently rents a modern two-bedroom townhouse with two others in the inner suburb of Northcote — a study nook has been turned into a make-shift bedroom to keep down costs. About 30% of his salary is spent on rent; he calls it “exorbitant.”

Prime Minister Scott Morrison’s conservative government announced a “comprehensive housing affordability plan” as part of the 2017-2018 budget, including A$1 billion ($728 million) to boost supply. It hasn’t tamed prices.

The opposition Labour Party hasn’t fared much better. It proposed closing a lucrative tax loophole for residential investment at the last election in 2019, a policy that would likely have brought down home prices. But it sparked an exodus back to the ruling Liberals of voters who owned their home, and probably contributed to Labor’s election loss.

The political lessons have been learned: Fagarasan doesn’t see much help on housing coming from whoever wins next year’s federal election. After all, Labor already rules the state of Victoria whose capital is Melbourne.

“I feel like neither of the main parties represents the voice of the younger generation,” he says.

It’s a sentiment shared by Ben Matthews, a 33-year-old project manager at a university in Sydney. He’s moving back in with his parents after the landlord of the house he shared with three others ordered them out, an experience he says he found disappointing and stressful, especially during the pandemic.

Staying with his parents will at least help him save for a deposit on a one-bedroom flat. But even that’s a downgrade from his original plan of a two-bedroom house so he could rent the other room out. The increases, he says, are “just insane.”

“It might not be until something breaks that we’ll get the political impetus to make changes,” he says. —Jason Scott

Canada

Days after calling an election, Justin Trudeau announced plans for a two-year ban on foreigners buying houses. If it was meant as a dramatic intervention to blind-side his rivals, it failed: they broadly agree.

The prime minister thought he was going to fight the Sept. 20 vote on the back of his handling of the pandemic, but instead housing costs are a dominant theme for all parties.

Trudeau’s Liberals are promising a review of “escalating” prices in markets including Vancouver and Toronto to clamp down on speculation; Conservative challenger Erin O’Toole pledges to build a million homes in three years to tackle the “housing crisis”; New Democratic Party leader Jagmeet Singh wants a 20% tax on foreign buyers to combat a crisis he calls “out of hand.”

Facing a surprisingly tight race, Trudeau needs to attract young urban voters if he is to have any chance of regaining his majority. He chose Hamilton, outside Toronto, to launch his housing policy.

Once considered an affordable place in the Greater Toronto Area, it’s faced rising pressure as people leave Canada’s biggest city in search of cheaper homes. The average single family home cost C$932,700 ($730,700) in June, a 30% increase from a year earlier, according to the Realtors Association of Hamilton and Burlington.

The City of Hamilton cites housing affordability among its priorities for the federal election, but that’s little comfort to Sarah Wardroper, a 32-year-old single mother of two young girls, who works part time and rents in the downtown east side. Hamilton, she says, represents “one of the worst housing crises in Canada.”

While she applauds promises to make it harder for foreigners to buy investment properties she’s skeptical of measures that might discourage homeowners from renting out their properties. That includes Trudeau’s bid to tax those who sell within 12 months of a house purchase. Neither is she convinced by plans for more affordable housing, seeing them as worthy but essentially a short-term fix when the real issue is “the economy is just so out of control the cost of living in general has skyrocketed.”

Wardroper says her traditionally lower-income community has become a luxury Toronto neighborhood.

“I don’t have the kind of job to buy a house, but I have the ambition and the drive to do that,” she says. “I want to build a future for my kids. I want them to be able to buy homes, but the way things are going right now, I don’t think that’s going to be possible.” —Kait Bolongaro

Singapore

Back in 2011, a public uproar over the city-state’s surging home prices contributed to what was at the time the ruling party’s worst parliamentary election result in more than five decades in power. While the People’s Action Party retained the vast majority of the seats in parliament, it was a wake-up call — and there are signs the pressure is building again.

Private home prices have risen the most in two years, and in the first half of 2021 buyers including ultra-rich foreigners splurged S$32.9 billion ($24 billion), according to Singapore-based ERA Realty Network Pte Ltd. That’s double the amount recorded in Manhattan over the same period.

However, close to 80% of Singapore’s citizens live in public housing, which the government has long promoted as an asset they can sell to move up in life.

It’s a model that has attracted attention from countries including China, but one that is under pressure amid a frenzy in the resale market. Singapore’s government-built homes bear little resemblance to low-income urban concentrations elsewhere: In the first five months of the year, a record 87 public apartments were resold for at least S$1 million. That’s stirring concerns about affordability even among the relatively affluent.

Junior banker Alex Ting, 25, is forgoing newly built public housing as it typically means a three-to-four-year wait. And under government rules for singles, Ting can only buy a public apartment when he turns 35 anyway.

His dream home is a resale flat near his parents. But even there a mismatch between supply and demand could push his dream out of reach.

While the government has imposed curbs on second-home owners and foreign buyers, younger people like Ting have grown resigned to the limits of what can be done.

Most Singaporeans aspire to own their own property, and the housing scarcity and surge in prices presents another hurdle to them realizing their goal, says Nydia Ngiow, Singapore-based senior director at BowerGroupAsia, a strategic policy advisory firm. If unaddressed, that challenge “may in turn build long-term resentment towards the ruling party,” she warns.

That’s an uncomfortable prospect for the PAP, even as the opposition faces barriers to winning parliamentary seats. The ruling party is already under scrutiny for a disrupted leadership succession plan, and housing costs may add to the pressure.

Younger voters may express their discontent by moving away from the PAP, according to Ting. “In Singapore, the only form of protest we can do is to vote for the opposition,” he says. —Faris Mokhtar

Ireland

Claire Kerrane is open about the role of housing in her winning a seat in Ireland’s parliament, the Dail.

Kerrane, 29, was one of a slew of Sinn Fein lawmakers to enter the Dail last year after the party unexpectedly won the largest number of first preference votes at the expense of Ireland’s dominant political forces, Fine Gael and Fianna Fail.

While the two main parties went on to form a coalition government, the outcome was a political earthquake. Sinn Fein was formerly the political wing of the Irish Republican Army, yet it’s been winning followers more for its housing policy than its push for a united Ireland.

“Housing was definitely a key issue in the election and I think our policies and ambition for housing played a role in our election success,” says Kerrane, who represents the parliamentary district of Roscommon-Galway.

Ireland still bears the scars of a crash triggered by a housing bubble that burst during the financial crisis. A shortage of affordable homes means prices are again marching higher.

Sinn Fein has proposed building 100,000 social and affordable homes, the reintroduction of a pandemic ban on evictions and rent increases, and legislation to limit the rate banks can charge for mortgages.

Those policies have struck a chord. The most recent Irish Times Ipsos MRBI poll, in June, showed Sinn Fein leading all other parties, with 21% of respondents citing house prices as the issue most likely to influence their vote in the next general election, the same proportion that cited the economy. Only health care trumped housing as a concern.

Other parties are taking note. On Sept. 2, the coalition launched a housing plan as the pillar of its agenda for this parliamentary term, committing over 4 billion euros ($4.7 billion) a year to increase supply, the highest-ever level of government investment in social and affordable housing.

Whether it’s enough to blunt Sinn Fein’s popularity remains to be seen. North of the border, meanwhile, Sinn Fein holds a consistent poll lead ahead of elections to the Northern Ireland Assembly due by May, putting it on course to nominate the region’s First Minister for the first time since the legislature was established as part of the Good Friday peace agreement of 1998.

For all the many hurdles that remain to reunification, Sinn Fein is arguably closer than it has ever been to achieving its founding goal by championing efforts to widen access to housing.

As Kerrane says: “Few, if any households aren’t affected in some way by the housing crisis.” —Morwenna Coniam

Updated: 9-20-2021

Eric Adams Pitches 25,000 Hotel Rooms As Affordable Housing Solution

The Democratic NYC mayoral nominee says shuttered hotels could help solve housing insecurity and are cheaper than new construction.

Eric Adams, the Democratic nominee for New York City mayor, called for tens of thousands of shuttered hotel rooms to be turned into housing to ease the city’s housing insecurity.

Adams, speaking at a campaign event on Monday, said the city has a chance to reverse years of bad planning and convert hotels that have become eyesores. The Brooklyn borough president and former cop said he was looking to turn 25,000 rooms into housing, adding that the city should foot much of the bill.

“The combination of Covid-19, the economic downturn, and the problems we’re having with housing is presenting us with a once in a lifetime opportunity,” Adams said in remarks outside of the Phoenix Hotel, a vacant property in Brooklyn’s Sunset Park neighborhood. “We can use this moment and find one solution to solve a multitude of problems.”

Adams echoed other recent initiatives to bolster housing security across the U.S. Earlier Monday, Bloomberg CityLab reported that the White House is launching a new national initiative, “House America,” to combat rising homelessness.

In August, then-New York Gov. Andrew Cuomo signed a bill that would finance the purchase of distressed hotels and commercial office properties by nonprofits to convert them into affordable housing.

The need for such housing remains urgent in New York City, where more than 45,000 people were being housed in city shelters at last count, and thousands more are grappling with unsheltered homelessness.

The new state law would address, at best, a small slice of Adams’ target of 25,000 units. It sets aside $100 million to help finance building purchases, splitting units evenly between low-income households and people experiencing homelessness. But converting hotels is pricey in New York City.

Manhattan hotels sold at a median price of $275,000 per unit in the fourth quarter of 2020, according to data from PWC’s Manhattan Lodging Index. The 100-room Z NYC Hotel in Long Island City, a Queens neighborhood, sold for $384,000 a room in May.

Adams, in his remarks, said acquiring and converting the units would be cheaper than new construction. “You need the city to invest city dollars to acquire and convert these units,” Adams said, adding that it can cost $500,000 and take years to create an affordable studio apartment, while converting existing space can be done at two-thirds of the cost and in one-third of the time.

“The numbers just make sense.”

The New York Hotel Trades Council, a union representing 40,000 hotel workers in the city, expressed support for Adams’ approach as a way to stem the overdevelopment that they believe has negative long-term effects on workers.

“Eric Adams’ support for converting failed hotel properties into affordable housing supply is exactly the type of common sense approach we need to better protect the safety of our communities and economic resurgence of the hotel industry,” said Rich Maroko, president of the union.

The state law doesn’t override local zoning rules in neighborhoods with a heavy concentration of hotels, such as the Garment District in Manhattan or in Long Island City. Some of the buildings that are being targeted for acquisition wouldn’t need zoning changes, according to Brenda Rosen, the president and chief executive officer of Breaking Ground, a group that specializes in supportive housing.

“The hotels that Breaking Ground is targeting actually don’t need any change in zoning rules,” said Rosen, who spoke at the event. “We just have to get over that hump of getting the deal together.”

Updated: 9-20-2021

Historic Home Prices To Whack Owners In Next Year’s Property Tax

U.S. homeowners enjoying historic gains in the value of their property will likely face a hit next year through a higher tax bill.

Property taxes — up the most in 15 years in 2020, according to recently released Labor Department data — will likely see even sharper jumps this year. The median price of previously-owned, single-family homes set new highs last year, and have climbed even more in 2021, which could haunt homeowners when the bills come due and potentially force Americans to dig deeper into their savings.

Six counties in the New York City area saw median property tax bills that exceeded $10,000 annually in 2020: Bergen, Essex and Union Counties in New Jersey; and Nassau, Rockland and Westchester Counties in New York.

Also among the top 20 is the San Francisco suburb of Marin County and Fairfield County in Connecticut.

U.S. Property Tax

The 9% jump in the median bill last year was the largest rise since 2005.

Last year, the country’s median property tax bill rose $194 to $2,353. While the increase reflects a boost in property value, and therefore enhances the homeowner’s wealth, the individual typically doesn’t realize such gains until the property is sold or refinanced. But tax collection doesn’t wait for either occurrence, and the bills have to be paid regardless.

“Unlike paper gains on stocks which don’t lead to tax consequences until you sell, paper gains in real estate have more immediate financial consequences in the form of real estate taxes,” said Danielle Hale, chief economist at Realtor.com.

While no one really likes taxes, property taxes are generally the most-dreaded because of the high amount owed and the fact that they’re presented in a tangible bill from state and local governments. That’s unlike income tax, which is usually paid through payroll deductions and can often result in an annual refund due to overpayment.

Property taxes are based upon an opaque home valuation estimate as prices for similar homes can vary widely, and they don’t settle until market forces decide on a price. Additionally, property taxes tend to be lagging, as they are based on a home’s value the previous year.

This was problematic a dozen years ago when many homeowners were left paying property taxes on home values that were considerably higher than those in the current market due to the 2008 recession.

This year and next, many homeowners will face a different issue. While many jurisdictions limit how much of an increase in property taxes a local assessor can impose, the rapid run-up in real estate prices will likely mean a higher tax bill is still coming.

Updated: 9-22-2021

How A Hot Housing Market Exacerbates Inequality

Homeownership is becoming even less attainable as bidding wars, cash offers and racist ideas about buyers further disadvantage people of color.

The hot housing market we’re experiencing right now in the U.S. is making things hard for homebuyers, and it’s making things especially difficult for homebuyers of color.

In places like Albuquerque, Atlanta, Houston, Los Angeles and Raleigh, bidding wars, cash offers and waived appraisals have become commonplace, making homeownership less attainable for those who have already long been disadvantaged at nearly every stage of the purchase process.

That’s because strategies to assess a homebuyer’s risk depend on widely shared racist ideas and racial-economic inequalities. In my book Race Brokers, I investigated housing, race and racism in Houston, a market that (at the time in 2015-2016) was roughly balanced between buyers and sellers.

The findings were damning. Developer and licensed real estate agent Brad told me that Black neighborhoods are “not safe, generally … they are generally, you know, single parents raising kids that are crazy, because they’re just wild animals.”

Brad — and many other White real estate professionals I studied — used racist ideas like this to determine where they built homes and how they performed other aspects of their work.

Even if they did not state these racist ideas outright, they used big-picture racial-economic inequalities to justify not servicing or poorly servicing neighborhoods and clients of color.

One prominent example was White real estate agents not listing homes for sale in Black and Latinx neighborhoods because the low home values in these neighborhoods — themselves a product of historic and contemporary racism in appraisal practices — would result in lower pay to the agents themselves. (Agents are typically paid a percentage of the for-sale home’s sale price.)

In our current moment, as homes “fly off the shelves,” housing market professionals and home sellers are using ‘normal’ (racist) strategies like this in ways that intensify racist ideas and racial inequalities. In turn, they intensify racially unequal housing market access.

Homebuyers of color have less access to homeownership and wealth-accumulation prospects, while White homebuyers’ access to homes and wealth increases. This is because real estate professionals assume White buyers are less risky than buyers of color.

It is also because White buyers are more likely to have access to economic resources that give them a leg up when competing for homes — one of the most rapidly appreciating assets available to U.S. consumers.

Sellers in a hot housing market readily use racist stereotypes that harm buyers of color.

In a hot seller’s market, homeowners can be pickier about the offers they receive. They can insist on cash offers. They can choose offers where buyers waive a home inspection. Sellers are also likely to favor buyers who offer more up-front money to incentivize sellers to take their home off the market (e.g., due diligence, option period or time-off-market money).

And, real estate agents can coach sellers to prioritize offers that come with these waivers or higher up-front money paid. In the case of up-front money, buyers generally lose it all if the deal ends up falling through.

In a hot seller’s market, buyers with more disposable cash and who can risk thousands of dollars in a gamble on a home are especially advantaged. In the U.S., these buyers, whether individuals or — increasingly — investment companies, are disproportionately White or White-owned. In turn, this reality recreates longstanding inequalities like racial segregation and racial wealth gaps.

Like homeowners and real estate agents, lenders are more willing to bet on buyers they perceive as less risky — specifically, less risky in a mortgage loan context. Lenders may waive appraisals for buyers who are willing to bring enough cash to the table.

Sellers then favor prospective buyers who come with waived appraisals because one major hurdle on the way to the home sale closing has been removed. And, as with up-front offer money, buyers who have this kind of cash for a down payment and whom lenders perceive as less risky are disproportionately White. Again, longstanding housing inequalities are recreated.

Sellers in a hot housing market also readily use racist stereotypes that harm buyers of color. While researching my book, a White seller told a White real estate agent that they didn’t want a “Middle Eastern” buyer to purchase their home because they didn’t want to “support terrorists.”

White sellers are more likely to act on such stereotypes when they have a larger pool of buyers to choose from.

And, when owners sell their homes privately — through the assistance or recommendation of a real estate agent — they exacerbate racial inequalities. These private listings, often called pocket listings, are for-sale homes that real estate agents and brokers market to the people in their networks prior to or instead of listing them publicly.

But pocket listings are a flagrant violation of an ostensibly “open” housing market because real estate agents — especially White ones — have segregated networks. So, when White agents engage a pocket listing, they are disproportionately granting White buyers access to that for-sale home and disproportionately excluding prospective buyers of color.

As with housing market professionals’ and sellers’ use of racist ideas to determine market strategies and activities, pocket listings in this hot market are also contributing to racial housing inequalities and segregation — more so now than before. The number of pocket listings has increased during the current, frenzied market.

Policymakers need to act swiftly to create a more open housing market. Enhancing the racial diversity of real estate professions, including the appraisal and real estate brokerage industries, is not enough. Tweaking real estate professional training materials is not enough.

Multiple meaningful interventions, including capping up-front money on home purchase offers, penalizing pocket listings, and changing real estate agent pay norms are necessary to stem the tide of inequalities heading straight for us.

Without such intervention, housing market professionals’ and seller’s ‘normal’ strategies — currently on steroids during this hot market — will further entrench racial divisions and undermine equal housing opportunity.

Updated: 10-7-2021

Can Biden Deliver On His Promise To Expand Housing Vouchers?

The president pledged a major expansion of rental assistance, and the $3.5 trillion reconciliation bill is his opportunity to deliver it — if housing aid can survive cuts in Congress.

As a candidate in the 2020 U.S. presidential election, Joe Biden pledged to deliver an enormous expansion of the social safety net: He’d make housing choice vouchers — the 1970s-era rental assistance program also known as Section 8 — a federal entitlement.

The program currently provides subsidies to low-income households to help them rent a home on the private market. But millions of U.S. households who qualify for aid face long local waiting lists to receive a voucher; Biden promised to offer it to all eligible families.

As president, Biden now has the opportunity to make good on that pledge. House Democrats included $327 billion for housing in the reconciliation bill in the works by Congress, including $90 billion to expand rental assistance. This would provide support for more than 1 million new households, a substantial if not unprecedented push.

While that number would fall short of turning housing vouchers into a fully funded federal entitlement like Social Security, lawmakers who support the bill have described it as a major down payment toward fulfilling the president’s promise.

“If enacted, it will dramatically close the gap for low-income renters,” said California Representative Maxine Waters, speaking about expanded housing aid in a call with reporters.

Yet as Congress looks to bring down the $3.5 trillion price tag for the Build Back Better legislation, housing activists and other leaders fear that their agenda may be sacrificed to broker a compromise. A group of more than a dozen nonprofits known as the National Coalition of Housing Justice issued a letter calling on Congress to shore up housing aid against rumored cuts.

New York Representative Ritchie Torres, who along with other progressives met with Biden earlier this week, circulated a letter to colleagues to garner support for housing aid, noting that “these investments could effectively end homelessness in the United States.”

Diane Yentel, president and CEO of the National Low Income Housing Coalition, agrees with that assessment: “There’s never been a moment like this one, where so many factors are aligned to create this opportunity to end homelessness.”

Section 8 renters have long faced stigma and discrimination, and the program’s eligibility requirements vary from city to city. Generally speaking, a family can’t make more than 50% of area median income and be eligible, and by law local public housing agencies must set aside three-fourth of their vouchers for extremely low-income households earning less than 30% of area median income. But in recent years things have changed to make the program better for tenants and landlords.

Many cities and states across the country have adopted laws to bar landlords from discriminating against tenants based on their source of income. The pandemic has also made landlords look more favorably on a rent check guaranteed by Uncle Sam. One study showed that vouchers can dramatically boost the social mobility of low-income households.

Sheer lack of funding has been the program’s biggest weakness. Waitlists for available vouchers run into the tens of thousands in some cities, and those that do have them can struggle to find affordable housing options, especially in higher-cost, higher-opportunity neighborhoods. And the systemic factors driving housing discrimination are deep and abiding.

“There are all of these ways to shore up the program to make it work more equitably. We shouldn’t expect it to fix neighborhood inequality, to undo all of segregation,” says Eva Rosen, assistant professor at Georgetown University and the author of The Voucher Promise. “It’s a private market program. It does wonders to help people afford their homes and to be more stable in those homes. It can’t do everything.”

Lawmakers may decide the ultimate shape of Biden’s housing agenda this month. Which is a novel thing in itself: Presidents don’t historically have housing agendas. Tenants and advocates are trying to impress upon lawmakers the urgency of the housing crisis as well as the scale of the opportunity.

Expanding vouchers could give a huge lift to lower-income tenants who were pummeled by the pandemic. Done right, those benefits compound over generations. If it passed in its entirety, those advocates say, the Build Back Better bill could conquer a problem that U.S. cities have wrestled with since the 1980s.

“There are 580,000 people homeless at any given time. The majority of people solve the problem by themselves. They’re homeless a little while, they exit, they don’t come back,” says Nan Roman, president and CEO of the National Alliance to End Homelessness. “There are, however, a substantial portion of that number who need longer-term housing assistance. This level of funding would be able to provide that. It could easily end homelessness.”

But there is still a great deal that lawmakers misunderstand about vouchers, and with Congress looking to cut as much as $2 trillion from the reconciliation package, expanded rental assistance will have to compete with universal pre-K, free community college, cheaper prescription drugs, and other popular proposals. The Washington Post reports that the bill’s housing elements “may prove among the first to hit the cutting-room floor.”

Closing The Voucher Gap

A new report by the Housing Initiative at Penn looks at the impact of enacting Biden’s promise of universal housing vouchers and reveals the geography of the the nation’s largest voucher gaps: that is, the gulf between the number of households that have vouchers and the number of households that need them.

In terms of absolute numbers, California, New York and Texas lead the way. These states have vast renter populations, period, which is why housing precarity in the megalopolises of Los Angeles, New York and Houston tend to predominate in discussions about the safety net. But the share of renters who would benefit from an expansion of Section 8 is larger in states such as Mississippi, Nevada and New Mexico.

In the 25 largest U.S. metros, the deepest impact of expanding the program falls not in high-cost coastal cities but in places like Orlando, Phoenix and Charlotte, North Carolina — the three cities that have the biggest gaps between current vouchers and potential vouchers when weighted for the population of renters.

Smaller cities and even rural areas stand to see the biggest benefits. For example, in Arizona — where Senator Kyrsten Sinema may hold the deciding vote on Biden’s housing agenda — expanding vouchers would help renters in Phoenix a great deal, but it would go even further toward lifting up low-income Arizona families in Flagstaff, Prescott and Yuma.

Looking at weighted voucher gap ratios is a way of determining “where you have the biggest bang for your buck,” according to Claudia Aiken, director of the Housing Initiative at Penn and co-author of the report with Vincent Reina and Jenna Epstein.

This work serves as a counterpoint to the argument that high housing costs soak up the benefits of vouchers (a real but solvable problem with the formula for subsidies). And as advocates note, Build Back Better includes billions to preserve and build affordable housing units — a supply-side solution that goes hand-in-glove with vouchers.

“One of the most defining characteristics of our housing policy approach is how constrained our policies are,” says Reina. “The Section 8 program is very much emblematic of that. We spend a lot of time talking about how to make it more effective, when the reality is that one of the clearest characteristics of it is that there are more households that need the subsidy than can receive it.”

Long Lines, Epic Waits

As the Penn report confirms, universalizing housing vouchers would indeed be a massive expansion of the safety net: If every extremely low-income household (earning at or below 30% of area median income) eligible for vouchers received one, that would mean 10.4 million households.

At the very low income threshold (at or below 50% of area median income), the number would rise to 17.7 million households. In 2020, there were approximately 2.6 million housing vouchers available — roughly one voucher for every five eligible families.

As a result, households who are eligible for rental assistance languish on incredibly long waitlists. Many housing agencies have more households on their waitlists than they have total available vouchers, according to a new report by Sonya Acosta and Brianna Guerrero at the Center on Budget and Policy Priorities.

Their findings are stark: In the city of Baltimore, for example, the waitlist equals 135% of the available number of vouchers. For San Diego County, that figure is 388%. For Riverside County, east of Los Angeles, it’s 788% — eight households in line for every available voucher.

Updated: 10-13-2021

How A $2 Million Condo In Brooklyn Ends Up With A $157 Tax Bill

Opaque methods, hypothetical numbers and ‘bonkers’ adjustments shift the property-tax burden toward middle- and working-class New Yorkers.

For years, when confronted with complaints of uneven property taxes, the New York City Department of Finance has blamed a state law that requires it to ignore the sale prices of condos and co-ops when determining their taxable value. Instead, the law requires city assessors to engage in a kind of thought experiment: Pretend co-ops and condos produce income for their owners—even though they don’t—and set their taxable values based on a hypothetical amount of income they’d generate if they did.

That law, designed to protect condos and co-ops from higher taxes, lays the groundwork for warped results. But now, for the first time, a Bloomberg News investigation reveals that city officials have made a bad situation worse. They’ve invented data points that bear no resemblance to market reality and used them in opaque calculations that tend to favor wealthy property owners. These flawed valuations shift hundreds of millions of dollars in tax burden from higher- to lower-priced properties and to rental apartment buildings every year.

City ordinances have created special exemptions that reduce taxable values for qualifying properties and abatements that shrink eligible tax bills—special breaks that have significant effects. But flawed valuations present a problem at a deeper level, one that’s far less apparent to most taxpayers.

A Bloomberg analysis of millions of city records related to condo sales and taxes shows that, in effect, two steps in New York’s assessment process combine to help perpetuate unfairness. First, city officials reduce the taxable values of condos across the board by adjusting an important data point—the so-called capitalization rate—in their calculations.

Capitalization rates help investors gauge the value of income-producing properties; the higher the rate, the lower the property value. The rate that assessors apply is more than double the actual rates reflected in New York real estate markets.

As a result, New York condo owners see low taxable values on their annual bills. But here’s what they don’t necessarily see: In modest neighborhoods, those values are set somewhat closer to actual sale prices; in upscale areas, they’re much farther below the market. In other words, big-dollar properties get a bigger break.

That citywide phenomenon stems from the second step in the assessors’ process: They create their hypothetical income estimates by using data that reflect comparatively high amounts for the low-priced condos and relatively low amounts for the high-priced, an analysis of actual sales prices and city data shows.

Bloomberg found that officials have used opaque methods to adjust these data inputs, producing results that depart from market realities. The process drives down taxable values for tens of thousands of condos en masse, by about 80% on average—inaccuracies that occur before any exemptions or abatements take effect. (The city uses a similar approach to value co-op buildings. But a lack of readily available data on the property taxes that individual co-op units pay precludes a similar analysis of co-op valuations.)

“They are wildly undervaluing properties and, as they’re trying to make up income for residential buildings, they’re biasing their estimates too,” said Andrew Hayashi, a University of Virginia law professor who specializes in property taxation and has examined New York’s system. Hayashi, one of four independent experts who reviewed Bloomberg’s analysis, added: “I don’t see how state law constrains them from doing a better job on this.”

City officials declined to grant interviews for this story. In written responses to questions, they defended the methods they use and attributed any unfairness or inaccuracies to the state law they have to follow. Standards set by the international industry group for assessment officials call for local offices to conduct regular studies of their fairness and accuracy, but New York officials say they haven’t done such studies for condos, co-ops or rentals.

The industry standard for fairness studies is a “sales-ratio” analysis, which compares prices for recently sold properties to the assessors’ values for them.

Bloomberg’s analysis used sales ratios to determine how closely assessors’ values for condos and rental buildings track with actual market prices.

City officials said that because state law requires them to use a hypothetical income-based approach for valuing condos and co-ops, using sale prices to check their results isn’t valid.

Yet several national experts say sales-ratio studies are the best tool for gauging assessors’ accuracy—even for income-producing properties. “Assessment offices must attempt to derive market value and ratio studies establish whether that job is done accurately,” the International Association of Assessing Officers said in a written statement.

Independent property-tax experts have used sales-ratio studies to examine New York; one of the most recent found that flawed valuations for condos shift roughly $292 million in annual property taxes from the top 10% of such residences by value to the remaining 90%.

The author, Christopher Berry, a professor at the University of Chicago’s Harris School of Public Policy, found an even larger such shift for single-family homes: $450 million.

Owners such as Jeesselle Suero and Domino Kirke reflect how these shifts affect New Yorkers. It was Suero who purchased the Throggs Neck apartment in 2018, when the annual property tax bill was $3,917. And it was Kirke, a singer, actress and doula to celebrity clients, who sold the $2.15 million condo in Williamsburg in 2019, the same year its tax bill totaled $157.

Much of the disparity in their tax bills stems from the values that city officials arrived at for each property: They valued Suero’s unit at $85,774, about 37% of its actual market value. Kirke’s unit was valued at $279,079, just 13% of its market value. (After that, tax breaks for converting old buildings into condos drove Kirke’s 2019 tax bill down to $157.)

The contrast stunned Suero, who at first told a Bloomberg reporter that the figures must be incorrect. “It’s not right,” she said. “I don’t mind paying my fair share, but I want everybody else to pay their fair share.” In a brief telephone call, Kirke said she recalled the Williamsburg apartment having low taxes, and declined to discuss the matter further.

U.S. property taxes, which raise more than $500 billion annually for public schools, fire departments and other local services, are supposed to be based on property values as determined by local assessors—the higher the assessment, the higher the tax bill. But a series of studies has shown systematic unfairness throughout the country: Officials tend to overvalue low-priced properties while undervaluing the high-priced.

A University of Chicago study last year examined 2,600 U.S. counties and found that more than 9 out of 10 reflected this unfair pattern, known as regressivity. Researchers have highlighted New York City, which collects about $30 billion a year in property taxes, as a primary example.

The city’s valuations can produce absurd results. In 163 cases across New York, assessors set values for entire condo buildings that are lower than the sales price of a single unit in the building, city sales and tax records for 2017 through 2019 show.

In Brooklyn, owners of rental apartment buildings pay an effective tax rate that’s more than eight times higher than the rate for condos, despite national standards that say New York officials should be treating them the same.

The contrast suggests that the city’s assessment methods shift about $237 million in tax burden from condo owners to rental property owners in Brooklyn each year, Bloomberg found.

For condo owners on the losing end—those of comparatively modest means who pay higher effective tax rates—the system is so opaque that it’s hard for them to know they’re losing.

Robert Donate paid $185,000 for a two-bedroom condo in the Bronx in December 2017. His first-year tax bill was $3,936, an effective tax rate of 2.1%. That doesn’t sound too bad—until you compare it to the average effective tax rate for condos citywide: 0.5%, or less than a quarter of his rate. “That’s kind of ridiculous,” Donate said. He knew that new-construction condos benefit from lucrative exemptions and abatements, he said, but he expected a fairer system nonetheless.

The breadth of this unfairness suggests it’s the result of systemic causes, not targeted favors for individual taxpayers. The city’s methods generate inequities on a mass scale with no favor-trading needed. But that hasn’t always been the case.

In his heyday in the 1990s, Howie Habler was among the top earners in a crew that collected $10 million in dirty money across Manhattan, according to a federal indictment. He wasn’t a money launderer or a con artist. He was a property tax assessor.

Habler and 17 other assessors were indicted in 2002 on charges of taking bribes from commercial real estate interests to reduce property values across Manhattan. He pleaded guilty and was sentenced to 27 months in prison for his part in a scheme that federal prosecutors said spanned decades and included 562 properties.

According to court records, the crooked assessors were able to take bribes for decades without drawing attention. In an interview, Habler said his office’s tolerance for wide variations in assessors’ results helped camouflage his crimes.

“I could swing 30% and still be legit,” Habler recalled. “Fifteen one way and 15 the other. And still get paid for it from both ends; get my salary and from somebody in the street.”

The 30% “swing” that Habler describes doesn’t meet national assessment standards that call for “uniformity.” Put simply, the value assigned to every property of a particular type should represent the same portion of its actual market value. Theoretically, that should result in no swing at all. But nobody’s perfect, so experts developed a standard that allows some leeway:

Divide each property’s estimated value by its actual market price to produce a set of scores. Then take the median score—the one that sits in the middle—and make sure all your results stay within 7.5 percentage points on either side. Average scores outside that 15 percentage point range don’t meet the standard.

Today, New York’s uniformity scores for condo valuations have a range of more than 35%, Bloomberg found—exceeding the national standard and eclipsing even Habler’s 30%.

City officials have said studies based on condos’ actual sales aren’t valid for measuring the quality of their work. They rejected any comparison to the previous scandal, saying “assessors are dedicated public servants who follow the law and hold themselves to high standards.”

The investigation that swept up Habler and others centered on commercial property, but it gave rise to a full city review in 2002 that criticized New York’s process for valuing various types of real estate. A resulting report that recommended several changes cited a “high degree of subjectivity” that created an environment where “opportunities for corruption abound.” Some adjustments were implemented temporarily; many, including recommendations aimed at reducing subjectivity, are not in place today.

The 2002 report wasn’t the first attempt to overhaul New York’s system. In 1993, a mayoral commission found that New York’s system was inherently unfair and benefited people with higher incomes. Most recently, in 2018, Mayor Bill de Blasio and City Council Speaker Corey Johnson announced another panel.

It issued a preliminary report in January 2020 that recommended valuing condos and co-ops like single-family homes, using the sales approach. The latest commission has yet to issue a final report. Its recommendation would require state legislation; none has been introduced.

A spokesman for Eric Adams, the Democratic nominee and favorite in next month’s mayoral election, said Adams is a “supporter of reform” but didn’t respond to repeated requests for comment on the findings in this article.

Some taxpayers have turned to the courts. A group of civil rights organizations, community activists and high-end rental-apartment developers has sued the city and state to try to force changes in assessments. The group, Tax Equity Now New York, or TENNY, alleges that city property taxes are both unfair and racially biased, claims that city and state officials deny.

The plaintiffs won in a lower court, but the city and state prevailed on appeal last year. In August, TENNY asked the New York state’s highest court, the Court of Appeals, to hear the case. The court’s decision on whether to hear the case is pending.

Prior efforts to improve the process haven’t resolved a fundamental problem: Assessors’ values for lower-priced condos represent larger shares of the condos’ actual market prices than their values for higher-priced condos do.

That pattern slices millions from the bills of the wealthy and sticks the not-so-wealthy with the tab—though the outcomes differ somewhat from borough to borough. In Manhattan, Queens and Staten Island, such low-end valuations are roughly twice as high, relative to market price, as valuations for the highest-priced condos. In Brooklyn, they’re 75% higher and in the Bronx, they’re 63% higher.

These disparities are rooted in an inscrutable passage in state law that has prompted city assessors to spend much of their time coming up with hypothetical numbers.

Section 581 of the New York Real Property Tax Law says, in essence, that assessors can’t set the value of any condo or co-op higher than it would be if the property were not a condo or co-op. In time, state courts interpreted the law to mean that both types of property must be assessed “as if they were conventional apartment houses.” That interpretation required assessors to use a different approach.

Most U.S. residential property is valued for tax purposes on a “sales” basis; assessors study recent sale prices as guides. But rental apartment buildings are valued on an “income” basis, meaning assessors determine a market value for the income each building produces.

In transferring that approach to condos and co-ops, which generally produce no income, assessment officials have to create hypothetical, on-paper-only income figures for them. For each condo building, this process begins when assessors choose as many as three rental properties as “comparables” and find the income that their owners have reported in mandatory annual filings.

In most cases, Bloomberg found, assessors then change the comparables’ income numbers completely. City officials declined to describe their process in detail, but records show that in case after case, assessors used different values for the same comparable’s net operating income.

In 2019, a stout brick rental building at 433 West 21st Street in Chelsea was used to help value 20 nearby condo buildings, but officials used different income figures in each case, ranging from $1.9 million to $3.4 million. None of them matched the net operating income that the owner of 433 West 21st Street reported to lenders that year: $1.2 million.

Overall, the city’s changes to the income figures don’t correspond with actual market prices of the condos they’re used to value, Bloomberg’s analysis found.

Instead, the data show that as market prices increase, the average amounts that assessors use remain flat. In other words, assessors have used relatively higher incomes to value low-priced condos and relatively lower incomes for high-priced properties.

“It’s completely bonkers, and the result is most likely regressivity,” said the University of Chicago’s Berry.

City officials declined to discuss how they choose comparable rental buildings, but many go unchosen. In 2019, officials used only about 5,000 out of roughly 24,000 possible choices to help value more than 185,000 condo and co-op properties, city data show. Assessors sometimes use the same piece of rental property to help value more than 100 different condo or co-op buildings, changing the rental’s income figure dozens of times.

Officials say they have to adjust the income figures to ensure appropriate comparisons. But their changes go beyond mere tweaks, raising questions about the comparisons’ validity.

The 2002 report on overhauling New York’s property tax system recommended that assessors stop producing their own income estimates and instead use widely available market data for them. But city officials said in response to Bloomberg’s questions that the available market data “is not adequate for valuing the variety of income-producing properties in NYC.”

Regardless of the data source the city uses, several experts criticized the city’s lack of disclosure on how assessors calibrate their adjustments to the income figures—or precisely how they use the adjusted amounts to arrive at a hypothetical net operating income for each condo building they value.

“At this point, the results are so absurd that they need to be more transparent about the adjustments they are making,” said Mark Willis, a senior policy fellow at New York University’s Furman Center, who has advocated for assessors to value condos and co-ops based on sale prices. “I don’t think there is anything malicious going on here. They aren’t doing this intentionally. So something is going on, and it needs to be addressed.”

Once they’ve generated a hypothetical income stream for each condo building, city assessors still have to figure out how much that stream is worth. To do so, they use another number that bears little resemblance to real-world conditions, Bloomberg found.

Real estate investors have long used a relatively straightforward ratio to measure the market value of a property’s income. In its simplest form, this ratio, called a capitalization rate, or “cap rate,” is calculated by dividing the annual net operating income by the property’s current market value.

New York’s assessors use essentially the same calculation. They have the income numbers they’ve generated, so if they divide each one by a valid cap rate, they could arrive at market values.

But the cap rate they use is far from valid, Bloomberg’s analysis found; it’s more than double the rates found in local real estate markets, a choice that wipes out billions of dollars of taxable value at a stroke.

“If you tried to sell me an apartment building at a 12.4% cap rate in New York in the current environment I would wonder what was wrong with the building,” said Jim Costello, senior vice president at Real Capital Analytics, a real estate data company. Using such a high rate grossly undervalues property in New York, he said.

City officials provided only a smattering of documentation on how they devise their cap rates, saying they use a method that was developed in the late 1950s. But one reason for the extra-high cap rate is clear: In constructing it, city officials attempt to account for the prior year’s property tax payments.

To do so, they add an estimated effective tax rate of 5% or more onto their cap rate—an estimate that’s wildly overstated, according to Bloomberg’s analysis. On average, New York condo owners pay an effective rate of 0.5%, more than 10 times lower.

That 0.5% rate means condo owners, on average, get a better deal than rental building owners, who pay 0.8%, according to Bloomberg’s analysis. New York officials value rental buildings twice as high, relative to their sale prices, as condo buildings, the analysis found.

That shifts more tax burden onto rental properties and, by extension, onto renters. Moreover, because city sales and assessment data show that rental properties’ valuations also lead to regressive taxation, low-income renters can be hit particularly hard.

It’s “a hidden tax on renters,” says Jay Martin, executive director of the Community Housing Improvement Program, which represents landlords of New York’s rent-stabilized properties. Each year, the city mandates a limit on rent increases in roughly 1 million apartments in such properties.

Property taxes often push those limits higher. Over the last 17 years, landlords’ tax bills rose to make up roughly 30% of their costs, up from 22%, city data show. During the same period, the median stabilized rent in the city’s oldest buildings increased 79% to $1,364. “God willing, one day, elected officials will understand there is a direct correlation between property taxes and rent,” Martin said.

That correlation affects minority groups disproportionately because more minority households rent their homes. Only 11% of Hispanic New Yorkers and 30% of Black New Yorkers own their homes, according to a 2018 survey conducted by the City University of New York’s Institute for State and Local Governance. For White New Yorkers, it’s 42%.

By now, experts say, an implicit expectation of unfair taxes is built into sales prices for New York real estate, making the chance of repairing the system remote. If its flaws were corrected overnight, billions of dollars in value would disappear from high-value properties, experts say, triggering potentially tectonic shifts in the market.

“It would be a huge wealth transfer, and that’s where I think the real obstacle to reform comes from,” said Berry of the University of Chicago. “There is a loud and clear message for places that are not New York: Get a handle on these problems before you reach the point New York has reached.”

Updated: 10-22-2021

Housing Market Shows Cracks With Price Cuts In Pandemic Boomtowns

In places like Boise, homebuyers are gaining an edge after a real estate frenzy.

No city exemplifies the mania of the Covid-era U.S. housing market better than Boise, Idaho, where prices have surged by more than 30% in the past year. But in a sudden reversal, buyers are now the ones with power.

Asking prices for houses are being slashed. Bidders no longer have to waive inspections to win over sellers juggling multiple offers. Demand has slowed so much it’s like a light switch suddenly turned off, said Dominic Zimmer, a local Realtor.

“You’re seeing the fear of missing out switching from buyers to sellers,” Zimmer said. “Now sellers are afraid of not scoring the way they saw their neighbors do a year ago.”

The cracks in one of the nation’s hottest housing markets mark an early sign that the U.S. boom — fueled by low mortgage rates and remote-work moves — is losing intensity. While much of the country is still seeing record price increases and plunging listings, in some destinations builders who could hardly put up homes fast enough now have inventory sitting.

The slowdown is particularly pronounced in areas away from major urban hubs where buyers were seeking affordability and picturesque havens during the pandemic. That demand has ebbed as people have more reasons to stay put this fall, with the return of in-person school and more companies ordering workers back to the office, or at least requiring them to be somewhere in the vicinity.

The Result: Prices are running up against the reality of local economic fundamentals.

“The markets where we’re seeing the most price cuts were flying a little too close to the sun earlier this year,” said Daryl Fairweather, chief economist for the brokerage Redfin. “Sellers got eager in their asking prices. It was not sustainable and benefited from pandemic trends that still persist, but not as extremely.”

Across the U.S., home-price appreciation slowed for a second straight month in September as part of a modest cooldown, Zillow Group Inc. reported this week. The number of homes with price cuts is growing, with counties near Denver, Salt Lake City and Indianapolis seeing more than half of listings get reductions, according to Redfin.

Even some of the hottest areas where workers from large urban cities sprawled out to, such as the counties including Portland, Maine, and Tacoma, Washington, have had cuts on more than 40% of listings, Redfin data show.

Cracks In The Housing Market Are Starting To Show

In Idaho’s Canyon County, about eight out of 10 listings have had price cuts, the biggest share in the U.S. It’s a popular area for people who can’t afford nearby Boise, a city of about 230,000 that has boomed as Californians and other escapees of high-cost regions spread out. Its biggest employers include Albertsons Cos. and Micron Technology Inc., which are both based there.

Homes started when the market looked unstoppable are getting discounted as they’re completed. A Toll Brothers Inc. house in Nampa with a gourmet kitchen and dual-sink vanity in the master bathroom is on sale for $575,000, down $44,000 since it was listed at the end of June.

CBH Homes, the most prolific builder in Idaho, has 100 Canyon County homes with active listings on Realtor.com. As of Friday, 80 have price reductions.

Toll Brothers declined to comment. CBH builds homes on spec — without a buyer in place — so it always has 100 to 200 houses available at any given time, said CeCe Cheney, a spokeswoman for the company. “In regards to pricing, as the market changes, our pricing must change with it,” she said.

Zimmer, an agent with Amherst Madison Real Estate in Boise, said he didn’t have a single buyer succeed in winning a below-asking-price bid until August. That’s when John Blake, deputy chief of Ada County Paramedics, decided to jump into the fray. He was able to win a two-bedroom house for $327,000, below the $349,900 asking price. There were no other bidders.

“I looked at a number of homes that were outrageously priced for what they were,” Blake said. While he’s thrilled to get the house, he worries he might have purchased near the top of the market.

The pullback is a sign of prices getting too far ahead of what locals can pay, said Rick Palacios, director of research at the John Burns real estate consultancy. In the third quarter, 75% of U.S. counties had median-priced single-family homes that were less affordable than historic averages, according to real estate data firm Attom. That’s the highest share in 13 years.

Canyon County was the least affordable relative to its average wages and housing costs in the past, based on an Attom analysis of more than 300 counties with a population of at least 200,000 people. Boise’s home of Ada County ranked second.

“You’re transitioning from every market under the sun going nuts to now starting to see where long-term fundamentals actually matter,” Palacios said.

To be sure, Boise sellers don’t have much to worry about because most are sitting on a mountain of equity. And even as asking prices are being cut, the drops would have to be steep to fall below year-ago levels.

In some ways, a slowdown should be expected. It’s the comeback of seasonality that skipped over 2020, said Julie Russell, an agent with Coldwell Banker in Farmington, Utah, 20 minutes north of Salt Lake City.

In December, Russell listed a home that got 23 offers within 24 hours. But she put two houses on the market in the last two weeks and had to cut prices on both.

Buyers have lost some urgency now that mortgage rates are starting to rise, she said.

“It’s still better than it was two years ago,” Russell said. “It just feels so dramatic because we had so many offers, sometimes sight unseen, and now we’re returning to a sense of normalcy.”

The boom remains strong in many Sun Belt havens such as Phoenix and Austin, Texas, where jobs are growing fast. But in Pasco County, Florida, a relatively affordable coastal area about 45 minutes north of Tampa, sellers can no longer shoot for the moon, said Gerard Buglione, an agent with Charles Rutenberg Realty.

He’s working with a family that moved from New Jersey during the height of the boom in April. They beat out multiple bidders and paid $270,000 for a four-bedroom house with an open floor plan on a cul-de-sac.

They didn’t like Florida and now want to move back. They sought a big profit, listing the home for $369,900 in early September. The price has come down by $20,000 since then. A neighbor just sold a house with the same floor plan for $10,000 less than that.

“A lot of buyers have gotten frustrated and put purchasing on the back burner,” Buglione said. “Prices are leveling out.”

Updated: 11-3-2021

Housing Analyst Famous For Pre-Crash Warnings Is Concerned Again

Ivy Zelman, the housing analyst famous on Wall Street for calling the top of the market in 2005, less than two years before the collapse, sees warning signs once again.

After a historic run-up in values during the pandemic, housing in the U.S. is at — or near — the peak, she says. She’s cautioning clients that overheated areas with heavy concentrations of investors, including Phoenix, are likely to face “corrections.” A modest rise in 30-year mortgage rates, even to 4%, would bring demand to a halt, according to Zelman.

Cracks are already appearing: The pace of price growth nationwide has started to slow, and in Covid boomtowns such as Boise, Idaho, and Salt Lake City, bidding wars are suddenly giving way to discounts.

Zelman, 55, isn’t forecasting a nationwide crash on the scale of the last bubble, which was magnified by risky subprime mortgage lending. But the signs of trouble look familiar, she says: Investors are distorting the market by driving up prices beyond the reach of primary buyers, and builders with growing construction pipelines are bidding up land values.

The risk is that investors — from iBuyers to private equity firms acquiring and building single-family homes for rent — get spooked and start selling, overloading the market with supply. By the time builders finish homes they’ve now just started, demand may no longer be there, she says.

“If I’m a homebuyer right now,” Zelman says, “I want to wait because I think we’ve gotten to a level that’s not sustainable.”

Zelman, a former Credit Suisse Group AG analyst who co-founded her firm, Zelman & Associates, in 2007, talked to Bloomberg about her views. Her responses have been edited and condensed.

Is this the first time you’ve called the top of the housing market since the last crash?

It definitely is the first time that I’ve been concerned about the market being at peak levels, or near peak levels, since the last downturn, absolutely. And our concerns are obviously not very much the party line. We are the contrarians. Our views are grounded in fundamental research and understanding and appreciating the risk that right now I call “yellow flags.” So it may be that our concerns don’t come to fruition this year or possibly even in ’22, but we definitely see a storm brewing.

Investors, from iBuyers to private equity firms and sovereign wealth funds, are chasing housing in all forms. Won’t that just continue to prop up values?

It’s really a function of when does pricing hit a wall and when do you start to see pushback, whether it’s affordability or just buyer fatigue. I’m concerned that the market is definitely artificially inflated by investors. Prices won’t be sustainable if the returns start to flatten out or even come under pressure.

We’re faced with the worst housing shortage in history. How could that possibly change?

We don’t believe we’re in a shortage, so our view is different than the market’s perception. We’ve been more concerned about the level of growth in household formations in the U.S. Actually this past decade, it grew at the slowest pace on record.

The U.S. is seeing more consolidation in terms of households. We’re seeing more multigenerational living. I think what we are concerned about is that the normalized level of demand is being clouded, which is creating this perception that we don’t have enough inventory because of all the second homes that people now own, as well as investors, just driving up pricing.

If you’ve got iBuyers and you’ve got fix-and-flip buyers, and you’ve got private investors trying to diversify their position away from just owning equities, you’re going to have a lot more difficulty delineating true primary demand versus what I call just non-primary demand.

Would a jump in rates do more than depress affordability? Would it dissuade homeowners with low rates from trading up?

The terrible Fed policy of continuing to purchase mortgage-backed securities at $40 billion a month has kept rates at artificially low levels. The backlash of that is it’s going to impact mobility because when you look at the number of homeowners that are locked in, not at 4%, but below 4%, we’re talking almost 70% of mortgage holders.

Right now, the benefit of the arbitrage is still there. If you can buy a home and get a rate lower than where you were locked in at, and you have a higher home price that you have to digest, that’s offset by the lower rate. If you have higher home prices plus higher rates, it just disincentivizes mobility.

Which homebuilder markets are you most concerned about?

Where all of the iBuyers are, where all the build-for-rent guys are, where all the for-sale guys are building. Those markets are the trifecta that are much more at risk. Phoenix, No. 1. Austin, Dallas, Houston and, to a lesser extent, Atlanta, the Carolinas.

Are we heading for a crash?

There are going to be corrections. And I think there are going to be corrections that are more pronounced if rates go higher. I certainly would be concerned if I was buying a home today in, let’s say, the Phoenix tertiary market in a higher-rate environment.

11-7-2021

One Of The World’s Hottest Real-Estate Markets Tries To Cool Down

New Zealand is pulling every lever to tame property prices without shaking its economy and crashing the market.

New Zealand is emerging as a test case of whether authorities can restrain rising home prices without tanking the market and destabilizing the economy at the same time.

The South Pacific nation’s efforts could offer a blueprint for the many other countries facing a similar dilemma after the coronavirus pandemic. A combination of low rates, economic stimulus and changes in buying patterns as people work remotely is pushing real-estate values higher all over the world, pricing out many first-time home buyers.

The problem is particularly acute in New Zealand, where housing supply failed to keep up with population growth over much of the past decade. Home prices have risen more than 30% in the past year, according to a property-price index from the Real Estate Institute of New Zealand.

The country’s home-price-to-income ratio, a measure of affordability, is the highest compared with the long-run average among 30 key economies analyzed by research firm Capital Economics. For each economy, the firm created an index setting at 100 the long-term average of the ratio of home prices to incomes. New Zealand’s score on the index was 178, or well above its long-term average. By comparison, the U.S. score of 93, or just below its average, was the sixth-lowest on the list.

Governments have several tools at their disposal to influence real-estate prices, including boosting housing supply either through direct investment or changing land-use regulations, restricting mortgage lending and offering financial assistance to first-time buyers.

Economists and policy makers debate whether central banks should use interest rates to try to rein in housing prices by influencing the cost of borrowing. Higher rates could make mortgages more expensive and cool demand for housing, but they could also have unwanted impacts on inflation or employment, the traditional areas of focus for central banks.

New Zealand is pulling every lever. In October, the country’s central bank raised its benchmark interest rate to 0.5% from a record-low 0.25% and signaled more increases over the next year, in part because of skyrocketing home prices.

And earlier in the year, New Zealand’s government, in a novel move, directed the central bank to consider home prices when making decisions about monetary policy, even though bank officials warned that would have little impact on the market and could lead to lower employment and below-target inflation.

New Zealand has also restricted low-deposit lending, a move designed to reduce risky mortgages and lower the chance of a damaging housing market correction, which could destabilize the broader economy.

Starting Nov. 1, only 10% of lending to owner-occupiers can have a loan-to-value ratio of more than 80%, down from the 20% of lending that is allowed now. It is working on debt-to-income restrictions as an additional tool.

The government also plans to make higher-density housing easier to build in cities and limit the deductibility of interest costs on residential property investments. The tax change aims to stem investor demand for existing residential properties, a dynamic that has contributed to higher real-estate prices in the past and made it more difficult for first-time buyers to get on the property ladder.

Whether New Zealand’s efforts have a measurable impact on housing prices, without any unwanted economic or social side effects, isn’t yet clear.

In September, the latest month for which data is available, property prices in seven of New Zealand’s 16 regions reached record median levels, according to the Real Estate Institute.

Prices in Auckland, the country’s biggest city, declined 4% from August to September, but a Covid-19 lockdown in the city had curtailed buying and selling. The institute said it expects activity to pick up when the lockdown lifts.

Gareth Kiernan, chief forecaster at Infometrics, doesn’t expect New Zealand home prices to fall soon. All the government and central-bank measures combined might succeed in slowing price increases, he said, but that still means a grim outlook for first-time buyers.

“It’s going to remain very painful I think, very difficult for people wanting to get into the housing market, for a long time.”
— Gareth Kiernan, chief forecaster at Infometrics

Demand is also likely to increase, Mr. Kiernan said. The government recently decided to allow residency for tens of thousands of people on temporary visas, which means more people will be looking to buy homes. And the construction industry is still struggling to build houses fast enough to meet existing demand.

Mr. Kiernan said interest rates would need to rise by quite a bit more than currently expected to bring about a fall in prices. New Zealand’s central bank in August projected that the cash rate would reach 1.6% by the end of 2022 and 2% in the second half of 2023.

Even if home prices stopped rising, and assuming incomes grow 3% a year, the home-price-to-income ratio would take until 2050 to decline to its level in 2000. Mr. Kiernan said.

“It’s going to remain very painful I think, very difficult for people wanting to get into the housing market, for a long time,” he said.

Capital Economics, in its recent analysis, expects home-price inflation in major economies to moderate naturally in the coming months and isn’t expecting a destabilizing drop in prices.

However, it said the risk of a crash is elevated in countries such as New Zealand where affordability was stretched even before the pandemic. Other countries in a similar situation include Canada, Denmark, Australia, Sweden and Norway, the firm said.

“We would not say that house price falls in any of these countries are certain or imminent—some have been flashing red for several years yet house prices have continued to defy gravity,” the economics firm wrote. “But it would not take much to tip them over the edge.”

Updated: 11-13-2021

Retirees Spend A Lot Of Time And Money To Buy Their ‘Forever Home.’ Then They Sell It

It doesn’t take long for people to discover that what’s perfect now is far from perfect before too long. And it costs them.

To Rick Brown and Jeanne Brown, finding a forever home has seemingly taken forever.

In just five years, the couple—he’s 71 and she’s 72—bought or built two different houses that they planned to live in for the rest of their lives. But their tastes changed—so they decided to pick up stakes both times. Now they have settled on a third home that seems to be their final choice.

If there is one takeaway, Mr. Brown says, never use the words “forever home.”

Like the Browns, many couples near or in retirement embark on a quest to find the perfect place to spend their twilight years. Soon, however, some people realize that what’s perfect now may be less than ideal later. Poor health and dwindling finances are obvious reasons some seniors choose to move. Other retirees retool their priorities when they realize how much they miss the grandchildren or hate their new neighborhood.

In truth, most home buyers don’t stay in their homes as long as they think they will, says Jessica Lautz, vice president of demographics and behavioral insights with the National Association of Realtors, a trade group. “People may not want to move,” she says, “but they may decide to because life happens.”

The association released the results of a survey earlier this year in which recent home buyers were asked to list factors that would compel them to move. “Life changes,” such as a marriage, birth or retirement, was cited as the top reason by 25% of the respondents aged 56 to 65 and 16% of respondents 66 to 74.

The second-most common reason was a household member’s health, cited by 14% of respondents 56 to 65 and 25% of those 66 to 74. The third top reason, for both age groups, was downsizing to a smaller house.

But moving multiple times carries a big price tag. Forever homes are often cheaper than current homes, because the couples are downsizing. But, like any other sellers, retirees may face losses on their current properties because of the fluctuating market—losses that can pile up with each move. And, of course, every move brings more expenses—closing costs, commissions, moving charges and more.

That’s why some experts urge buyers to learn as much as they can about a new location before shelling out for a home. “It’s OK to take a couple of years to explore other areas and don’t jump in immediately,” says Mike Leverty, a financial adviser in Hudson, Wis.

He advises his clients to rent in the area where they think they want to live, even if it is only part time. “You really have to view it as a second home and not a vacation,” he says. “Factor in amenities like shopping and healthcare—things you wouldn’t think about if you just vacationed there for a couple of weeks.”

It Just Didn’t Click

The Browns began their forever-home quest in 2011, when they sold a bed-and-breakfast in Annapolis, Md., that Mrs. Brown had operated since 1997. Cash flow had been good for a while, but in time, neighbors started listing their homes as vacation rentals, cutting into the B&B business.

Then came the 2007-09 recession. When Mr. Brown retired from his full-time career in banking in 2010, the couple decided to close their business. They sold their B&B—purchased for $540,000 in 1996—for $925,000.

The Browns found their first forever home in Southport, N.C., near the Intracoastal Waterway. They paid about $200,000 for land and another $400,000 to build “the nicest place we have ever lived in,” Mr. Brown says. Still, the nearest big city was Wilmington, N.C., over a half-hour away. “We loved the area and our home there, but it was isolated,” Mr. Brown says. “We were accustomed to good restaurants and the theater, and the like.”

While living in Southport, the Browns traveled west to Asheville, N.C., for a tennis tournament. Driving around, they realized Asheville offered the best of both worlds—the trappings of city life and the outdoor activities in the beautiful Blue Ridge Mountains. So, they sold their Southport home for $480,000 in 2016.

“Where we got clobbered was the purchase price of the lot,” Mr. Brown says, which the couple had purchased right before the recession of 2007-09. “When we left, the value of the lot had fallen about 50%.”

The couple spent about $470,000 to build their second forever home, situated on the side of a mountain about 15 minutes from downtown Asheville. To stay busy, both Browns took part-time jobs, volunteered and pursued their hobbies. “But despite being a nice area, we had a tough time breaking into the social arena,” Mr. Brown says. “I didn’t click with the different types of groups. I thought, ‘Maybe this isn’t the place for us.’ ”

That realization led to their third—and current—forever home. In 2019, the Browns sold their house in Asheville for about $570,000 and moved to the Villages, a sprawling 55-and-older community in central Florida.

There, they bought a modest three-bedroom home for $408,000. Mr. Brown plays golf, softball and pickleball; Mrs. Brown golfs, belongs to a book club and teaches pottery classes. Together they foster puppies.

Mr. Brown says he and his wife have no regrets—their experiences in Maryland and North Carolina helped them realize why Florida is such a good fit. To them, an enjoyable retirement is more about the lifestyle and less about the house. “Right now, we’re saying we’re going to stay put.”

Insane Prices

Michele A. Peters says she moved out of Ridgewood, N.J., because “the cost of living was totally insane.” Ms. Peters, a 68-year-old retired attorney, was paying $18,000 a year in property taxes and another $12,000 annually for health insurance.

In 2015, she sold her New Jersey home for about $860,000 and moved to Newport, Ore. Choosing the state seemed natural—she had been born there, and remembered her father saying he was happiest when living in the Pacific Northwest.

She bought her first forever home in a rural area, paying $487,500. In time, however, she realized that the location was too remote, she says. So she sold that house and bought her second forever home, a condo on the coast.

Ms. Peters spent about $460,000 on the unit and another $100,000 on renovations. In terms of nature, the place was perfect. “To wake up in the morning and see an eagle floating on the air currents outside my window, it’s gorgeous.” In other ways, however, her forever home was less than perfect.

“What they don’t tell you is that there are freezing winds that come down from Alaska,” she says. “During intense storms, the windows are bowing from the wind.” There were also difficulties connecting with the locals. “I didn’t have anything in common with the people around me,” she says.

Living in Oregon also convinced Ms. Peters that she’s “an East Coast person,” she says. “Just being back here, I was happy. I felt more at home.” So, in November 2019, she loaded her cat and dog into the car and moved to Fort Lauderdale, Fla., where she could live in her mother’s vacation condo before finding her own place.

“But once I got there, I found out that I hated it,” she says. Visiting family there was one thing, but living there full time was entirely different. Then the pandemic struck, which only deepened her disdain. “Nobody would wear a mask. People would gather together in large groups,” she says. “One doctor told me, ‘This Covid thing is nothing. It’s going to pass.’ ”

It was time to leave. In March 2020, Ms. Peters packed up again and moved to St. Petersburg, Fla., a Gulf Coast city a friend had told her about. She paid $480,000 for her third forever home, a roughly 1,500-square-foot bungalow in a charming, historic neighborhood. “I love it,” she says. “This was what I was looking for in Oregon and couldn’t find.”

Still, the journey that eventually landed Ms. Peters in St. Petersburg was pricey. Selling her home in New Jersey cost her 4% in real-estate commissions plus about $10,000 in moving and storage fees.

When moving from Oregon to Florida, she paid 4.5% in commissions and about $2,500 for a shipping container that she packed herself. Moving from Fort Lauderdale to St. Petersburg cost another $2,500. She handled many of the legal aspects of the real-estate transactions herself, which reduced some of her expenses.

For now, she plans to stay put in St. Petersburg, persuaded in part by the kindness of a neighbor who helped her when she fractured her ankle. “But in my head, I’m still open,” Ms. Peters says. “Who knows where I’m going to end up?”

Trading Down

Bill Fonshell and Claudette Fonshell decided to downsize from their five-bedroom, 4,400-square-foot house after their youngest child went off to college. They were living in what they already considered their forever home in Haddonfield, N.J., but the house, built in 1905, wasn’t getting any younger either.

On the horizon were pricey projects that involved replacing the roof and the heating/cooling systems. “We got to a point where we realized we can’t stay there forever,” Mr. Fonshell says.

The Fonshells, both in their mid-50s, decided to move to Philadelphia’s historic Center City neighborhood, where Ms. Fonshell works in healthcare. In their new home, the couple wanted two to three bedrooms and a garage or designated parking, since Mr. Fonshell travels for his sales job in the restaurant trade. Very quickly, they realized that their $400,000 budget couldn’t buy them everything they wanted.

Then, all of a sudden, a 2,200-square-foot townhouse that was less than a mile from their house in Haddonfield came on the market. Even though it was built in 1834, it had a new roof, a new gas burner and air conditioner, “literally all the things that were going to fall apart in our old house,” Mr. Fonshell says. It was also within budget, at $382,000.

In 2018, the Fonshells moved to their new old house. And because it is smaller and lacks a yard, they are saving $7,000 a year in taxes. Overall costs for things like upkeep, utilities and lawn care are 40% lower than their previous home, Mr. Fonshell estimates.

They are also happy to remain in a town they love. “It’s a little storybook community,” Ms. Fonshell says. “We’re friends with the [former] mayor, have our church community and the friends we made when our kids were in school.” The Fonshells still go to high-school football games.

But having once sold their forever home, the couple is reluctant to commit to their new house for the rest of their lives. “It’s a comfortable house, but it has stairs. It might not be good when we’re elderly,” Ms. Fonshell says. Plus, she adds, if they have grandchildren down the road, they would want to live close to them. “At the end of the day, you want to see your grandkids.”

Updated: 11-15-2021

U.S. Cities Risk Losing Millions In Federal Emergency Rent Assistance

Rent relief has been slow to come in many states — especially those with Republican leadership. Now those funds could be redistributed elsewhere.

The U.S. Congress authorized $47 billion in emergency rental assistance to prevent evictions and displacement due to economic disruption from the pandemic. But the funds, which were introduced in December 2020 and then expanded under the American Rescue Plan in March 2021, have been slow to reach tenants. So far, states and local governments have only disbursed about $10 billion in payments.

In an effort to push that money out the door, the Biden administration is now enforcing a deadline for sluggish state and local governments, which have until 11:59 p.m. on Nov. 15 to submit a plan to Treasury demonstrating their commitment to helping tenants receive the funds, a Treasury spokesperson told Bloomberg CityLab.

About 150 cities and counties as well as 32 states have spent less than 30% of their allocation as of October, according to federal data, and will need to submit a program improvement plan if they want to keep the funding. Those that don’t could see the money redistributed to other cities or states entirely.

States with Republican governors make up the lion’s share of those that failed to hit the spending threshold. Of 32 states that have yet to meet the mark, 27 are led by Republicans. Conversely, only two states with GOP governors, Alaska and Texas, distributed enough of their funds to escape scrutiny from Treasury.

In some states, the disparity between state and local performance was vast: While the city of Atlanta has spent 90% of its first round of federal aid, Georgia has spent only 9% of its state-level funds.

The worst-performing states of all were GOP bastions in the West. These include Montana (which has distributed 11% of its state funds), Idaho (9%), Wyoming (4%), North Dakota (4%) and South Dakota (3%). Republican lawmakers in more recalcitrant states have tried to slow down or reject federal funds for residents.

These less-populous areas where local governments didn’t receive direct funding could see much of their federal allocations redistributed to other states.

Slow-moving rent relief isn’t exclusively a problem for state governments, however. New Jersey, for example, has spent 100% of the money made available to the state in the first round of funding, but its local governments have spent just 25% of their funds.

In Texas, which received $1.9 billion from the first tranche of federal rental aid — the largest amount of any state except California — the money is divided between a state purse and 36 individual funds for cities and counties.

Texas closed its portal for applications for the state-level fund on Nov. 5, as state authorities determined that the applications it had received likely exceeded the available funding.

Yet more than a dozen local jurisdictions in Texas, from heavily Latino counties along the U.S. border with Mexico to affluent suburbs in the Dallas-Fort Worth metroplex, have yet to distribute their funds. Some have spent just a fraction.

“The timing of this is unfortunate,” says Ben Martin, senior researcher for Texas Housers, a nonprofit advocacy group for low-income tenants and fair housing. Texas closed its applications for the state-level funds, he says, “right at the same time that local jurisdictions, for whatever reason, are having difficulty getting money into the hands of tenants and landlords.” Now, those cities “are at threat of having that money taken back by Treasury and then redistributed elsewhere.”

Struggling tenants are at risk of falling into the gap between places that have already spent all of their rent relief funds and those who have spent little to none. With the end of the federal eviction moratorium in August, the need is now pressing. Courts in Dallas, Fort Worth and Houston — and in many other cities around the country — are registering a steep rise in evictions, according to data from Princeton University’s Eviction Lab.

“The threat of eviction, exacerbated by the Covid-19 pandemic, remains a fact of life for too many households across the country,” said Treasury Deputy Secretary Adewale Adeyemo, in a letter to emergency rental assistance program grantees.

Some places would be happy to receive dollars redistributed from any laggards. Muriel Bowser, the mayor of Washington, D.C., has asked Treasury to send excess or unused funds from other states to her city, where the need outstrips available funding.

The District ranks first in the nation for funds disbursed per capita and second among states (after New Jersey) for the share of its allocation it has spent. The city did not respond to a request for comment.

This is not the last check-up from Treasury: Every two months through at least March 31, the department will reassess how rent relief program grantees are doing. Each month that goes by, the target measure for spending will go up by 5%.

Most of the Texas jurisdictions that are late with their allocations will likely submit an improvement plan with Treasury, according to Martin. For Texas alone, there’s more than $26 million on the line. Some local governments are close to the target goal:

For example, the Dallas suburbs of Arlington and Garland have spent 25% and 26% of their allocations. These cities don’t have far to go to get into compliance.

Texas, for its part, hopes to be a net recipient of the federal funds that Treasury redistributes. Tenants in cities and counties that don’t appeal for more time, however, may not get another opportunity for aid.

“It’s not the local governments that are going to suffer,” Martin says. “It’s the tenants and landlords.”

Updated: 11-22-2021

The Housing Proposal That’s Quietly Tearing Apart Atlanta

Secession efforts by Buckhead residents are gaining momentum as the city proposes zoning changes to create more apartments and affordable housing.

For those leading a campaign to secede from the city of Atlanta, an uptick in crime has been a headline-grabbing way to rally residents to their side. But tucked neatly behind this issue is another that’s just as animating: housing.

Residents of the area collectively known as Buckhead in northern Atlanta are trying to ward off new proposals working their way through city planning channels that would allow for more multifamily housing, and many of them are willing to create a new city to prevent this from happening.

“Changes now being proposed by the City of Atlanta would subdivide residential lot sizes, increase housing density, decimate the tree canopy, tangle traffic, and strain resources,” reads the website of the Buckhead City Committee, the organization lobbying to form a new city. “Such devastation, proposed ostensibly to increase ‘affordable housing’ will only enrich developers at the cost of Buckhead’s livability.”

That argument is running up against Atlanta’s housing crunch. Atlanta planners anticipate the city’s population could more than double to 1.2 million by 2050, and leaders are looking to convert more single-family homes into multifamily dwellings. Currently almost 60% of the city’s residential zones restrict such arrangements.

They would also like to rezone areas within a half-mile radius of public transit stations so that moderate-sized apartment buildings could be built nearby. One to four units per building would be the standard, but a developer could build as many as eight units if one of them is below-market rate, and as many as 12 if two or more are below-market.

‘Surgical Proposals’

The proposed zoning modifications are in line with what several cities across the U.S. have already passed, some with much broader reach.

While Atlanta just wants to modify single-family housing zoning around transit stations and for accessory dwelling units, Minneapolis recently voted to end single-family zoning across the entire city, as did the entire states of Oregon and California. The theory is that with more housing supply and density comes better affordability.

“This is not a proposal bringing foreign, extreme ideas to the table — these are surgical proposals,” says Tim Keane, Atlanta’s planning commissioner. “The idea that somehow this rezoning will result in the destruction of single-family and historic homes, changing a neighborhood’s whole dynamic is just erroneous. On every side of the city you can see the replacement of smaller, more affordable single-family homes with larger mansions — that’s happening right now.”

To understand the current fight over housing in Atlanta, you have to go back almost 100 years. Before 1929, Atlanta was divided into two residential zones: “R-1 white district” and “R-2 colored district.” After a U.S. Supreme Court ruling prohibited such explicit segregation, “R-1” became a “dwelling house” zone and “R-2” became an “apartment house” district.

To this day, much of Atlanta is still organized this way, leading to a lack of affordable housing — and housing in general — as the city expands.

And while Buckhead City supporters have fought aggressively to ward off zoning changes, the proposed zoning reforms wouldn’t apply to the bulk of that area. The legislation crafted by Atlanta city councilman Amir Farokhi exempts several kinds of single-family zoning districts — districts that happen to cover the majority of Buckhead neighborhoods, where 3,000 square foot homes listed for upwards of $675,000 are the norm.

Farokhi and planning commissioner Keane say the decision to leave several single family districts out of the proposal was less about pressure from neighborhood groups and more about protecting the diversity of neighborhood types that Atlanta is known for. But some worry that preserving neighborhood diversity is coming at the expense of sparing housing diversity.

“Frankly, we should be looking at approaches like this across the city, but that’s where good policymaking sometimes meets the reality of politics — it just wasn’t going to be viable to do a citywide approach,” says Farokhi. “I would say the decision to focus on rezoning properties close to a train station is good policy, though. And this is where you want to see folks living or choosing to live without a car because of more walkable neighborhoods and access to transit.”

‘Gentle Density’

Atlanta has almost 110,000 single-family homes, and 76,000 apartment complexes with 50 or more units, but lacks in small apartment buildings: The city had only about 15,000 in 2019, according to a memo from a recent zoning review board meeting.

The city could create an additional 11,500 new units if just 15% of single-family zoned properties could be modified to add new dwellings.

If that doesn’t sound like a lot of new units, that’s because it’s not, and by design. Keane says that “gentle density” is the preferred approach here, such that neighborhoods can keep their character mostly intact, and also to ward off accelerated gentrification.

The modifications they are proposing will hardly change the landscape of any neighborhood, and in fact they simply provide legal cover for what thousands of property owners had historically already been doing with their homes — subdividing them into smaller rental units — until new zoning rules outlawed this practice in 1982.

Keane and Amir would like to undo that 1982 rule as part of a reckoning with the historical racism that led to its creation. But they are clear that it is only the beginning of a much larger package of reforms needed to truly confront that racist legacy and bring some small measure of affordability to the city. And it’s the threat of that larger package that spooks the people who want to branch Buckhead off from Atlanta.

“The reason you have zoning is to keep and preserve the the quality of life that the individuals that bought that land want,” says Buckhead City Committee President Sam Lenaeus, a Buckhead-based realtor. “It’s not to keep anybody out. It’s not to limit who lives here. We are a very diverse community and we’ll continue to have plenty of ways to have affordable housing for people that want to live and work in this community.”

A Racial History

For some in Atlanta, one underlying motive for the proposed Buckhead City is racism. According to a September Atlanta Journal-Constitution poll, 21.8% of voters across Atlanta, but outside of the Buckhead City footprint, said that race was the second-most motivating factor for the cityhood effort, as did 13.5% of Buckhead residents.

Race is hard to ignore when considering that the Buckhead neighborhoods are where the bulk of Atlanta’s white residents have lived historically and continue to live today. It’s the city’s most conservative region and contains the only parts of Atlanta where Trump won in 2020.

Buckhead didn’t actually become part of Atlanta until 1952, after several Black communities in the area — Johnsontown, Piney Grove, Savagetown and Macedonia Park — were razed to build Lenox Square, a mall that today sits in the heart of one of Buckhead’s largest commercial districts.

According to Coleman Allums, an urban geographer at the University of Georgia, Buckhead was annexed to bring more white and wealthy residents into city coffers as Atlanta’s Black population began increasing and lower income residents became a larger share of the city due to white flight.

Like many parts of the American South, the area’s legacy of racism runs deep. The Cathedral of Christ the King in uptown Buckhead, home to the largest Catholic congregation in Atlanta and one of the largest in the U.S., was built on land that was once the home of the Ku Klux Klan. The Catholic church bought the land and the “Imperial Palace” mansion accompanying it from the Klan, which used the properties as its national headquarters from 1922 to the mid-1930s.

“Buckhead has this specific kind of racial history and part of what gets ignored in these debates about whether zoning restrictions should be lifted is the question of: Why is it that Buckhead looks the way it does in the first place?” says Allums. “There is a reason that it looks the way it does, and it’s not unrelated to questions of racial equity and wealth-building through homeownership.”

‘Affinity Cities’

The Buckhead City campaign is just the latest in what Emory University urban political scientist Michael Leo Owens calls the quest to create “affinity cities” around metro Atlanta, where neighborhoods are drawing new municipal boundaries to keep in people who earn, dine, shop and look alike.

Since, 2005, just over a dozen new cities have formed around metro Atlanta, in what’s called the “cityhood movement,” which began with the creation of the city of Sandy Springs, just north of Buckhead.

In Allums’ research, he found that most have been majority-white (two of the more recent new cities formed, Stonecrest and South Fulton, however are not majority-white) and usually encompass areas of concentrated wealth and commerce.

While all of those cities have formed for a variety of reasons, what nearly all of them have in common is that each wanted more control of how their neighborhoods were zoned and how their taxes would be spent.

“At its heart, the question about Buckhead is a question about who gets to control a certain body of territory and who gets to make decisions about the rents and extractions that can be made from that territory,” says Allums. “It’s all about who has access to a particular territory, and who does not. And I think what this new sort-of Trumpian project is tapping into is anxiety about those sorts of territorial questions and power.”

“There’s a difference between creating a city out of an unincorporated area and slicing and dicing up an existing city.”

What all of the previous new city campaigns also have in common is that they were created from unincorporated land — land that isn’t part of any municipality. What makes the Buckhead City attempt so controversial is that residents are attempting to form it with land and property that are already part of Atlanta.

They want a de-annexation, which is unprecedented in Georgia, and most of the U.S. Just a few years ago, there was a failed attempt in Stockbridge, a southern metro suburb of Atlanta.

When former Georgia state House Majority Whip Ed Lindsey served as representative for the district that encompasses Buckhead, he was all for cityhood, and in fact sponsored the legislation responsible for creating Sandy Springs, which kicked off the cityhood movement.

Today, he opposes cityhood for Buckhead, though, and co-chairs the Committee for a United Atlanta, which works to defang and defeat the campaign for Buckhead City.

His main beef with this cityhood attempt is that it would financially devastate the city of Atlanta, due to the heavy volume of tax revenue Buckhead contributes.

According to a fiscal impact study conducted by KB Advisory Group for the Committee for a United Atlanta, the secession would lead to a net fiscal loss somewhere between $80 million to $116 million annually, with even more money lost for Atlanta schools.

Not to mention, because of the bond debt that currently binds Buckhead residents to Atlanta, a severance could negatively impact not only the bond rating of Atlanta, but every city in Georgia due to the risk of other neighborhoods deciding to break off from their cities.

Lindsey is also miffed that the state legislature is allowing the Buckhead City political process to move forward despite the fact that not one state lawmaker from the local Atlanta delegation supports the break-off. The legislation in support of Buckhead City is sponsored by a lawmaker whose district is dozens of miles outside of Atlanta.

“There’s a difference between creating a city out of an unincorporated area and slicing and dicing up an existing city,” says Lindsey. “The other side likes to use the word ‘divorce,’ but in a divorce both parties get a say-so on how things look. So, certainly the delegation from the city of Atlanta should have a sign-off.”

Yet, while he opposes the Buckhead City campaign, he believes that its proponents are correct about their suspicions regarding changes to single-family zoning. Lindsey, a partner at the Dentons law firm in Atlanta, is in the camp that Buckhead deserves to keep its housing character intact.

“It changes the complexity and the values of the homes that are within those neighborhoods by decree, and that’s a legitimate concern,” says Lindsey about the proposal to modify single-family housing zoning. “Atlanta is made up of different kinds of neighborhoods, and each neighborhood needs to decide what works for them.”

Lindsey’s hate-the-sin (divorcing from Atlanta) not-the-sinners (people who prefer single-house zoning) approach illustrates just how complex the Buckhead cityhood matrix is. Many of these residents would like to preserve a way of life that arguably keeps Buckhead prohibitively expensive for low-income families and immigrants — groups that are overrepresented with people of color — while simultaneously holding that the motivations for Buckhead to break away might be fueled by racism.

The Next Mayor

Meanwhile, the single-family zoning issue is quietly becoming a blunter wedge issue, even outside of Buckhead. The two front-runners in Atlanta’s recent mayoral race, Felicia Moore and Andre Dickens, who will later compete in a runoff election, are themselves on opposite ends of the zoning spectrum. Moore, who’s currently city council president, has voiced her opposition to the plans and has vowed to stop any legislation that comes before her on it if she becomes mayor.

Moore signed the “Buckhead Pledge” — a list of issues that Buckhead’s city council representative J.P. Matzigkeit says are “at the heart of the so-called Buckhead City movement,” including agreeing to oppose zoning changes that would eliminate single-family residential zoning designations and that allow for accessory dwelling units (ADUs).

Dickens responded saying he was “committed to expanding the affordable housing options throughout the city while not displacing legacy residents or dramatically affecting the character of our neighborhoods,” and that he supports “ADUs and duplexes where they make sense and can help with our affordability.” On his campaign site, he said he would expand inclusionary zoning policies citywide if he became mayor.

The winner of the Nov. 30 runoff could very well determine the future of housing and zoning in Atlanta — and by proxy, the future of Buckhead City. Ultimately, the question of secession will be decided via ballot referendum in November 2022 if state lawmakers vote to allow it next spring.

Only people who live within the proposed Buckhead City boundaries will be able to vote on it, meaning the majority of Atlanta residents will have no say in this proposed secession, though they will be severely impacted by it.

The campaign against rezoning goes beyond Buckhead. Drive through the prosperous Ansley Park neighborhood in Midtown Atlanta — just south of the proposed Buckhead City — and you’ll see “No to Rezoning” signs on the lawns of sprawling mansions alongside slogans such as “Yes to Trees” or “Yes to Family-Friendly Community.” They’re part of a neighborhood campaign to stop Atlanta’s meddling with single-family zoning.

“What does that mean? Family friendly for who?” says Keane. “It’s as though a single tree in the city is more important than a vast forest.”

Updated: 11-29-2021

Biden Administration To Redirect Rental-Assistance Funds To Areas With Greater Demand

Treasury plans to move money from some states, localities to those with backlogs of requests.

The Treasury Department is redirecting rental-assistance money from some states and localities that haven’t used the bulk of their funds to others facing backlogs of aid requests, according to administration officials.

The officials said they couldn’t specify which jurisdictions would lose and gain funds. But they said those with large amounts of unused funds include rural states—like Montana and North Dakota—while local officials in several more populous states—like New York and Texas—are expected to exhaust their rental-assistance money over the coming week and months.

Officials said an initial reallocation, set to be unveiled in early December, could exceed $800 million and come at the request of states and localities that acknowledge they have more money than they can spend.

Much of that money may be moved within states, rather than from one state to another—for instance, from a state-run program to a city-run program, or vice versa.

By the end of the year, the administration expects as much as $20 billion of the $47 billion in rental-assistance funding Congress authorized to be spent. An additional $5 billion to $10 billion will be committed to a specific tenant or landlord but not yet distributed.

“There is less unspent money today than there was six months ago, but we’re still committed to make sure that the money that is unspent gets reallocated as quickly as possible,” said Deputy Treasury Secretary Wally Adeyemo. “There is a need to make sure that we get this money to tenants who need it.”

The rental-assistance program got off to a slow start this year. Though just a fraction of the aid was distributed before a national eviction moratorium ended this summer, more money is now finding its way to tenants and landlords.

While the program is overseen by the Treasury Department, it relies on a patchwork of more than 450 state, county and municipal governments and charitable organizations to distribute the aid, which can be used to cover back rent, future rent and utilities.

It took states and localities months to build new programs from scratch, hire staff and craft rules for how the money should be distributed. Often, tenants and landlords didn’t know money was available, and many of those who applied had to contend with cumbersome applications and requests for documentation.

Treasury officials issued guidance to ease the paperwork burden and boost the flow of money to renters and landlords.

Several months later, administration officials say much more money is out the door but the data show uneven demand.

Administration officials said that some rural states, such as Montana and North Dakota, were allotted significantly more money than they have spent.

As of Sept. 30, Montana had distributed just 11% of its $200 million in rental assistance while North Dakota had distributed a mere 4%.

Meanwhile, New York, Texas and Oregon, facing intense demand for the assistance, have announced plans to shut down their much larger programs to new applicants because they expect to exhaust their funds. California and Illinois could soon be in a similar situation, federal officials said.

“Given the significant need and rapid pace of the program’s distribution of assistance, California will soon require additional Emergency Rental Assistance funds,” Lourdes Castro Ramírez, secretary of the California Business, Consumer Services and Housing Agency, wrote to Mr. Adeyemo last month.

The first $25 billion in the rental-assistance program was included in a pandemic aid package signed by then-President Donald Trump in December. Congress appropriated another $21.6 billion in March.

Administration officials said they are considering intrastate reallocations—from states to city-run programs or from cities to states.

Treasury won’t begin to reallocate money from the second, $21.6 billion pot of money until March.

As a result, officials said, some heavily populated regions of the country may continue to experience a shortage of funding even after they receive reallocated funds from other jurisdictions.

Gene Sperling, a senior adviser to President Biden, said too many avoidable evictions will take place unless the administration uses reallocation “to get more places to up their game and more funds to those most effective in getting aid quickly to very vulnerable renters and small landlords.”

Updated: 12-2-2021

Suburban NYC Home Sales Plunge Because There’s Nothing To Buy

A shortage of home listings is putting a damper on property sales in the suburbs of New York City.

Potential buyers are coming up empty in their search for a place– and that’s sent contracts plunging for the fifth consecutive month in Westchester County and Long Island, according to a report Thursday by appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate. In tony Greenwich, signed deals fell in November for the fourth straight month. It has been sixth straight declines in the Hamptons.

“There’s confusion that falling contracts means declining demand, but that’s not the case,” said Jonathan Miller, president of Miller Samuel. “The reality is demand is unusually high but there just isn’t enough inventory to satiate it.”

Buyers are snapping up homes faster than sellers are listing them. In Long Island, excluding the Hamptons, there were 1,950 signed contracts last month — or 13% fewer than a year ago. At the same time, new listings fell 26%, to 1,751, the firms said.

Pending deals for single-family homes in Westchester fell 19% to 452 last month. There were just 286 new listings added to the market, or 33% fewer than a year ago.

Updated: 12-8-2021

Manhattan Rents See Record Surge Even With Slow Office Return

Fevered demand for Manhattan apartments sent rents soaring the most on record in November, even without a mass return to the office.

The median rent jumped 23% from a year earlier to $3,369, according to a report Thursday by appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate. It was the biggest increase in a decade of record-keeping, though the median is still 3.8% below where it was in November 2019, before the pandemic.

Apartment hunters are scouring for whatever deals remain in a market that’s been whittling down a mountain of inventory. Those still largely working from home are growing tired of being far from the city’s cultural institutions and nightlife, even as offices remain sparsely populated.

“They just want to get back into the city — they’ve been away long enough,” said Hal Gavzie, executive manager of leasing for Douglas Elliman. “There’s a kind of fatigue with being out of Manhattan, and missing it.”

Higher-priced apartments in doorman buildings accounted for much of last month’s rent surge. The median for those fancier homes — a draw for Manhattan’s white-collar office workforce — jumped 27% from a year earlier to $4,108. That’s above the November 2019 median of $4,016, the firms said.

Apartments without doormen, usually lower-frills units popular with people on a budget, are still well below their pre-pandemic rates. The median for such units was $2,584 last month, 12% less than two years earlier.

Updated: 12-9-2021

The Cost of Rent Is Where Many Americans Are Feeling Inflation Most

Cities such as Phoenix, Tampa and Boise are seeing huge increases, forcing tenants to decide about their budgets and what matters.

Rising inflation is hitting the wallets of many Americans. The cost of rent is where some are feeling it most.

Over the past year, the median cost of rent has risen by nearly 20% in a handful of areas including Phoenix, Tampa, Fla., and Boise, Idaho, according to analysis conducted by the Urban Institute. The average rent for a one-bedroom apartment in Sarasota, Fla., for example, was recently at $2,004 a month—a 40% increase compared with the previous year, according to rental listing site Zumper.

Many factors are driving the rent surge including a short supply of housing inventory. There is a deluge of renters who huddled with family members early on in the pandemic but are now driving demand for dwellings.

Landlords, meanwhile, are looking to recoup some losses from the pandemic, when some gave discounted rents to new tenants and existing ones missed payments. Those priced out of the hot housing market are pushing into rentals.

For Americans, rising rent comes on the heels of several other issues that are pressuring wallets. During the current period of inflation—when higher prices for goods and services begins to sap the purchasing power of the dollar—consumer budgets are besieged by the prospect of higher heating bills, home-insurance premiums and an auto market in which the cost of a used car can outstrip that of a brand-new one.

Some renters are coping by putting less into savings or making more-drastic life changes such as moving to a more-stable rental market.

“Even before the pandemic, rental prices were pretty high up there,” said Jung Choi, senior research associate with the Housing Finance Policy Center at the Urban Institute. “The pandemic has just made things worse.”

Here’s what financial planners, economists and housing professionals say renters should be thinking about now.

How Much Should I Be Spending On Rent?

The classic personal finance rule is to keep housing costs at around a third of your monthly take-home pay. That rule might be less relevant, or simply impossible, for those facing higher costs in metropolitan areas or rising rent markets, said Kristen Euretig, certified financial planner and founder of Brooklyn Plans.

Ms. Euretig recommends thinking of rent as part of your fixed cost bundle. If you are paying more on rent but less on other fixed costs, such as utility bills or car insurance, then you can budget for higher rent. The important thing is to keep your fixed-cost expenses at half of your take-home pay, she said.

“Once it gets past 50%, you start to see sometimes that people just don’t have enough left over for going out to eat and traveling, and that can lead to credit-card debt,” she said.

Cynthia Meyer, financial planner and founder of Real Life Planning, recommends paging through listings on Zillow or Trulia or checking resources such as Rentometer.com to check median rent in your area. This way, you can gauge whether you are paying too much for the size and location of your place.

She also recommends having a leaner financial plan prepared so that you can pivot quickly if catastrophe strikes.

“So you got one budget when things are good, but then maybe have a budget that’s 25% less,” she said.

Should I Go Into Debt Or Get A Personal Loan To Pay Rent?

Falling behind on rent payments is risky. Taking on debt to keep from falling behind can increase the risk by adding debt payments down the line.

Before going that route, Ms. Meyer recommends talking to your landlord about possible options. Discuss a rent modification, which allows a tenant to pay a reduced amount in rent in exchange for making a written plan on how payments will be made up, or ask about slowly integrating the rent increase over a few months.

“If you have someone who always pays on time and says, ‘I don’t know if I can do this rent increase,’ or, ‘Could we do this in stages?’ that is valuable to the landlord,” she said. “Vacancies cost money.”

For those in dire need, Ms. Meyer also recommends that tenants ask their landlords about applying for rental assistance. The availability varies across the country, so Ms. Meyer recommends working with your landlord directly to ask about the process.

My Lease Renewal Is Coming Up, But I Can’t Afford The Increase In Rent. What Should I Do?

Negotiating rent might sound intimidating, but doing so could save you money.

First, consider your relationship with your landlord. Talking to an individual property owner will be different from talking to a large management company, but you can prepare for both conversations by making a list of the qualities you bring to the table, such as making consistent payments.

The important thing is to convey your concern about the rise in rent, she said.

“I’ve seen successful negotiations, and I’ve seen people ask and just get a flat ‘no,’ but what do you have to lose by asking, right?” she said.

Should I Try To Move To A Cheaper Place?

First, survey the landscape of available properties out there and ask: How much do I save by switching apartments? Second, consider the costs of moving, from breaking a lease to hiring movers. There are other upfront expenses, too, such as paying to set up new utilities.

“It’s going to cost more to move, even if it’s just across the street,” said Brian Carberry, senior managing editor of Rent.com.

If you are struggling to add up the costs all to save $100 a month on a new apartment, trimming other parts of your budget might be your best option.

Should I Consider A New City?

Big cities are often more expensive. They are also often more predictable in terms of rental prices. For renters, it’s about judging what is more important to you.

Britton Hennessy is a 29-year-old user-experience designer in Boise. After paying $1,000 a month for a two-bedroom, one-bathroom, 850-square-feet apartment, his landlord raised the rent last summer to $1,150.

The increase pushed Mr. Hennessy and his wife, Sara Meyer, 31, to prolong their plans to buy a home in the area. They are eyeing cities such as San Diego and Seattle, where they have friends and family and where the market is slightly more expensive but more stable.

They are giving themselves until March, and then making a decision.

“We’re privileged and lucky to be where we are. It just means we can’t afford a new car or put as much into our savings,” said Mr. Hennessy. “Boise is a weird place right now.”

Updated: 1-6-2022

Apartment Occupancy Just Hit A Historic High. Is That Good?

There’s a silver lining to astronomic U.S. rent hikes: Most tenants won’t pay them, because they’re already locked into their leases.

Apartment occupancy in the U.S. has hit an all-time high, meaning anyone looking for a new place is going to have a rough time of it.

Fully 97.5% of professionally managed apartment units are spoken for as of December, the highest figure on record, according to data from the property management software company RealPage.

That’s more than 2 percentage points higher than the occupancy rate in December 2020, a difference that represents hundreds of thousands of households.

“I don’t think most people realize just how crazy that is,” says Jay Parsons, deputy chief economist for RealPage. “Not only is that a record, typically we consider 95 to 96% to be essentially full.”

But for most tenants, there may be a silver lining to the lack of options. Rents for available apartments have seen record increases over the last year, yet the occupancy rates suggest that most renters aren’t paying those prices.

High occupancy rates leave little margin for renters who need to relocate for jobs, education or other reasons. Winter is the shoulder season when it comes to these moves: Families typically settle in for the cold, the holidays and the school year, then upend their lives over the summer.

(The same seasonal pattern applies to forced exits through evictions.) In 2021, however, the occupancy rate rose steadily throughout the year, without the typical seasonal variation — another quirk of the pandemic.

Such low vacancy levels reflect a historically high number of renters renewing their leases. The lack of churn means that people hunting for new homes have fewer options.

Apartments may be put on the market and leased before tenants leave the unit: “Clean, prep, paint, change the carpet, and get the next person in,” Parsons says.

Abnormal is the pandemic normal, of course. Rents for market-rate apartments cratered during the first year of the pandemic as some residents decamped from cities (and, more importantly, new renters didn’t move in to replace them).

Rents fell furthest in high-cost cities but also dipped in the suburbs of New York, Los Angeles, San Francisco and a few other places.

This plunge led building owners to offer huge discounts and concessions to try to lure renters — followed by steep double-digit rent hikes in 2021 as tenants finally returned to those buildings.

It’s not just the large apartment buildings in major metros that are experiencing big swings in rental trends. Rental homes and apartments across the U.S. are witnessing the lowest vacancy rates in nearly 40 years.

People just aren’t moving: Despite the scramble in spring 2020 following the arrival of the pandemic and the countless stories of Covid-fueled migration patterns, a record low number of households moved between March 2020 and March 2021, according to a report by the Pew Research Center.

For tenants who already signed a lease or never left in the first place, spikes in rent listings might not affect them much. Landlords face a loss on paper when it comes to filling units, known in the industry as loss to lease.

This is the difference between the advertised rent and what renters actually pay. An apartment building owner in Dallas might list a vacant unit at $200 higher than what the renter down the hall is paying.

Property owners want to narrow this gap, and in a tight market they have more leverage.

Yet that same Dallas landlord marking up vacant units might not want to risk maxing out a current tenant’s rent when their lease comes due. It’s easier and more cost-efficient to keep them in place paying a less-than-maximum rent than to search for a new tenant.

Very few apartment operators are going to move a household up to full price, Parsons says. Keeping a paying tenant in place is a high priority, especially after the chaos of the last two years.

“When you send a renewal notice, 90 days out, there’s a lot of uncertainty. Especially in the Covid era, so much could change,” Parsons says. “There’s a real risk that we could have another economic challenge. There’s a balance of a higher chance of collecting revenue in an occupied unit versus a chance of zero revenue. Do you want to roll the dice?”

Rents are rising, and the discounts and concessions of 2020 are likely a thing of the past. Moreover, demand for housing continues to outpace the supply.

In this specific moment, with omicron surging and rental chaos a recent memory, many landlords will stick with their current tenants. No matter: The housing shortage is so severe that property owners likely don’t need to charge max rents to make a bundle.

Families that do need to move right now face tough choices — or rather, fewer choices.

Updated: 1-10-2022

‘Magic’ Multigenerational Housing Aims To Alleviate Social Isolation

Two co-living communities set to break ground this year seek to address loneliness, as well as the caregiving and affordable-housing shortages, in the U.S.

The U.S. is facing an aging population, a shortage of caregivers, a dearth of affordable housing and an increase in social isolation that threatens well-being. Some think what we really need is Magic.

That is, multi-ability, multigenerational, inclusive co-living, or communities where young and old, families and singles, live side by side, supported by inclusive design, technology and neighbors.

Rethinking community in this way could reshape how and where older adults and people with disabilities live and receive care, while building symbiotic relationships between people of all ages, supporters say.

Magic is the brainchild of geriatrician William Thomas, who spent decades working to improve long-term care. Spurred by a belief that segregating older adults, as well as people with special needs, negatively impacts their well-being, Dr. Thomas co-founded Kallimos Communities to develop neighborhoods based on Magic principles.

Groundbreaking is expected to begin in the second half of 2022 on two neighboring 7.5-acre communities in Colorado—the first of what he hopes will be many across the country.

Others in the caregiving field are reimagining the way people live and care for each other and coming up with similar solutions. Another Magic community, the Village of Hope, is slated to start construction in the spring in rural Pennsylvania, catering to parents with adult children with disabilities, grandparents raising grandchildren and those with early onset Alzheimer’s.

Marc Freedman, chief executive of Encore.org, a nonprofit working to promote intergenerational connection and second careers, says the U.S. is among the most age-segregated countries in the world, which has led to ageism and loneliness. Magic communities could help counter that, he says.

“Housing and community design can be used to rectify some of the wrongs we see,” says Mr. Freedman.

Intentional intergenerational models exist in small pockets around the country, where preschools operate in assisted living facilities, and on a grand scale in Singapore, he says, where the government is spending $2.4 billion to build three-generation flats and housing developments that have space for both elder care and child care.

Creating new communities, rather than offering services in existing ones, faces special challenges, including startup costs and getting people to move into them. About 70% of adults 50 and older want to “age in place,” remaining in their homes for the long term, according to a 2021 AARP survey of nearly 3,000 U.S. adults.

Kallimos Communities aren’t meant to replace long-term-care facilities or aging in place, Dr. Thomas says.

“Not everyone wants to stay in their house. For some people, there are negative consequences—social isolation, undernutrition, financial abuse, injury,” he says.

The first of Dr. Thomas’s Kallimos Communities, in Loveland, Colo., will consist of two communities, each with up to 50 rental homes, designed for people of all ages and abilities.

Kallimos will employ staff, known as “weavers,” to meet residents, introduce them to each other and plan meals and activities in the common areas. They would work closely with “keepers,” staff who would help residents with transportation, cleaning and cooking.

“We’re creating a community founded on reciprocity,” says Dr. Thomas. Other Kallimos Communities, the name derived from a Greek word meaning beautiful, are planned for Texas and New England, but are still in the early stages.

The Loveland community, built with the Loveland Housing Authority, a city agency which will develop and own the property, will include communal space and gardens.

Houses will be studios to two-bedrooms and universally designed, with wider doorways and hallways, no steps, and showers that are flush with the floor to accommodate people of all abilities.

Residents can pay for additional technology, such as motorized lift systems mounted to the ceiling and adjustable countertops for those with disabilities and confined to wheelchairs.

“When it comes to aging, a small house equals big life. Big house equals small life.”
— William Thomas, co-founder of Kallimos Communities

Rents haven’t been set yet but will be aimed at the middle of the market.

“When it comes to aging, a small house equals big life. Big house equals small life,” says Dr. Thomas.

Weavers would connect neighbors to foster reciprocity, says Megan Marama, chief operating officer of Kallimos, which will manage the community. For example, a person with dementia who loves to garden could contribute by helping tend flowers.

Magic communities could also appeal to younger people, including students, looking for less expensive housing and more inclusive neighborhoods. “There are a lot of younger people who are attracted to neighborliness and close relationships with people around them,” says Dr. Thomas.

Updated: 1-12-2022

Can You Game Your Way Out of American Housing Injustice?

A new video game uses a choose-your-own adventure format to interrogate the illusion of choice in the U.S. housing system.

The U.S. housing system contains a morass of hard-to-understand policies past and present that have delivered injustice to many Americans, particularly people of color.

But there’s one simple theme that unites these policies: The narrative that the American dream of homeownership can be achieved by anyone through hard work and smart decision-making is a myth.

A new project created by housing and community advocates seeks to communicate this illusion of choice and opportunity in the housing system through a format particularly suited to the subject matter: a choose-your-own-adventure video game.

In “Dot’s Home,” players step into the shoes of Dorothea “Dot” Hawkins, a young Black woman living in her grandma’s house. The home, in a disinvested Black neighborhood in Detroit, is in desperate need of repairs. “Dot” travels back in time, via a magic key, to help her family make crucial housing decisions that will ultimately affect her own future.

These decisions include whether her grandparents should invest in a shoddy house as their first home, and whether her parents should move away from their community to the suburbs after their home in a public housing development is set for demolition.

But here’s the rub: In the game that is the American housing system, there are no great outcomes for a Black woman — just ones that are more or less bittersweet.

As Dot, players pass through different decades, each one highlighting a defining moment in history for Black homeownership: the Great Migration of the 20th century, urban renewal efforts in the 1990s, and finally, the 2010 foreclosure crisis that helped spur gentrification.

Along the way, players navigate racist housing policies and predatory lending practices whose impacts reverberate across generations in real life.

“We wanted players to play the game and not necessarily empathize with Dot’s family but just to bear witness to, and accompany them through, these very intimate but consequential moments,” says Christina Rosales, housing and land director at the community organizing nonprofit PowerSwitch Action and a co-producer of the game.

By offering an intimate look at how housing discrimination affects one family, “Dot’s Home” aims to be relatable to its target audience — someone who knows these challenges first-hand, and whose experience is not unlike that of the team behind the game.

“This game is essentially made by people of color, for people of color,” says Rosales. “So it contains all of these intimate moments that are a reflection of the team’s own family histories and interactions with neighbors.”

The game, free to download through Steam, was recently featured at the Game Developers of Color Expo and was a 2021 Impact Award Nominee at IndieCade.

It’s one of five projects in the Rise Home Stories series, a multimedia collaboration between social justice advocates and storytellers rethinking how to better educate the public about land and housing inequality, and the power of collective action. The other projects include an online comic series, children’s book, a podcast and an interactive web experience.

CityLab spoke with Rosales about the takeaways of the game, and what it was like as an advocate to build a game from scratch. The interview has been lightly edited for length and clarity.

What’s Unique About Using A Game Format?

We are often told, when it comes to housing, that we have a choice. We can choose where we want to live, we can make all these sacrifices and build our wealth. We are told that, if we just do the right things, we can have a prosperous life.

But in real life, the choices have been constructed in this very distorted way. In a game as a player you feel like you have agency and choice and you can impact the ending. But because it is a game and because of the limitations of technologies, the choices are rigged for the player, and they get an ending that has already been pre-constructed for them.

So in essence, it’s sort of this mirror of reality. I don’t think a story or comic book or video could quite convey that feeling of false agency and false choices.

How Did You Decide On Detroit As The Setting Of The Game?

After the foreclosure crisis, people were like, “Wow the city of Detroit is paying people to move there.” And there was this ugly narrative of the city as a blank canvas ready for people to move into and make their own. It was such an ugly colonialist narrative.

Behind that there was a lot of disinvestment, and questionable decisions about the development in Detroit in the post-foreclosure crisis. We wanted to make sure that we conveyed disinvestment and neglect of neighborhoods and homes, but more so as a systemic thing, and not just focus on one family.

Rather, this whole community has been left on their own, which made it easy for speculators to come in and sell that narrative of, “Make your money and your future in Detroit.”

Why Use Dot As The Main Character And Not, Say, Grandma?

The dominant narrative in this country is that if you play your cards right, you, too, can have wealth and prosperity — and our generation just doesn’t buy it. We wanted to make a game that validates that cynicism, because it’s an important tool for questioning what is, and imagining what could be.

So it was important to have Dot at the center; she is the ideal audience: the young Black woman who is faced with so many decisions in her life, but also carries the legacy of her family and the community, and has to interrogate why [her community] is where they are, how things could have been different.

We thought it was important for her to be witty, and to think she knows everything as she goes back in time to learn what happened.

Dot has this line in the game, something like, “Why does it seem that every time there is progress, we’re just short of reaching our dreams?” I think that’s very poignant for where we are today, and she contemplates that as she makes that final decision that takes you to the ending.

The game doesn’t just explore what happens internally within Dot’s family, but also their relationship with the community. What were you trying to convey about the conflicts between individualism and collectivism that Black families grapple with?

Dot’s sister flips houses [in the midst of] the foreclosure crisis, and she decides, you know, “I’m a Black woman who’s struggled, and who’s watched my parents and grandparents struggle, so I’m going to work for myself and get my family what they need by flipping houses and sell it for a big profit.” But she’s questioned by Dot and her partner, who say, “That’s not what we need, and that’s not what community is.”

I think that was a tough one to grapple with. It’s pretty obvious what we would want someone to do in that situation, but I still think it’s a tough thing to balance if you were to put yourself in [the sister’s] shoes.

As An Advocate, What Did You Take Away From The Experience?

What I learned from game designers and narrative designers while working on this game is that we are telling this very complicated story in history, and we have to do it in this intimate personal way. I had to learn to let go of the details about policy and things like that, and focus more on the real impact of these policies on people.

And that what was more important than conveying policies and histories was getting people to understand the themes of keeping the family legacy alive, about collectivism and working for the community.

From what I’ve heard, people got that from watching it play out in the game. The dialogue in the game between Grandma Mavis and Dot is tender and funny, and relatable.

How Does The Game Fit In With The Larger Rise Home Stories Project?

Over the years, the real estate industry has created this vision of the American Dream: Move out of cities where there are slums and blight and all these things like overcrowding, to the suburbs, where you can buy your own house and gain capital.

But we need to start interrogating that, and questioning the corporate interest behind it. So all of the projects try to do that.

They challenge all these dominant narratives of scarcity, that there isn’t enough to go around and that’s why everything is so expensive. And of individualism; we know there is value in community.

There’s a children’s book about tenant organizing, and a web series about working with communities and protecting land. Then there’s a podcast about disaster recovery and making communities better to protect each other.

There’s also an interactive experience revealing the big corporate interest and speculators that have stolen land and houses from communities of color all over the country.

Updated: 1-13-2022

Mortgage Rates Jump To Highest Level Since March 2020

Higher borrowing costs, combined with record-high prices, could push some buyers out of the market.

Mortgage rates have hit their highest level since March 2020, the month the coronavirus pandemic took hold in the U.S. and roiled markets.

The average rate for a 30-year fixed-rate loan was 3.45% for the week ended Thursday, according to mortgage finance giant Freddie Mac, up from 3.22% a week ago.

Expectations that the Federal Reserve will raise interest rates multiple times this year are driving up mortgage rates, which are closely tied to the 10-year U.S. Treasury.

Rates have now risen for three straight weeks. A year ago, the rate on America’s most popular home loan was 2.79%, just above its record low of 2.65%. Still, rates remain near historic lows.

Higher borrowing costs, combined with record-high home prices, could push some would-be buyers out of the market. The median price for existing homes rose 13.9% in November from a year earlier to $353,900, according to the National Association of Realtors.

“Given the fast pace of home price growth, [higher rates] will likely dampen demand in the near future,” Sam Khater, chief economist at Freddie Mac, said in a statement.

Mortgage payments are already less affordable relative to income than at any time since 2008, according to the Federal Reserve Bank of Atlanta.

In early 2021, Americans needed about 29% of their income to cover a mortgage payment on a median-priced home, the Atlanta Fed estimated. That rose to 33% by October.

Updated: 11-27-2022

As Mortgage Rates Rise, More People Choose to Rent Single-Family Homes

In response, major builders and developers are getting into the business, which was once dominated by mom-and-pop outfits.

When Ronald Granville, a former law-enforcement officer in Philadelphia, was offered a new job in North Carolina this summer, he and his wife, Fiona Granville, jumped at the chance to relocate their family. They packed up the van and took their two sons on a road trip to scout for a place to live.

The couple had dreamed of owning their own home and putting down roots. But after calculating the cost of a 30-year fixed-rate mortgage on a three-bedroom home in the local market, they instead went with a new community of single-family rentals in Brentwood run by American Homes 4 Rent, just minutes from Lake Norman, their favorite vacation spot.

“We did the math and found the cost of a mortgage, home insurance and taxes would be $1,500 more a month than the cost of renting a home,” says the 42-year-old, whose monthly rent is now $2,200 a month. “We decided to wait until mortgage rates drop before buying a house. It is just not economical right now.”

Increasingly, U.S. consumers faced with inflation and the high price of homes are pressing the pause button on home buying.

The rate on an average 30-year fixed mortgage is now 6.61%, more than double what it was in October 2021, according to housing-finance agency Freddie Mac. As a result, single-family home rentals, or SFRs, are now a hot area in the real-estate market.

“We are in the midst of a housing-affordability crisis and people are suffering from sticker shock,” says Gary Berman, CEO of Tricon Residential, a major developer, builder, and operator of single-family homes for rent across the U.S. and Canada.

More Economical

The trend has made consumers closely examine whether renting a single-family home currently is more economical than owning one. Nationally, it cost $888 a month more to buy an entry-level single-family home than to rent it, according to September data from John Burns Real Estate Consulting.

A 30-year-fixed mortgage with 5% down (including principal, interest, taxes, insurance and maintenance) on such a home cost $3,058 a month, while the median monthly rent on such a single-family house was $2,170, based on John Burns research.

The firm weighted 99 housing markets in the U.S. to determine the median mortgage payment versus the median rent payment.

According to the National Association of Home Builders, the $4.4 trillion SFR market is one of the fastest-growing sectors in real estate.

“Today, single-family, built-for-rent homes account for 11% of all single-family home construction in the housing market, versus a 3% market share that was typical over the last several decades,” says Robert Dietz, senior vice president and chief economist for the National Association of Home Builders. “The sector’s market share is on an upswing and should rise to 15% in the coming quarters.”

Other factors are driving the trend as well. Some consumers are facing more challenges when trying to get a mortgage. Banks have tightened credit requirements to avoid loan defaults, making it harder to get a loan. For others, a desire for a more transitory, hassle-free lifestyle has made owning a home less appealing.

That is especially true for remote workers who are mobile and can live and work anywhere they can get the best quality of life.

Once dominated by mom-and-pop developers, the SFR market is now a thriving business for major real-estate builders and developers including Invitational Homes, American Homes 4 Rent, Tricon Residential and AHV Communities.

SFR is “the darling of real estate,” says Mark Wolf, chief executive of AHV Communities, a company with more than $1.6 billion worth of single-family rental homes under management and development in six states including Colorado, Texas and Tennessee.

This is happening even though rents on single-family homes have risen 10.2% year-over-year through September due to inflation, according to the CoreLogic Single-Family Rent Index.

“That’s pushed the median rental cost for a three-bedroom single-family detached home to $1,900 monthly,” says Molly Boesel, CoreLogic’s principal economist. “In contrast,” she notes, “mortgage payments on these types of homes have increased 50% since January.”

Smart Homes

Communities are springing up especially in the Sunbelt. Units typically feature three-bedroom homes with two bathrooms, a family room, a large fenced-in yard, and two-car garage.

Besides on-site home maintenance, they offer a host of amenities—from swimming pools and 24-hour fitness centers to dog parks, walking trails and EV charging stations.

Some new SFR communities are designed for upscale customers. For example, the townhouses at Farm Haus, an SFR community in the northwest part of San Antonio, are all smart homes in which residents can control their heat, air-conditioning, appliances, locks and garage doors through apps on their mobile phones. Units come with designer kitchens, hardwood floors and 2½ bathrooms.

Emily Jewell, a 25-year-old bartender and makeup artist in San Antonio, says she and her boyfriend, Danny Perez, were denied a mortgage for a starter home.

“We have high credit ratings but most of our income comes from tips and side gigs not reflected on our W-2 forms,” she says. “Loan officers weren’t comfortable approving our application.”

Now, for $2,150 a month in rent, they live in a new, three-bedroom house at Farm Haus. Ms. Jewell says she loves the perks that come with her community, like the use of the clubhouse where she plans to have her daughter Santana’s first birthday party. “I am now spoiled,” she says. “I don’t want to downgrade when I decide to buy a house.”

Joe and Stella Watson of Star, Idaho, feel the same. The Watsons just moved with their three children from Sherwood, Ore., to a five-bedroom luxury home in an SFR community run by American Homes 4 Rent.

“The community is filled with lots of young families and empty-nesters from all over the country and has a lot of cool things the kids love,” says Mr. Watson, who is 40 years old and works as a corporate data consultant.

“We will eventually buy a home near Boise,” he says. “But for now, we’d rather invest in commodities and high-interest savings accounts until the dust settles in the housing market.”

Updated: 11-28-2022

Rising Inventory Will Be The Housing Market’s Next Problem

Unusually low supply has buoyed prices as mortgage rates soar, but a springtime flood of new listings is poised to tip the equilibrium.

The US housing market is in an uneasy state of equilibrium. Demand has plummeted as mortgage rates hit a two-decade high, but prices haven’t declined much in part because supply remains correspondingly low.

If borrowing costs don’t start to normalize by early next year though, the scales may finally tip and prices could plunge.

The start of the year, of course, is when homeowners and real estate agents start to bring new inventory to market. It’s a time-honored tradition that draws on some smart strategy and a bit of industry lore.

As the thinking goes, buyers and sellers often want to get their transactions closed by summer, especially if they have children starting at new schools in September.

Agents also contend that homes look their best in spring, surrounded by lush landscaping and emerald green lawns. Even if sellers don’t come out in quite their usual numbers this year, there may still be enough additional inventory to push home prices over the cliff.

Clearly, the amount of supply on the market is still extraordinarily low relative to demand. It would take just 3.3 months to work through the market’s existing home inventory, based on non-seasonally adjusted data for the most recent month.

The metric had already been declining consistently for a decade through 2019, but the pandemic brought it to unthinkable lows. It’s no wonder that the S&P CoreLogic Case-Shiller 20-City Composite Home Price Index is down only about 2% from its peak despite mortgage rates surging to 7% from 3% in 10 months.

But every year, the inventory-to-sales ratio spikes in January and February as transactions crater and the first new listings start to come online in anticipation of the spring open house season, which can set bad things in motion in times of stress.

In January 2008, supply jumped by four months worth of housing to 15 months, and there was a similar spike during every January of the housing bust.

The last two years have experienced unusually muted spikes in the ratio, but that won’t repeat again this winter. If you zoom in, it’s already clear that the number of months of supply has been climbing in a seasonally unusual manner.

The trend line will start to look concerning if it breaks through seasonal norms from 2018 and 2019 in the months ahead.

Consider the various countervailing forces in the market heading into the 2023 inventory surge. On the one hand, some would-be sellers will decide to forgo transactions this year and hunker down in their existing homes, many financed with below-3% mortgages that they’d forfeit if they bought a new property.

On the other hand, more than 30 million single-family homes and condominiums in the US — 34% of the total — are mortgage free, according to data compiled by real estate analytics firm Attom.

And many more homeowners simply won’t have the luxury of waiting for the next open house season to roll around. They include but are not limited to:

* People With Growing Families Who Need To Buy A Bigger House;
* Seniors Who Need To Move For Health-Related Reasons;
* People Required To Move For Work.

On the latter point, housing bulls will often emphasize what they see as the cosmic shift that’s come from increased working from home. But that doesn’t imply that Americans will no longer move for their jobs.

Hybrid work in knowledge-based industries certainly looks poised to endure, yet many companies no longer allow working full time from whatever palm-tree-lined destination their employees choose.

As of June, only about 15% of full-time employees are fully remote, according to data from the Survey of Working Arrangements and Attitudes, 1 an online survey of US residents.

That’s still much higher than anyone ever imagined before the pandemic, but it still leaves 85% who may have to sell their homes if they get fired or leave their job for a new one in another part of the country.

All told, the early 2023 inventory spike looks unavoidable, and the real question is where mortgage rates will be when the listings hit the market. If inflation continues to moderate, that could lead financial markets to anticipate a change in monetary policy later next year.

That would set the stage for Treasury bonds to rally and a corresponding drop in mortgage rates. It’s a race against the clock, though, and you’d have to hope for a near-perfect run of inflation data to assuage jittery policymakers and financial market participants and bring 30-year mortgages back down below, say, 6%.

Even then, it’s unlikely that rates will look anywhere near as attractive as the loans that prevailed for most of the past decade, and they might not be enough to keep the market’s delicate equilibrium intact and prices afloat.

Updated: 11-28-2022

US Housing Enters Deep Freeze With Sellers And Buyers Sidelined

Agents struggle to find listings as deals decline, mortgage rates remain high and signs point to leaner times ahead.

The decade-long housing boom in the US is over, and the market has gone eerily quiet.

Buyers are clearing out, but so are sellers. And the real estate agents who served them during the pandemic housing frenzy now are left scrambling for listings, or exiting into fallback careers as deals plunge.

As home prices slide in the frothiest locations and the economy teeters on the edge of recession, inventory is staying tight, preventing values from falling faster.

But the upheaval caused by soaring mortgage rates — a consequence of the Federal Reserve’s inflation-curbing campaign — has thrown the industry into turmoil with the market signaling leaner times ahead.

Sellers listed 24% fewer homes in October compared with a year earlier, the fourth straight month with a drop, according to data from Zillow. At the same time, purchases sank and are now 17% below their levels in October 2019, before Covid hit.

With a typical home now only affordable to someone earning more than $100,000, brokers are struggling to find buyers. And try convincing a homeowner to sell, especially if it means trading in a 3% mortgage for a much more expensive one.

“This is Han Solo in carbonite: This is a market that could stay frozen for quite some time,” said Benjamin Keys, a real estate professor at the University of Pennsylvania’s Wharton School, referring to a character in the Star Wars franchise. “There really aren’t any forces to unthaw it in a rapid way.”

For the logjam to break, affordability has to improve, and that means a significant drop in either prices or rates. Borrowing costs have come down some after crossing 7% a few weeks ago, but they’re unlikely to fall much more in the near future, according to Mark Zandi, chief economist for Moody’s Analytics.

He expects prices to slip almost 10% from their June peak over the next two years — if the country avoids a full-blown recession. Even a moderate one, however, could push prices down twice as much, he said.

Pressure On Sellers

Homeowners holding back for now are hoping for a bigger decline in rates, which would make it easier to sell and cheaper to buy something else, according to Zandi. But divorces, job changes and children will keep coming, eventually leading to a steady increase in listings.

“Once the job market starts to turn — and it will — the pressure will intensify,” Zandi said of a potential economic downturn. “People will have to move.”

Any new listings will compete with homes that are already languishing on the market. In places such as Phoenix, so-called active listings have been piling up since buyers started retreating.

But the housing landscape is far different than it was after the 2008 financial crisis. Most of today’s homeowners are flush with equity from the decadelong increase in values. And 30-year, fixed-rate mortgages are the norm, allowing borrowers to ride out volatility.

Sellers could potentially remain on the sidelines for years if they have to, keeping the market stuck, according to Keys, the Wharton School professor. There are few eager buyers because many home purchases were pulled forward during the past couple years, so those who wanted to move to the suburbs are already there, he said.

With listings lingering in suburban Bergen County, New Jersey — a hotbed of deals earlier in the pandemic — real estate agents Yvette Miranda-Lee and Lamont Byrd are trying new strategies to unlock sales.

They’ve convinced a couple sellers to act as a bank for their buyers, providing cheap, short-term financing to make the homes affordable.

“We’re helping sellers come to terms that they have lost out,” Miranda-Lee said. “They came to the party a little bit late.”

Knocking On Doors

Six months ago, the agents were flooded with business. Now they’re on a door-knocking campaign, searching for the most motivated of sellers: those on the cusp of losing their properties to foreclosure.

It was the dinner hour in Teaneck, a middle-class commuter town close to Manhattan — a good time to catch people at home, Miranda-Lee said as she sat in the passenger seat of a white Kia SUV. She and Byrd were driving around, working down a list of eight homes earmarked for foreclosure sale.

They approached one with a light on the front porch. A middle-aged woman opened the door just a crack.

“We found someone who bought my home,” the woman told them. “The auction thing isn’t happening because otherwise, I’d be sitting on a bunch of boxes.”

Back at the car, Byrd said that while they didn’t get the sale, they’re not going home empty-handed. The woman had asked for their cards, saying she needed to find a cheaper place quickly.

“We have business partners that are in upstate New York that we can connect her with,” Byrd said. “We’ll still get some sort of a referral fee, but we can at least help this woman relocate.”

In Las Vegas, the market has softened so much that Trish Williams, a Realtor with Keller Williams, has had to turn down some sellers who weren’t realistic about the price they could get. She has upfront marketing costs for every listing and can’t afford to have them just sit.

“The last couple of price cuts haven’t moved the bar at all,” Williams said. “We had an open house where one person showed up — just a nosy neighbor looking around.”

Dustin Holindrake, a Realtor with My Home Group, said half the agents renting space in his building in Chandler, Arizona, have left because they can no longer afford it.

Most Realtors now have side hustles to get by, he said. One is a schoolteacher, another is pedaling security systems — jobs that give them some flexibility to also show houses.

Holindrake, who hasn’t sold a house in a few months, has started selling solar installations and plans to get his insurance license.

“I had a big fat savings account at the beginning of year but now I’m getting to the point of getting nervous,” he said. “The income has stopped coming in.”

Updated: 11-29-2022

U.S. Government To Backstop Mortgages Above $1 Million In High-Cost Areas

Highest limit applies to most expensive regions; level also set to rise in rest of the country, reflecting increased home prices.

The federal government is about to backstop mortgages of more than $1 million for the first time in high-cost markets, such as parts of California and New York.

The increase reflects the rapid appreciation in home prices over the past few years, even as the mortgage market has recently cooled.

The maximum size of home-mortgage loans eligible for backing by Fannie Mae and Freddie Mac will rise to $1,089,300 next year in a few expensive markets, from $970,800 this year, the Federal Housing Finance Agency said Tuesday.

For most parts of the country, loan limits will rise to $726,200 from a 2022 maximum of $647,200, said FHFA, which oversees mortgage-finance giants. By law, loan limits are calculated annually using a formula that factors in average housing prices.

In all, about 100 counties and county equivalents, out of more than 3,000 across the U.S. are designated as high-cost markets, also including some in New Jersey, Virginia and Utah, according to the FHFA.

The increase may make it easier and cheaper for borrowers purchasing one-unit homes, particularly those near the limits. The higher limits are also likely to renew a debate about how big of a mortgage is too big to be backed by the government.

Mortgages within the limits are called conforming loans, and they generally come with lower closing costs and can require a smaller down payment than mortgages that exceed the limit, known as jumbo mortgages.

Whatever relief higher loan limits may offer home buyers is likely more than offset by the higher interest rates and home prices, which have cooled the housing market.

Existing-home sales have fallen for nine straight months through October, according to the National Association of Realtors.

Mortgage-interest rates have risen rapidly this year, cracking 7% for the first time in two decades. Many prospective home buyers have been unable to qualify for loans or had to cut their purchase budgets after higher rates pushed up their expected monthly costs by hundreds of dollars.

The median sales price of an existing single-family home was up 8.6% in the third quarter from a year earlier, the Realtors association said. Prices had increased at an even faster rate in recent years, as demand for homes surged during the pandemic.

Fannie and Freddie don’t make loans. The companies, which have been under government control since 2008, instead buy mortgages from lenders and package them into securities that are sold to investors.

Policy changes at the companies are important because their role in backstopping roughly half of the $13 trillion mortgage market helps determine who gets access to mortgage credit and on what terms.

When loans qualify to be purchased by Fannie and Freddie, it allows them to be securitized in a market that appeals to a global pool of investors, allowing the loans to carry lower interest rates than they might otherwise.

However, for much of the postcrisis period, jumbo loans have been priced better than conforming loans partly because banks see them as valuable for attracting wealthy customers who they can do other business with, industry officials say.

Mortgage bankers and real-estate agents say the new limits are needed to reflect higher home prices. Fannie and Freddie’s loan limits “need to keep pace with home prices to address affordability,” said Anthony Lamacchia, a broker and owner of a real-estate company near Boston.

In pricey markets, even starter homes can fetch seven-figure prices. In a 2022 housing survey, the California Association of Realtors found that nearly one-quarter of the homes sold between $1.25 million and $2 million were bought by first-time home buyers. The figures were slightly higher in the San Francisco area and in Southern California, the group said.

Some housing-policy experts say the jump in loan limits raises questions about whether taxpayers should effectively backstop high housing prices.

Fannie and Freddie’s market share rose significantly during the pandemic to more than 60% of new loans, according to the Urban Institute, a Washington think tank that conducts research on economic and social policy.

“Maybe the loan limit actually exceeding $1 million will get somebody’s attention and at least provoke a much needed policy discussion about the government’s footprint in the mortgage market,” said Ed DeMarco, a former top FHFA official who is now president of the Housing Policy Council, a housing-industry trade group that generally favors boosting the role of private capital in the mortgage market.

Housing affordability won’t be truly tackled until a long-term supply shortage of new homes is addressed, he added.

Critics of Fannie and Freddie’s large role say borrowers who can afford million-dollar mortgages should be able to finance a home without government-backed financing.

Home Prices Slid In September For Third Straight Month

Case-Shiller index fell 1% in September from August amid higher interest rates.

Home prices fell in September from the prior month, marking the first time prices have declined for three straight months in nearly four years.

The S&P CoreLogic Case-Shiller National Home Price Index, which measures home prices across the nation, fell 1% in September from August. Over the past three months, the index is down 2.6%.

Home prices in many major cities had been booming for years before the pandemic-fueled home buying spree pushed prices even higher.

That surge reversed abruptly this year due to a rapid rise in mortgage rates, which made home-buying far less affordable and pushed many buyers out of the market.

Existing-home sales fell for nine straight months through October, and sales activity has declined sharply in much of the country.

Home prices are still rising on an annual basis because the inventory of homes for sale are at unusually low levels. In September, the index rose 10.6% compared with a year earlier. That was down from a 12.9% annual rate the prior month, and many economists are forecasting year-over-year price declines in 2023.

Surveys also show buyer enthusiasm waning. Consumer sentiment toward the housing market fell in October to a record low in data going back to 2011, according to Fannie Mae.

The West Coast has been especially hard-hit by rising interest rates. Its real estate is among the most expensive in the country, and workers at many tech companies have faced layoffs and falling stock prices.

Home prices in San Francisco tumbled 2.9% in September from August. Recent monthly home price declines there have been steeper than the city’s monthly price declines in 2001 when the dot-com bust spilled over to the housing market. Seattle home prices also fell 2.9% on a monthly basis.

The Case-Shiller index, which measures repeat-sales data, reports on a two-month delay and reflects a three-month moving average. Homes usually go under contract a month or two before they close, so the September data is based on purchase decisions made earlier in the year.

“As the Federal Reserve continues to move interest rates higher, mortgage financing continues to be more expensive and housing becomes less affordable,” said Craig Lazzara, managing director at S&P Dow Jones Indices. “Given the continuing prospects for a challenging macroeconomic environment, home prices may well continue to weaken.”

The average rate on a 30-year fixed-rate mortgage was 6.58% in the week ended Nov. 23, up from 3.1% from a year earlier, according to housing-finance agency Freddie Mac.

The median existing-home price rose 6.6% in October from a year earlier to $379,100, according to the National Association of Realtors.

The Case-Shiller 10-city index gained 9.7% over the year ended in September, compared with a 12.1% increase in August. The 20-city index rose 10.4%, after an annual gain of 13.1% in August. Price growth decelerated in all of the 20 cities.

Economists surveyed by The Wall Street Journal expected the 20-city index to gain 10.9%.

Miami had the fastest annual home-price growth in the country, at 24.6%, followed by Tampa, at 23.8%.

A separate measure of home-price growth by the Federal Housing Finance Agency also released Tuesday found an 11% increase in home prices in September from a year earlier. The FHFA index rose 0.1% in September from the prior month on a seasonally adjusted basis.

Updated: 12-1-2022

Home Buyers Could Soon Get $1 Million Mortgage With 3% Down Payment

Higher limits for federally backed mortgages will give buyers more flexibility in their house hunts.

To qualify for a $1 million mortgage, Americans typically have to make a down payment of at least 20% of the home’s price. Starting next year, some buyers could put as little as 3% down.

The cap for home loans backed by Fannie Mae and Freddie Mac rises to $1,089,300 next year in a few expensive markets including Los Angeles and New York, up from $970,800, the Federal Housing Finance Agency, or FHFA, said Tuesday.

The higher limit means borrowers can qualify for bigger loans without needing to take out jumbo mortgages, which aren’t federally backed and have more-stringent requirements for income, credit and down payments.

For most parts of the country, federally backed mortgage limits will rise to $726,200 from a 2022 maximum of $647,200, the agency said. The limits are calculated annually using a formula that factors in average housing prices, which have been on the rise. The majority of mortgage loans are federally guaranteed.

In October, 12.5% of for-sale homes were priced at or above $1 million, according to Realtor.com data.

The new caps will give those looking to buy a home more options, said Daryl Fairweather, chief economist at real-estate company Redfin Corp.

“For buyers, it [the new cap] opens up a whole new set of homes for them to consider that may have previously exceeded their budget for a monthly mortgage payment,” she said.

Having the option to make a smaller down payment for a more expensive home could somewhat offset higher home prices, said Kate Wood, a home and mortgage specialist at NerdWallet.

In addition to still-high home prices, would-be buyers continue to face headwinds from a lack of housing inventory, inflationary pressures on their overall budgets and anxiety about a possible recession.

“Buyers aren’t by any means getting a bargain, but needing to save $30,000 for a down payment—rather than $200,000—could make a home in the million-dollar range more attainable,” said Ms. Wood.

A key difference between jumbo mortgages and federally backed loans is accessibility.

Generally, lenders for jumbo mortgages want borrowers to have a credit score of 740 or higher and a debt-to-income ratio in the range of 36% to 43%%, said Jeff Ostrowski, mortgage analyst at Bankrate. Down-payment requirements can vary by lender.

For many federally backed loans, debt-to-income ratios might go as high as 50% and credit scores are typically at least 620.

Loans with down payments below 20% generally require private mortgage insurance. The average down payment has risen since the pandemic, along with home prices.

The downsides of taking out a big mortgage with a small down payment are higher monthly payments and the need to pay private mortgage insurance.

For a borrower with a $1 million mortgage and solid financials who made a 3% down payment, private mortgage insurance would add about $500 to their monthly mortgage payment, said Ms. Wood.

There might be other benefits to mortgages within the federal limits, said Danielle Hale, chief economist at Realtor.com. (News Corp, owner of The Wall Street Journal, also operates Realtor.com under license from the National Association of Realtors.)

During the pandemic, for example, the Cares Act offered forbearance options to households that have federally backed mortgages because the government can set policy for mortgages backed by Fannie Mae and Freddie Mac, she said.

Some buyers who qualify for traditional jumbo loans might be better off sticking with that option, said Mr. Ostrowski, the mortgage analyst at Bankrate.

Historically, jumbos have been more expensive than conforming loans—or those that meet FHFA’s criteria and the guidelines established by Freddie Mac and Fannie Mae—but recently they have kept lower interest rate.

The national average mortgage rate for conventional 30-year loans was 6.78%, while the average jumbo rate was 6.32%, according to Bankrate’s Nov. 29 lender survey.

Updated: 12-2-2022

Home Sellers Are Pulling Properties Off The Market At Record Pace

Pandemic boomtowns are seeing the biggest jump in delisted houses as rising mortgage rates hit demand and real estate transactions slow.

A record number of homes are being delisted as sellers face a sharp drop in demand, according to real estate brokerage Redfin.

On average, 2% of homes for sale were delisted without being sold each week during the three months ended Nov. 20, Redfin said. That compares to 1.6% a year earlier and is yet another sign that the decade-long housing boom is over.

In a complete reversal from the pandemic buying frenzy that prompted bidding wars and drove home prices to record highs, demand has slumped as mortgage rates have soared this year.

Although borrowing costs have dipped slightly in recent weeks, many potential buyers have already been sidelined. As a result, sellers are increasingly taking their homes off the market after receiving low offers they aren’t willing to accept — or no offers at all.

“Some sellers are having a hard time grasping that we’re not in a housing-market frenzy anymore — it’s tough for them to swallow that they missed the boat on getting a high price,” said Heather Kruayai, a Redfin real estate agent in Jacksonville, Florida.

Pandemic boomtowns are seeing the biggest increase in homes delisted, particularly those in the Sun Belt. Sacramento, California, saw the largest jump in weekly delistings with 3.6% of active listings taken off the market on average during the 12 weeks ending Nov. 27, up 1.6 percentage points from a year earlier. Austin, Texas, followed with a 1.5 percentage point jump in delistings.

The Redfin analysis looked at 43 of the 50 most populous US metro areas.

With fears of an economic slowdown looming, Seattle-based agent David Palmer predicts bearish sellers may keep their homes off the market for a while.

“With the word ‘recession’ out there, there’s not as much optimism about spring being a better market,” Palmer said. “Now people are talking about trying again in another year or two once the economy improves.”

Once-Affordable US Housing Markets Are Now Out of Reach For Most

As US home prices soared out of reach for many Americans, some corners of the country that used to have affordable housing markets have seen some of the steepest increases.

In 75 cities, home prices that used to rank better than the national average for affordability are now worse than average, according to data compiled by the Federal Reserve Bank of Atlanta.

The biggest swings since the pandemic began were in Glenwood Springs, Colorado and Seneca, South Carolina.

Nationwide, housing affordability is the worst on record, according to the Atlanta Fed data. That’s the result of a combination of soaring home prices while borrowing costs were cheap, and now the steep jump in mortgage interest rates as the Fed tightened monetary policy to fight inflation.

The median-income household would have to spend a record 46% of its income in order to own the median-priced house, although the measure varies widely by location.

Cities in the Southeast — from Nashville and Atlanta to Tampa and Orlando — have seen some of the sharpest declines in affordability, according to the research by Domonic Purviance at the Atlanta Fed.

Close to the bottom of the rankings is Key West, Florida, where the share of income needed to purchase a median-priced home is close to 100%, leaving no money for anything else.

Many analysts are predicting a housing bust, with price declines reaching the double-digits, that will bring costs back into line with incomes.

Still, so far there’s little sign of the kind of inventory buildup of unsold homes that would accompany a large-scale price correction.

“We don’t know necessarily how it’s going to play out,” says Purviance.

Updated: 12-20-2022

US Rent Inflation Is Slowing Fast In New Index Built By Fed Team

* Gauge Based On Leases Of Tenants Who Recently Moved In
* Collaborated With Bureau Of Labor Statistics Researchers

The cooldown in US housing should show up in official inflation data next year, according to a new index that aims to capture changes in rental markets without the usual lag.

Researchers at the Federal Reserve Bank of Cleveland and the Bureau of Labor Statistics built a gauge that’s based only on the leases of tenants who recently moved in, and compared it with another that measures the average of rents for all tenants.

The results, according to a paper this month, show the new-tenant index is now dropping fast, from a peak around 12%.

The researchers found that their new-tenant data tends to run ahead of BLS housing measures in the consumer price index by about one year, while for the all-tenant measure the gap is about one quarter.

Because of the mechanics of how housing is captured in the official inflation data, there’s typically an extended time-lag before real-time market conditions show up in the numbers.

That can leave policy makers at the Fed and elsewhere flying somewhat blind when it comes to shelter costs, which are largest component of the CPI basket.

For that reason, the new index built by the Fed and BLS teams “might be the single most important new inflation indicator” right now, said Joseph Politano at Apricitas Economics.

The researchers cite an ongoing debate over whether the headline inflation numbers should use housing data based on the entire rental market, or new tenants only.

The former covers the financial experience of a much wider range of people, while the latter is better at capturing the latest shifts in market prices.

Updated: 12-23-2022

Here’s Where Housing Prices Are Cooling The Most

South Korea saw the biggest declines in a new report from Knight Frank, followed by Hong Kong, Peru and China.

Real estate prices around the world have cooled off as higher borrowing costs keep many buyers on the sidelines.

South Korea fared the worst, as the Bank of Korea raised interest rates to curb inflation. Average home prices there fell 7.5% in the third quarter compared to the prior year. Hong Kong, Peru, China and New Zealand also experienced declines.

Overall, prices of properties across 56 countries and territories rose at a rate of 8.8% in the third quarter, down from 10.9% at their peak in the first three months of the year, according to a new report from real estate consultancy Knight Frank. But when accounting for inflation, that’s a 0.3% decline year-over-year.

Prices in the UK and Canada dropped on an inflation-adjusted basis. The report used second quarter data for the US and found that nominal prices were up 11% through June 30 compared to last year. The US market has cooled significantly in recent months, with higher mortgage rates hitting demand and prompting some sellers to pull properties off the market.

Countries like Portugal, Singapore, Ireland and Iceland all notched double digit increases in the third quarter, aided by the return of foreign investment and expats as well as strong domestic demand.

Out of 150 cities tracked by the consultancy, 16 saw prices fall. Wellington, New Zealand, led the way with a 17.3% drop, while prices decreased 9.8% in Buenos Aires, 3.6% in Sydney and 2.1% in Venice, Italy.

“The price slowdown is taking longer to materialize than we envisaged, but markets with the largest jump in interest rates are starting to see a real decline,” said Kate Everett-Allen, global head of residential research at Knight Frank.

Updated: 12-27-2022

Home Prices Fell In October For Fourth Straight Month

A jump in mortgage rates is curbing demand, with many economists expecting prices to continue sliding from their spring peaks.

Home prices declined in October from the previous month as higher mortgage interest rates continued to weigh on home-buying demand.

The S&P CoreLogic Case-Shiller National Home Price Index, which measures average home prices in major metropolitan areas across the nation, fell 0.5% in October compared with September, the fourth straight month-over-month decline.

On a year-over-year basis, the index rose 9.2% in October, down from a 10.7% annual rate the prior month.

A surge in mortgage rates this year brought an end to a pandemic-driven housing boom that drove up sales prices and pushed many buyers out of the market. Existing-home sales fell for 10 straight months through November.

Many economists expect prices to continue to slide from their spring peaks, with some calling for year-over-year price declines in 2023.

So far this year, prices are down 3% from their June highs, according to the Case-Shiller index. Prices are declining fastest in West Coast markets, such as Phoenix and Las Vegas, where from September to October they fell 1.6% and 1.8%, respectively.

“As the Federal Reserve continues to move interest rates higher, mortgage financing continues to be a headwind for home prices,” said Craig Lazzara, managing director at S&P Dow Jones Indices.

“Given the continuing prospects for a challenging macroeconomic environment, prices may well continue to weaken.”

The Case-Shiller index, which measures repeat-sales data, reports on a two-month delay and reflects a three-month moving average. Homes usually go under contract a month or two before they close, so the October data is based on purchase decisions made earlier in the year.

The average rate on a 30-year fixed-rate mortgage was 6.27% as of Dec. 22, up from 3.05% a year earlier, according to housing-finance agency Freddie Mac.

The median existing-home price rose 3.5% in November from a year earlier to $370,700, according to the National Association of Realtors.

The Case-Shiller 10-city index gained 8% over the year ended in October, compared with a 9.6% increase in September. The 20-city index rose 8.6%, after an annual gain of 10.4% in September. Price growth decelerated in all of the 20 cities.

Miami had the fastest annual home-price growth in the country, at 21%, followed by Tampa, at 20.5%, and Charlotte at 15%. The weakest market was San Francisco, where prices rose 0.6% on an annual basis.

Updated: 1-13-2023

New York State Joins The YIMBY Fray

Cracks In The Housing Market Are Starting To Show

As Governor Kathy Hochul pledges to ramp up housing production statewide, Mayor Eric Adams plans a homebuilding spree in NYC. Pro-housing advocates are exulting.

In her State of the State address on Jan. 10, New York Governor Kathy Hochul outlined a plan to build hundreds of thousands of homes across the state by requiring local governments to do their fair share to permit new housing.

The governor called for the construction of 800,000 new units over the next decade — double the amount built over the last 10 years. That’s just the start. The state will legalize basement apartments in New York City, for example, and compel zoning for greater density near transit.

And for the first time, Albany is setting targets for construction, both upstate and downstate, that prescribe how much housing each locality will need to build each year.

To the delight of pro-housing advocates, Hochul’s “Housing Compact” goes beyond bullet points. The new platform does not mince words, blaming barriers to new construction as the source of the state’s affordable housing crisis: not a lack of subsidies, not a lack of infrastructure, but a lack of homes, full stop.

While the the state government will still need to hash out the legislative language — and the governor’s scheme could sink or float by those details — supporters say that her agenda could potentially mark a turning point.

For the “yes-in-my-backyard” movement — supply-side activists who see more housing construction as key to bringing down costs — Hochul’s agenda stands out as a rare East Coast win.

“The pro-housing movement has for years been pushing for supply to be part of the conversation, for all housing growth to be considered a necessity alongside affordable housing, subsidized housing and tenant protections,” says Andrew Fine, policy director for Open New York, a nonprofit advocacy organization that supports abundant housing.

“In New York we spend a lot of money on affordable housing. We have strong but incomplete tenant protections. But we’ve really had no action from the state on zoning reforms. This is the beginning of the conversation.”

Opponents have already emerged to condemn Hochul’s agenda, from progressive rent control advocates who complain about the lack of new tenant protections to Republicans in the state legislature who see a familiar threat in Hochul’s plan.

“Her goal is to turn Brookhaven into the Bronx,” reads a dog-whistle tweet from New York Assemblyman-elect Edward Flood, a Republican who represents a part of Long Island that includes Brookhaven, a town of more than 485,000 whose residents are 81% white.

(Flood has not responded to a request for comment.)

A Remedy For Housing-Starved Suburbs

Suburbs like Brookhaven, dominated by single-family homes, bear considerable responsibility for rising rents and growth pressure in less-affluent parts of the state.

Within the tri-state area, counties in northern New Jersey have permitted about five times as many new housing units per capita as Long Island and nearly three times as many homes per capita as the lower Hudson Valley, according to the governor’s office.

In terms of building new homes, New York City lags behind other high-cost cities such as Los Angeles, San Francisco, Seattle, Boston, Houston and Washington, DC.

Other states have also outpaced New York in taking action to correct course. The governor’s platform borrows elements from policies around the country, according to Fine, including Massachusetts 40B (a state law that enables developers to exceed local zoning restriction in order to build affordable housing) and California SB9 and SB10 (laws that effectively banned single-family-only zoning).

Production targets are the main engine of the governor’s pro-growth strategy. Over the next three years, municipalities in upstate and downstate New York alike will need to meet housing production targets.

Downstate New York, which includes the New York City as well as suburban counties such as Nassau, Suffolk and Westchester, will need to produce new homes totaling 3% of the existing stock in cities, towns and villages over three years. Upstate, the target is 1%.

While parts of this plan resemble California’s regional housing needs allocation process, it’s tailored to New York’s geography. The distinction between upstate and downstate isn’t urban versus suburban: Upstate New York boasts several mid-sized cities.

Yet the housing ecosystems of Buffalo or Rochester look quite different from those of New Rochelle or Westbury (to say nothing of Queens or the Bronx), so the governor’s plan focuses on regional goals rather than typological categories (like urban versus suburban).

Municipalities will have wide discretion over where zoning changes need to happen in order to facilitate more housing. For towns and cities that don’t meet their targets in three years, however, the state will then approve certain developments even where zoning restrictions don’t allow for it.

This fast-track approval process for mixed-use, mixed-income, multifamily housing provides an incentive for towns and cities to comply with the law: If leaders don’t decide where apartment buildings should go, then developers will.

How this so-called “builder’s remedy” will be implemented and enforced remains to be seen, along with other tools the state will use to ensure compliance from recalcitrant suburbs.

Alex Armlovich, senior housing policy analyst for the nonprofit Niskanen Center, notes that California had a Housing Accountability Act on the books for decades that cities more or less ignored before California State Senator Scott Wiener wrote a bill in 2018 closing various loopholes and enforcing compliance as of 2023.

“If California is a model, then the devil is in the details,” Armlovich says.

NYC’s Half-Million-Home Goal

New York City Mayor Eric Adams released his own moonshot for housing growth in December. The delightfully titled “Get Stuff Built” plan calls for 500,000 new housing units over the next 10 years, largely through changes to zoning and things like minimum parking requirements for new construction.

Growth advocates are hopeful that Adams can be the city’s “YIMBY hero” by finding room for housing in more affluent areas.

In some ways the governor’s plan fits hand in glove with the mayor’s. Hochul’s Housing Compact will require greater housing density around Metropolitan Transit Authority subway and commuter rail stations, essentially big-footing local zoning to build transit-oriented development.

That makes Adams’s job easier, since it will preemptively override local objections or legislative maneuvers that inevitably emerge in upzoning efforts — what Armlovich describes as “NIMBY whack-a-mole.”

New York City recorded 2% housing growth over the last three years, per the governor’s office. Development in the city typically comes in fits and starts, following the periodic dates when a state incentive known as the 421-a tax abatement expires.

The city saw a huge burst of housing permits in 2015, for example, before the property tax break expired the following year; the same spike happened before the bill expired this June.

Indeed, the governor’s proposal assumes that this tax abatement will be renewed. But the boom-and-bust model for permitting is not super conducive to actually getting stuff built.

The biggest impediment to reaching the mayor’s goal of 500,000 new homes is the city’s continued commitment to including subsidized units in new developments, or mandatory inclusionary housing, according to Eric Kober, senior fellow at the Manhattan Institute.

These requirements haven’t worked anywhere in the city, he says, without being offset by extremely generous 421-a tax abatements. And even when 421-a was in place, these developments happened primarily in extremely wealthy areas — and then, often only with additional subsidies.

“Because the city’s financial capacity is constrained it will never be possible for the mayor’s ambitious housing goals to be achieved if every new development that happens as a result of rezoning has to be heavily subsidized,” Kober says.

“Mathematically, it can’t work.”

Frustration Among Progressives

Progressive tenant advocates see these plans for growth in New York City (and beyond) quite differently. Progressives have championed a “good cause” evictions bill that would forbid landlords from refusing to allow a paying tenant to renew their lease in order to jack up the rent, a practice known as holdover evictions.

This bill would also effectively cap rent increases at 3% or 1.5 times the annual change in inflation, whichever is higher, by requiring landlords to seek approval for higher rent hikes in court.

“No one would disagree that building housing is important, although we have some concerns about whether the governor’s plan is going to incentivize building housing that’s actually affordable for the people who truly need and can’t find housing in New York right now,” says Olivia Leirer, co-director for New York Communities for Change, a grassroots organization that advocates for low-income communities across New York State. “You can’t build your way out of an existing eviction crisis.”

YIMBY advocates hold that decades of failure to adequately build led to the status quo. Tenant advocates are focused on the people living at the margins presently.

Among other progressive housing priorities are state laws that would establish a new housing access voucher program for people facing homelessness as well as a tenant opportunity to purchase act that gives residents of rental properties (or other qualified buyers) first crack at buying a rental home when it goes up for sale.

Albany has yet to pass any of these bills and Hochul made no mention of these proposals in her State of the State speech.

Without explicitly ruling out good cause or the other progressive measures, the governor nevertheless indicated that she’s more focused on the supply issue.

While pro-growth advocates and renters’ rights progressives don’t entirely agree about where their causes overlap, the Democratic-controlled legislature will likely work to find that lane.

Meanwhile, if Albany gets it right, the governor’s agenda is bound to fall like a hammer on jurisdictions that want neither apartment buildings nor tenant protections.

“If the war on NIMBYism means actually achieving the abundant outcome and getting to that world where we built enough units and prices come down to construction costs, this is not yet at the level of winning the war,” Armlovich says. “But she’s announcing that she’s going to take a step into the fight.”

Updated: 2-21-2023

Bad News For Home Buyers: Mortgage Rates Inch Towards 7%, Highest Level In 2023

Cracks In The Housing Market Are Starting To Show

The typical mortgage now costs a homebuyer $2,300 a month, based on a 20% downpayment for a $359,000 home.

Mortgage rates are back up, hitting a fresh high for the year.

The average on the 30-year fixed-rate mortgage was 6.87% as of Tuesday afternoon, while the 15-year was at 6.07%, according to Mortgage News Daily.

Rates are officially at the highest level for the year. But to be clear, rates have been higher — they surpassed the 7% threshold, and reached 7.37% back in October, per MND’s data.

The jump in rates “has significant impact on payments and affordability, so you have to assume that means fewer buyers in the market,” Mike Simonsen, founder of Altos Research, said in a recent YouTube video.

Based on the median value of an existing home in the U.S., which was $359,000 as of January, with 20% down payment, the typical mortgage would cost a would-be homebuyer about $2,300 a month, according to MND’s mortgage calculator.

More than two weeks ago, rates went below 6%, to 5.99% on Feb. 2. A buyer at that point would have ended up paying roughly $170 less per month.

Mortgage rates jumped in the last few days after the U.S. government released the inflation report for January. The inflation report revealed that the economy was still hot, which prompted the market to expect the Fed to keep raising its benchmark interest rate.

Buyers could wait even longer to see if rates go down, but the timing will be tricky. “There is enough pent-up demand competing over relatively few homes to lead to stable or even rising prices in many local markets,” Lisa Sturtevant, chief economist at Bright MLS, wrote in a note last week.

And so “due to this pent-up demand, a lot of people will accept that rates above 6% constitute the ‘new normal’ in the housing market,” she added.

Updated: 2-22-2023

US Housing Market Posts $2.3 Trillion Drop, Biggest Since 2008

Cracks In The Housing Market Are Starting To Show

San Francisco and New York are slumping as the pandemic boom fizzles out, but migration to Florida has boosted Miami.

The value of the US housing market shrunk by the most since the 2008 as the pandemic boom fizzled out.

After peaking at $47.7 trillion in June, the total value of US homes declined by $2.3 trillion, or 4.9%, in the second half of 2022, according to real estate brokerage Redfin.

That’s the largest drop in percentage terms since the 2008 housing crisis, when home values slumped by 5.8% from June to December.

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Homebuyers, already facing record-high prices, took an additional hit from mortgage rates that more than doubled last year.

With less competition in the market, the median US home sale price was $383,249 last month, down from a peak of $433,133 in May.

“The housing market has shed some of its value, but most homeowners will still reap big rewards from the pandemic housing boom,” said Redfin economics research lead Chen Zhao, adding that the total value of homes remains roughly $13 trillion higher than it was in February 2020.

To be sure, home prices are not collapsing. In December, the total value of US houses was still 6.5% higher than it was a year earlier.

Florida Gains

How much homeowners lost depends on where they bought. The biggest declines were in pricey cities like San Francisco and New York, while buyers who moved to pandemic boomtowns are still seeing the returns on their investment, particularly in Florida.

That was especially true in Miami, where the total value of homes ballooned 20% year-over-year to $468.5 billion in December, the largest annual percentage increase among the top metro areas.

While the overall US housing market is down, Miami’s market has about the same value as when it peaked at $472 billion in July. Meanwhile, homeowners in North Port-Sarasota, Florida, Knoxville, Tennessee, and Charleston, South Carolina, all saw annual gains above 17% in 2022.

Cracks In The Housing Market Are Starting To Show

As tech workers fled for more affordable locales, the total value of homes in San Francisco slumped by 6.7% year-over-year in December, the most of any major US metro area, followed by Oakland and San Jose, which lost 4.5% and 3.2%, respectively. Other urban areas including New York and Seattle also saw annual declines.

“Florida’s housing market is being sustained by folks moving in from the north and, as of recently, the West Coast,” said Elena Fleck, a Redfin real estate agent in Palm Beach, Florida.

US Home-Purchase Applications Drop To 28-Year Low As Rates Jump

Cracks In The Housing Market Are Starting To Show

* Index Declined More Than 18%, Most Since 2015, To 147.1
* Contract Rate On 30-Year Mortgage Rose To 6.62% Last Week

A gauge of US home-purchase applications tumbled last week to the lowest level since 1995 as the highest mortgage rates in three months hammered a housing market struggling to stabilize.

The Mortgage Bankers Association’s index of mortgage applications to buy a home slumped more than 18% — the biggest drop since 2015 — to 147.1 in the week ended Feb. 17, data out Wednesday showed.

The contract rate on a 30-year fixed mortgage jumped another 23 basis points to 6.62%, the highest since November. The rate on the five-year adjustable mortgage also increased.

The report illustrates the impact of the Federal Reserve’s interest-rate hikes over the past year to combat rapid inflation, as well as expectations that central bankers will keep raising borrowing costs. Mortgage News Daily, which updates more frequently, put the 30-year rate at 6.87% on Tuesday.

Other figures on Tuesday showed that sales of previously owned homes dropped in January for a 12th-straight month to the slowest pace since 2010.

The MBA’s index of refinancing applications fell 2.2% last week to a three-week low. The gauge of overall mortgage applications dropped more than 13%, the biggest slide since the last week of September. The data can be volatile around holidays, and the figures preceded Presidents’ Day on Monday.

The MBA survey, which has been conducted weekly since 1990, uses responses from mortgage bankers, commercial banks and thrifts. The data cover more than 75% of all retail residential mortgage applications in the US.

Updated: 2-22-2023

Wells Fargo Cuts More Than 500 Mortgage Staff On Strategy Shift

Wells Fargo & Co. cut hundreds of jobs in its mortgage unit this week, adding to thousands of cuts last year, as the firm retreats from a business it once dominated.

The latest reductions affected more than 500 employees, according to a person familiar with the matter. Wells Fargo announced a “new strategic direction” for the business last month that includes exiting correspondent lending, a pivot that Chief Financial Officer Mike Santomassimo said last week is “largely done.” The firm also said it will shrink the portfolio of loans it services.

“We announced in January strategic plans to create a more focused home lending business,” the company said in a statement. “As part of these efforts, we have made displacements across our home lending business in alignment with this strategy and in response to significant decreases in mortgage volume in the broader market environment.”

The cuts add to thousands across the home-lending industry in recent months after the Federal Reserve raised interest rates and cooled what had been a red-hot housing market. JPMorgan Chase & Co. eliminated hundreds of positions in its mortgage unit this month, on top of reductions last year.

CNBC reported earlier Wednesday that Wells Fargo was cutting more mortgage jobs.

Updated: 3-24-2023

Buy-or-Rent Premium Is Highest Since 2006 Housing Bubble

With real estate prices still elevated and borrowing costs high, paying the monthly mortgage outpaces rent more than it has since before the financial crisis.

The buy-to-rent premium hasn’t been this big since 2006, at the peak of the housing bubble.

With mortgage rates high and home prices still elevated, the monthly payment for a newly purchased home — assuming a 10% down payment and a 30-year fixed rate mortgage — was $1,176 more than renting an apartment at the end 2022, according to an analysis from the National Multifamily Housing Council, a trade group that represents owners of professionally managed rental buildings.

The cost of homeownership has surged 71% over the past three years, or an average of about 20% per year, compared to average annual rent growth of 6.3% over the same period.

As a result, the premium owners pay over renters is now wider than it’s been since third quarter of 2006, the report said.

US housing costs surged in the pandemic. Buyers struggled to find affordable properties in a frothy housing market marked by bidding wars and cash offers and renters faced higher costs across the US. Now, things have cooled down a bit.

Still, there’s limited inventory available and mortgage rates remain high despite slipping slightly in recent weeks.

Updated: 4-14-2023

Rents Are Falling Fastest In These 10 US Cities

Cracks In The Housing Market Are Starting To Show

Median asking rent fell by 0.4% in March to $1,937, the first year-over-year decline in three years.

Rent in the US fell last month for the first time since March 2020, when the pandemic pushed much of the world into lockdown.

The median asking rent fell by 0.4% year-over-year to $1,937 — the lowest level in 13 months, according to real estate brokerage Redfin.

It’s a dramatic shift from just one year earlier when prices surged nearly 18% and some renters were faced with bidding wars for apartments. Now, inflation, layoffs and growing fears of a recession are cooling demand.

Still, the median asking rent is $322, or 20%, higher than it was three years ago in the early days of the pandemic. While rents are falling, Redfin agent Dan Close said prices are simply returning to normal.

“It’s similar to the cost of eggs — you can say egg prices are plummeting, but what’s really happening is they’re finally making their way back to the $3 norm instead of $5 or $6,” said Close, who’s based in Chicago.

“Rents ballooned during the pandemic, and are now returning to earth.”

The decline was largely due to a surplus of supply after builders rushed to meet demand during the pandemic housing boom, according to Redfin.

In February, completed residential projects in buildings with five or more units jumped 72% year-over-year on a seasonally adjusted basis to 509,000.

That’s the highest level since 1987 with the exception of February 2019. But those new units are often expensive and are coming on the market at a time when inflation has eaten away at purchasing power and people are staying put amid economic uncertainty.

That’s particularly acute in Austin, Texas, where people flocked in droves during the pandemic, sending rents soaring. Now, rents in the pandemic boomtown are down 11% over the last 12 months.

Updated: 6-1-2023

Pretium To Pay $1.5 Billion To Biggest Home Builder For 4,000 Rental Homes

Cracks In The Housing Market Are Starting To Show

New York investment firm agrees to pay D.R. Horton for homes scattered across the South.

Investment firm Pretium Partners is paying more than $1.5 billion for thousands of homes, say people familiar with the matter, a move that could signal investors’ re-entry to the housing market after higher interest rates drove them away.

The New York-based Pretium has agreed to pay D.R. Horton, the largest U.S. home builder by volume, for more than 4,000 homes scattered across the Southeast and Southwest, these people said.

Pretium oversees a portfolio of about 100,000 rental homes and has been one of the largest buyers of American houses in recent years.

Unlike most D.R. Horton homes, the ones in the sale to Pretium were planned as rental homes. Many are already leased, these people said.

The Pretium sale is a sign that investors still believe low housing inventory and elevated mortgage interest rates will continue to drive demand for rental housing, and especially for single-family homes.

The 30-year fixed-rate mortgage averaged 6.79% this week, its highest level since November, according to Freddie Mac. In April, there were about half as many homes for sale as in April 2019.

Single-family rental firms played a big role in stoking the pandemic-era housing boom, accounting for more than 1 in 5 home purchases at their peak.

The ability of these companies to compete on price and to close quickly with cash frustrated some individual home-buyers.

Double-digit rent increases netted big profits for investors earlier in the pandemic, but higher interest rates and slowing rent growth caused many large single-family rental investors to pull back from the market last year.

In the first quarter of 2023, investors bought $27.5 billion worth of homes, a 46.3% decline from the same quarter a year prior, according to real-estate brokerage Redfin, which tracked sales in select metro areas, though the data doesn’t include bulk sales of new construction homes. Some landlords started offering concessions on new leases last fall.

Faced with slowing home sales, D.R. Horton said last summer it would seek to ramp up its rental-home business, including changing some planned projects from for-sale homes to rentals.

As the inventory of existing homes is fished out by both traditional and investor buyers, rental investors have increasingly looked toward new construction to add to their portfolios.

Some builders have been shopping bulk packages of their unsold houses at discounts of as high as 20% to attract investor buyers, brokers and investors said.

Several investment firms also have put together billion-dollar funds to buy new communities of homes that can be rented. In November, J.P. Morgan Global Alternatives joined with rental company Haven Realty Capital to begin developing or acquiring more than $1 billion in homes for rent.

Single-family rent growth has been slowing down for nearly a year. Rents for houses rose 4.3% in March compared with the same month a year prior, according to housing data company CoreLogic. That was the lowest rent growth rate since early 2021, CoreLogic said.

Pretium’s purchase of D.R. Horton’s homes was earlier reported by Bloomberg.

Updated: 6-13-2023

Renters Are About To Get The Upper Hand

New-lease rents are poised to fall on an annual basis for only the second time since 2008 financial crisis.

Apartment rent growth is declining fast, shifting the rental market to the tenant’s favor for the first time in years.

The average of six national rental-price measures from rental-listing and property data companies shows new-lease asking rents rose just under 2% over the 12 months ending in May.

That is down from the double-digit increases of a year ago and represents the largest deceleration over any year in recent history, according to data firm CoStar Group and rental software company RealPage.

An annual decline would offer relief for millions of renters who have had to contend with rents that rose 25% nationally over less than two years. With housing costs as the biggest component of the consumer-price index, a decline in rents also would help ease inflation.

A year-long drop in rent would be a potential problem for the many investors who took out large loans to buy buildings where they thought they would be able to keep raising rents. They are facing a softer market, falling property values and interest rates that have roughly doubled from early last year.

One of the rent measures, from real-estate brokerage Redfin, already shows asking rents turning negative with a decline of 0.6% in May, compared with the same month last year. The data includes both apartments and single-family rental homes, Redfin said.

A decline in asking rent over a 12-month period has only happened one other time since the 2008 financial crisis, according to some data sources, when the rental market briefly dipped in 2020 because of the outbreak of Covid-19, ending a decadelong streak of rent increases.

The U.S. rental market is slowing down after an unprecedented run. In some markets, such as Miami and Riverside, Calif., monthly rents are up 35% or more over the past three years.

But the high prices started to weaken demand from renters in the second half of 2022, many of whom were pushed to their financial limits by higher rents. Some are moving back in with parents, taking on roommates or relocating to cheaper cities.

A historic number of new apartments under construction is also forcing more competition among landlords. That will help slow down rents in some parts of the country, such as the South and Southwest, which are seeing the most construction, housing analysts said.

“There’s certainly a correction taking place,” said Rob Warnock, a researcher at rental website Apartment List. Apartment List reported rents rising under 1 percentage point for the year ending in May.

A fall in rents would follow recent price declines in the housing market. The national median existing-home price fell 1.7% in April from a year earlier, the biggest year-over-year price decline in more than 11 years.

Relatively high renewal increases are one reason why rent, as captured by official inflation measures, is still shown to be rising at a higher-than-normal rate. The shelter component of the consumer-price index rose 0.6% in May to reach an 8% annual increase.

But new-lease rents, which measure the change in price for apartments available to be leased to new tenants, are considered more of a leading indicator.

As new-lease rent prices cool, landlords also are expected to keep dropping how much they ask their existing tenants to pay, said Jay Parsons, chief economist at RealPage.

Property owners who don’t lower renewal rates risk watching too many of their tenants move out, driving up vacancies, which already increased 2.6 percentage points over the course of 2022.

“There’s effectively a cap on how much rents can rise on renewal in today’s market,” Parsons said.

The increases tenants pay to renew existing leases are also going down this year. The typical renter living in a professionally managed apartment building paid 6.5% more to renew their lease in May, according to RealPage. That figure has been falling for 10 months and is down from a peak rate of 11%.

The dynamic is starting to shift bargaining power to tenants in some hot rental markets, after years during which owners had leverage.

David Frey and his wife, Lexi, started thinking about moving out of their Jersey City, N.J., apartment when they received notice of a 12% rent increase at the end of February.

They felt that was too high, based on what they were already paying. The property manager declined to negotiate, Frey said, so the couple signed a lease for a new apartment that was bigger and cheaper.

The company posted their former unit for lease online, listing a rental price below what they were offered, said Frey.

“We probably would have paid it, too,” he said.

Some investors who bought apartment buildings with plans to raise rents face a quickly changing reality, especially in the Southwest.

In many of the cities where investors flocked, such as Phoenix and Las Vegas, new lease rents are already running well into the red this year, according to some measures.

Multifamily building values are falling in tandem. The price per-unit to buy apartment buildings in Phoenix fell about 12% in the first quarter of 2023, according to data provider MSCI Real Assets.

Overall, 48 of the 100 largest U.S. cities are posting negative rent growth for new leases, measured on an annual basis, according to Apartment List.

“It’s a break from the affordability crunch, but it is not an affordability windfall,” Warnock said.

Updated: 6-23-2023

Hang In There, Renters. Relief Is On The Horizon

Demographic trends coupled with the current surge in apartment construction means rent increases will be much more moderate in the years ahead.

The once red-hot US apartment market has suddenly softened. Although many experts suggest this is due to a mix of factors that are largely temporary, there are reasons to believe that after a decade in which the market seemed to only get tighter, with apartment construction struggling to keep pace with demand, we’re in for a prolonged period with more balance than any time since the mid-2000s.

Why? Well, demographic trends are beginning to favor homeownership over renting. Plus, with overall population growth slowing there shouldn’t be the same need to increase the supply of rental housing like there was in the 2010s.

The weakness is happening for two reasons. The first is that the market is going through the same pandemic-fueled boom/bust dynamic that many industries have experienced, but with a lag because renters typically only sign leases once a year.

The second is there’s a ton of new supply hitting the market, with more apartments currently under construction than ever.

This is coming just as the boom in household formations in 2020 and 2021 – which were much more than would have been expected from population growth alone as people took advantage of cheap rents and more space – is beginning to unwind to some extent.

As John Burns Research & Consulting noted in a recent report, population growth between 2020 and 2030 will be concentrated among two age buckets.

The first is people between the ages of 35 and 49, and the second is people over 65. The first bucket is people who tend to buy homes, and the latter is retirees who are largely staying put.

Importantly, the population of adults between the ages of 20 to 34 — a group that tends to rent — is expected to decline. Using homeownership rate by age data from the Census Bureau along with the John Burns population estimates suggests that 75% of the population growth this decade should be homeowners while just 25% should be renters.

This is a reversal of the 2010s. In that decade, population growth was largely among people in their 20s as the Millennial generation was entering the workforce, providing a tailwind to the rental market.

There was a shift from homeownership to renting due to fallout in the housing market from the foreclosure crisis in the late 2000s. And don’t forget that housing construction in the 2000s was geared more toward single-family homes than apartments, so there was a rental deficit that had to be made up.

And while there’s still a deficit of rental housing, because there’s no longer the same demographic tailwind for renting, the market has the ability now to reduce that deficit.

Census Bureau data shows that the rental vacancy rate increased in the first quarter of 2023 by the most in more than a decade outside of one quarter during the pandemic.

More timely measures of rental vacancy data from private sector sources such as Apartment List show greater normalization. We should expect a continued increase in the vacancy rate into 2024, and at that point we might just find ourselves with a balanced rental market for the first time in 20 years.

If the rental market strengthens after that it will probably be due to the much more daunting shortage in the single-family market. It’s much easier to build hundreds or thousands of rental units in most downtowns or commercial corridors than it is to build that many units of single-family housing in desirable parts of metro areas.

It’s simply a matter of space — a 200-unit apartment building needs a lot less land than 200 single-family homes.

Arguably, the supply deficit in the single-family market is getting worse, not better, as production fails to keep pace with the ever-growing demand from Millennials.

And if there isn’t as much for-sale inventory as people want, that will force some folks into the rental market, at least until single-family supply can catch up.

Regardless, the rental boom that began in the aftermath of the 2008 financial crisis is likely over, having peaked in the middle of 2022.

There will always be a need for rental housing, and some metros still have solid demographic trends supporting growth in the future, but it will be more pedestrian-like than we’ve seen in the past.

And periods of oversupply — where rents can’t cover construction and development costs — are a possibility in the 2020s that they weren’t in the 2010s.

Updated: 7-10-2023

Wave of Rental Resets To Further Deplete Affordable Housing

Expiring government protections mean landlords could charge market rates.

The U.S. is at risk of losing nearly 200,000 affordable housing units over the next five years, as government protections end at hundreds of rental properties and landlords become free to set their own rents.

The federal government relies on a 30-year tax credit as its main program to encourage developers to build affordable housing. Now a wave of agreements that assisted low-income renters is set to expire, offering landlords the option to charge market rate for their units instead of continuing with the government program.

Many landlords are expected to raise rents following one of the highest periods of rent growth in recent history. Asking rents for market-rate units soared 25% between early 2021 and the summer of 2022, according to Apartment List, a rentals website.

As many as 188,000 low-cost rental apartments funded by the government tax credit are eligible to convert their properties to market rate by 2027, according to a report from Moody’s Analytics.

Some cities could lose large shares of their low-cost rentals. In the Dallas area, about one in five tax-credit-built apartments could lose its affordability protections by 2027, according to Moody’s. Chicago and Houston also look especially vulnerable to losing a large amount of their affordable housing.

A hefty share of affordable housing already disappeared during the pandemic. The number of apartments and rental homes affordable to families living in poverty declined by 400,000 units between 2019 and 2021, according to the National Low Income Housing Coalition, a Washington, D.C., advocacy group that analyzed U.S. census data.

That represents a more than 5% drop in the total inventory of these low-cost rentals in two years. Some of the loss of affordable housing during that period was attributed to the expiring tax credits, Moody’s said.

By 2033, some 100,000 units of tax-credit housing could expire every year, unless they have secured longer affordability agreements or owners obtain new subsidies, according to Peter Lawrence, director of public policy and government relations at the Novogradac accounting firm, which specializes in tax credits.

“When these properties are exiting the program, there’s no legal avenue to force them to stay in it,” said Kevin Rabin, director of litigation at Three Rivers Legal Services, a Florida legal aid organization.

The rent increases can be significant. Affordable-housing rents run 38% below market rates on average, according to a 2018 report from Freddie Mac.

In the years after expiration, the average rent rises to about the same level as market-rate properties of comparable quality and location, according to a separate Freddie Mac study of properties in seven major metro areas.

That has left some longtime renters in a bind. Cheryl Silveira said her 85-year-old mother, who lives on a monthly income of $1,000 in Clovis, Calif., never faced an annual rent increase of more than $20 for nearly three decades.

But in 2021, the landlord opted out of the federal tax-credit program and said rent would go up to as much as $1,300, more than double what she was paying.

The landlord backtracked a bit, so far raising the rent by a little more than $100 a month, but Silveira and her siblings had to chip in more to meet their mother’s expenses, Silveira said.

Landlords have been major supporters of the tax-credit program, and many have built large businesses by operating affordable housing.

But without new subsidies or incentives, building owners will likely take advantage of the recent hot market and raise rents to meet the rising costs of maintenance, insurance and property taxes.

“You’ve got to cover those costs somehow,” said Greg Brown, senior vice president for government affairs at the National Apartment Association, a real-estate trade group.

Since 1987, the federal government has financed more than 3.5 million apartment units with Low Income Housing Tax Credits. Through the program, landlords keep rents affordable to people making well below the median income.

To make possible the building of more new apartments and to preserve more of the existing properties, advocates and some elected officials have sought to increase the number of tax credits the government issues.

Both the House of Representatives and the Senate this year are working on bills to expand the number of tax credits issued by 50%. A version of these bills has been introduced in previous sessions of Congress to no avail.

Some expiring buildings are also located in neighborhoods that 30 years ago were home to mostly poor renters, but have since gentrified, said Heather Way, a law professor at the University of Texas at Austin. “Those housing markets are hotter now, and there’s demand from higher-income households.”

Some owners of tax-credit buildings have found ways to keep rents down. Many are nonprofits and obtain new tax credits, or other local funds, to fund building operations for many more years.

In Florida, for example, many expiring buildings have already taken on additional subsidies to keep tenants locked into lower rents for longer periods, according to an analysis of tax-credit properties by the Shimberg Center for Housing Studies at the University of Florida.

In other instances, governments can step in more directly to preserve expiring properties. In Washington County, Oregon, the county government plans to buy a 172-unit apartment complex that was set to go market rate.

Meanwhile, construction of new affordable-housing units isn’t keeping up with demand and has been challenged by rising interest rates and inflation. Construction cost increases mean fewer units can be built with existing government subsidies.

“There were a lot of units that were inexpensively financed early in the [tax-credit] program, and it’s harder to do that now,” Novogradac’s Lawrence said.

Updated: 7-18-2023

Bidding Wars Get Weird In One of World’s Hottest Rental Markets

London applicants try flirting, flowers and boasts about 5K-race times—it’s ‘a dance’.

LONDON—Lola Agabalogun recently responded to an ad for an apartment only to find 100 other renters had called about the same flat in Hackney, one of the city’s trendiest neighborhoods.

So the 27-year-old ex-New Yorker did what a growing number of other desperate tenants are doing in London these days, and what some landlords are even requiring. She pulled out her laptop and wrote what she described as a love letter to the anonymous landlord, describing how wonderful the flat and neighborhood were. She even mentioned personal details like her love for tennis.

No matter. She was outbid to the tune of £400, or about $520, a month.

In New York, “You show up and if you have the right documentation you get the place,” she said. “Here, there is more of a dance.”

London rentals have been tight since a pandemic surge in home sales took thousands of rental flats out of the city’s already tight supply. Then, hordes of workers and students returned to the city.

Average rent has soared 49% from the April 2021 pandemic low, according to real estate agency Knight Frank, the second-sharpest growth of any major global city after New York.

“When the phone started blowing up I actually considered pulling the plug out of the line,” real-estate agent James Dainton said of one particularly hectic period last summer. “I said to the team, ‘How do we actually deal with 70 to 80 applicants?’ We try to be as fair as we can, but at the same time when you’ve got that many inquiries, you’ve got to be a little bit cutthroat.”

That means raising tenant requirements—including paying multiple months of rent in advance, having family members or friends cosign the lease and even requiring that tenants tell the landlord a bit about themselves.

Personal statements, long used by real estate buyers to pull on sellers’ heartstrings to win a coveted property, are now part of London’s rental world, used by landlords to discern whether tenants are a good fit, agents said.

Potential tenants discuss their hobbies, weekend activities, alma maters and other interests, Dainton said. One recent client, an American expat, boasted about his athletic prowess.

“He told me he can run a 5K in 15 minutes,” Dainton said. “I was gobsmacked—I can’t get lower than 24 minutes.”

The runner didn’t get the flat.

Carman Leung, a 26-year-old recruiter from Sydney, distributed a PDF file to agents that included career highlights, hobbies such as aerial hoop—in which she strikes acrobatic movements from a metal ring suspended in the air—and her ability to speak Spanish and Cantonese.

After multiple attempts she found a place, for a rent that was 25% over her budget. She said she wasn’t sure if it was her willingness to pay the price or her note that finally persuaded the landlord.

Bidding wars are still common, with the person willing to pay the most or take a long-term lease often winning the flat. But some landlords are willing to accept lower rent in exchange for intangible qualities, agents said.

“It’s like an audition,” said Oliver Cruikshank, director at Keatons, a lettings agency based in East London. “Personality can come into it. If the landlord feels they connect with the tenant they may decide on that, as these two parties are potentially stuck with each other for a long time.”

He said sometimes “people who usually don’t get no for an answer” are rejected. “People come to us who are earning a quarter of a million a year, and we’re saying we cannot accept their offer,” he said.

Greg Tsuman, director of the real estate agency Martyn Gerrard, said one client recently showed up to an open house with chocolates and flowers for the landlord. “So, a bribe,” he said half-jokingly.

Tsuman said landlords themselves are being squeezed. A tax-law change and rising interest rates on mortgages have pushed up landlords’ bills in recent years. Many are raising prices out of necessity, he said.

Tenants and advocacy groups said requiring personal details violates their privacy and increases the risk of discrimination.

“It was when my friends and I began composing a simpering personal statement just to rent a flat that it finally clicked for me: Britain’s rental market is broken,” a Sunday Times columnist wrote this spring.

Tom Darling, campaign manager of the advocacy group Renters’ Reform Coalition, said the housing crunch has turned London’s property market into the “Wild West.”

Darling recently toured a dozen rental flats. Landlord agents asked for everything from a biographical essay to a photo. “The estate agent said it was to form a connection with prospective tenants—which is just a recipe for discrimination,” Darling said.

He liked a place, and he debated whether to include in his essay that he had attended Oxford, worrying he might come off as elitist. He included the detail, and mentioned he was in a stable relationship, clean, tidy and career-oriented.

“It’s slightly degrading, that process of having to sell yourself to find somewhere to live, and you’re trying to think about the ways in which to write your own history,” he said. “The more you put into each application the more liable you are to feel personally about it.”

In the end, he was outbid on the place.

Letting agents are also being schmoozed. Freelance writer and Miami native Grazie Sophia Christie moved to London from Boston five years ago and recently searched for a new apartment. She sought old-world charm, but one flat she saw looked more like a frat house.

“The bedrooms were old and musty,” she said. “Things needed to be repainted. There were stains and broken tiles in the kitchen.”

When she asked the landlord if he would make the repairs, he scoffed. “He said that he already had an offer,” she said.

For subsequent flats, she tried a different tactic: implying she was wealthy and flirting with agents.

“You have to incentivize them to send you a flat before it comes online” and get the letting agent to tell the landlord you are a great future tenant, she said. “You just have to be really friendly and chatter.”

Updated: 9-5-2023

What’s Worse Than Record High Rent? Record High Rent, Plus Fees

Tenants seeing charges for trash pickup, move-ins and move-outs.

The cost to rent a home or apartment has soared, and it isn’t just because of super high rents.

Landlords are hitting tenants with an abundance of fees every month. Many are no more than five or 10 dollars each, but when stacked up they can amount to hundreds of dollars more each year.

Some fees, such as those for parking and pets, have been around for years, but many renters now pay up for things they were rarely charged for in the past.

That includes fees for trash pickup, pest control, the use of a mailbox, and for making routine maintenance requests. Then there are fees for move-ins and move-outs and for “lease administration.” One Minnesota landlord collected a $100 so-called January fee the first month of each year, though it isn’t clear what tenants got in return for that charge.

In suburban Phoenix, buildings increasingly charge for valet trash pickup that can add more than $30 to the monthly rent. “I can carry the trash 50 feet to the dumpster,” said Debbie Giannecchini, who moved out of a building that started charging the fee.

Apartment asking rents rose 25% between early 2021 and summer 2022, straining the budgets of many renters whose wages didn’t keep up. While rent growth has since flattened in much of the country, large property-investment companies continue with these add-ons to boost their bottom lines.

The five largest single-family-home rental landlords increased their annual fee income per lease by about 40% between 2018 and 2021, according to a report last year from the House of Representatives’ Committee on Financial Services, which obtained fee data from the companies.

“A lot of this stuff used to just be called ‘rent,’” said Mike Vraa, a Minnesota tenant attorney. His organization, HOME Line, keeps a running list of newly discovered species of rental fees.

While some companies made fewer charges during the pandemic, many of those firms are now expanding the scope of their fee programs.

Invitation Homes, one of the largest owners of single-family rentals, said this March that it was increasing profit margins via charging more fees for smart-home features such as video doorbells, as well as charging extra every month for air-conditioning filter replacements.

The company’s “other income” revenue, which includes fees, grew at more than twice the rate of rent last year, according to the company’s public filings.

“We continue to see strong demand for the convenient, professional services that make leasing a home from us a worry-free experience,” an Invitation Homes spokeswoman said in a statement.

Large apartment building owners, meanwhile, also say they expect to continue reaping income from fees. One executive at a privately held apartment company in the Midwest said that the firm had more than doubled income from fees at more than 20 rental properties it recently purchased.

“People pay it,” the executive told The Wall Street Journal.

The federal government and some states are moving to crack down on how landlords charge rental fees. In July, the White House said it won commitments from a handful of the country’s largest listing platforms, including Zillow and Apartments.com, to require landlords to disclose all fees and their costs alongside listings.

In June, the state of Colorado capped pet deposits at $300, and Maine limited how much landlords can charge for application fees.

The creep of fees into rental housing follows the path of several other large U.S. industries, such as hotels, airlines and live entertainment, which are also drawing greater scrutiny from the government.

Landlords say fees are merely a way for companies to compensate for rising operating costs.

“The reality is providers are facing unrelenting and often unprecedented increases in the underlying cost of virtually all aspects of the business, from operations to financing to supply chain to labor to regulations,” said David Howard, chief executive of the National Rental Home Council.

Strategic use of fees by landlords goes back to at least the late 1990s, when apartment-building owners sought ways to increase revenues separate from rent growth, said Jay Lybik, director of multifamily analytics at CoStar Group.

Tenants have tried to push back. Renters have sued several major landlords over how they charge them. Invitation Homes, for example, settled with 11 tenants who alleged the company charged illegally inflated late fees at its rental homes, though the company didn’t admit to any wrongdoing, a spokeswoman said.

Some renters only find out about the recurring fees they will owe once they go to sign their leases. By that time, they might have already paid hundreds of dollars in application fees, background check fees and holding fees.

They might have also notified their current landlord of plans to move.

“You are trapped,” said Charlie Bliss, director of advocacy at Atlanta Legal Aid.

Lisa Keelor, who rents a house from the publicly traded landlord AMH in Jacksonville, Fla., said she didn’t know about the monthly renter’s insurance fee, or the “convenience fee” charged on top of the utilities until they first appeared in her online payment portal.

While those fees are relatively small, other large charges have popped up. She said she was once hit up for more than $200 to repair the home’s sprinkler system and spent weeks trying to get the landlord’s staff to reimburse it.

“What tenants have to do is keep going in this portal and looking to see ‘what have they done this month?’” Keelor said.

In a statement, AMH, formerly known as American Homes 4 Rent, said tenant fees and responsibilities for other maintenance charges are detailed in each of the company’s leases.

Updated: 10-5-2023

The Tax-Free Way To Rent Out Your Home

The ‘Masters’ exemption’ isn’t just for property owners in Augusta.

One of the best freebies in the tax code has gotten better—for people who don’t abuse it. The shift springs from a recent Tax Court decision.

The freebie is tax code section 280A(g), often called the Masters’ exemption, which is worth reviewing on its own. It’s a longstanding provision allowing people to rent out their homes for two weeks or less and pocket the rental income free of federal taxes.

This benefit is often called the Masters’ exemption because residents of Augusta, Ga., use it to rent their homes to players and fans tax-free during the famed golf tournament. During the tournament, large, lavish homes can rent for thousands, and sometimes tens of thousands, of dollars a night.

The exemption is useful far beyond Augusta. “People living near events like the Super Bowl, a rock concert, or a presidential inauguration can use this provision, and so can owners of vacation homes,” says Ed Zollars, a Phoenix-based CPA who teaches tax professionals about new tax developments.

For many homeowners, that’s benefit enough. However, a recent Tax Court decision in the case of Sinopoli v. Commissioner permitted a twist on this strategy: It allowed three business owners to rent their homes to their business for meetings, deduct the rent, and receive the rent tax-free under the Masters exemption. But owners must follow all the rules—and they didn’t.

Here are key facts, according to the opinion. Two anesthesiologists and an orthopedic salesman based on the Mississippi Gulf Coast had nearly equal shares in a Planet Fitness franchise that owned outlets in Louisiana from mid-2013 to mid-2017.

The business was organized as an S Corporation, an entity that passes income, credits, deductions and losses through to the personal return of the owner or owners.

The owners said that, for convenience, they decided to hold business meetings in their homes during 2015, 2016 and 2017. For that, the business paid each one about $3,000 a month in rent and deducted total rent of $290,900 over that period, reducing the firm’s taxable earnings.

Each owner then claimed the rental income he received from the business was tax-free under the Masters’ exemption.

Not so fast, said the Internal Revenue Service. Its agent and lawyers pointed out that the going rate in the area was $500 for a full or half-day rental of much larger spaces.

They also said the owners didn’t keep good records—or sometimes any records—of the meetings.

The judge agreed with the IRS and allowed a total rent deduction of $16,500, saying the owners likely “adopted a tax-savings scheme.”

An attorney for the taxpayers in the case said they declined to comment on it.

Tax schemes using the Masters exemption do happen, says Troy Lewis, a CPA who teaches at Brigham Young University.

“They’re a tax dodge and the pitch is, ‘Here’s a way to make business income disappear. You’re a chump if you don’t.’”

This ploy can be tempting, he adds, because it’s hard for the IRS to detect. The deduction is often one of many for the company, and the taxpayer can leave Masters’ exemption rental income off their own returns.

Still, it’s notable that the judge allowed some deductions rather than none, says Zollars. While the opinion can’t be cited as precedent, it helps validate the strategy.

To be sure, many taxpayers will reap more tax-free income by renting an entire home to someone else than by renting their living room to their business. For everyone interested in the Masters’ exemption, here’s more to know.

The Basics

The income from a short-term rental of one or more personal residences can be free of both federal income and payroll taxes, although state or local taxes may be due.

There’s no limit to the amount of income that qualifies. So if the Super Bowl is coming to town or you have a showplace beach compound, even a six-figure rent could be tax-exempt.

Time Limits

By law, the rental period must be fewer than 15 days. This rule comes with a cliff: If the rental is longer, none of the income is tax-exempt, and it must be treated like other rental income. See IRS Publication 527 for more information.

However, the days can be discontinuous, such as one week in June, two days in July, and five days in September. If someone owns more than one residence, says Zollars, each may qualify for a separate 14-day exemption—but it could be hard to make this work in practice.

Eligible Properties

The property must be a dwelling unit with eating, sleeping and toilet facilities, so the exemption could apply to the rental of a boat or RV as well as a house.

The property must also be used as a residence during the year, although it doesn’t have to be your principal residence.

Income treatment

On page three of Publication 527, the IRS tells taxpayers not to report the income they earn from these rentals on their tax returns.

If a business pays the rental income, however, it may be required to send the owner and the IRS a 1099 form reporting it. In that case, says Lewis, the owner can claim the income on the return, subtract it, and attach an explanation. This may attract IRS attention.

Unlike with other rental income, no expenses (such as for food, supplies or utilities) are deductible from this rental income. However, filers who itemize on Schedule A don’t have to dock their deductions for mortgage interest and property taxes.

Renting A Home To One’s Business

Taxpayers who go this route must be scrupulous in obeying the rules.

Be sure to avoid the mistakes made in the Sinopoli case: Value the rented space properly, and keep good records—such as about the time of meetings and the issues discussed—to show the expenses were necessary.

Updated: 10-13-1023

Mortgage Cost Surge Makes It Cheaper To Rent In Tough US Market

The gap in favor of renting hasn’t been this big since at least 2015, according to Zillow.

It’s getting even harder to afford a house.

In high-cost US housing markets including Los Angeles, Honolulu, Seattle, San Jose and San Francisco, the premium for buying versus renting is surging, according to Zillow Group Inc.

In California’s San Jose metro area, for instance, where the typical home costs $1.4 million, a buyer with 10% down faces a monthly mortgage payment of $8,771, more than $5,000 higher than monthly rent.

Across the US, monthly rent was $81 cheaper in August than the monthly mortgage payment on a home for sale with a 30-year mortgage, assuming 10% down and a 7.18% interest rate on a house listed for about $350,000.

That’s the biggest gap nationally in data going back to 2015, with soaring borrowing costs making it more expensive to purchase a home, even before taking into account taxes, insurance and maintenance costs.

Historically, those able to afford the upfront costs of buying a home — including a down payment or closing costs — were able to lock in a cheaper monthly housing bill than renters. That changed for the first time in September 2022, according to Zillow’s data.

It’s yet another sign of how unaffordable real estate has become, with mortgage rates topping 7.5% for the first time since 2000. Existing homeowners are reluctant to move because they’re locked in at lower rates, and new buyers are struggling to find properties they can afford, pushing mortgage applications to a multi-decade low.

With the real estate market largely frozen, many first-time buyers are stuck renting while they wait for housing costs to come down, according to Nicole Bachaud, a senior economist at Zillow.

“Affordability is worse than it’s ever been largely driven by the rapid increase in interest rates,” she said. “We now have a very large gap between mortgage payments and rent payments.”

To be sure, homeowners’ monthly payments vary widely based on the size of their downpayment and loan terms. Those with a larger downpayment — the average earlier this year was 13% — can secure a lower monthly bill, for example.

But in some of the country’s hottest housing markets, even those who can put down 20% are finding that buying is still more expensive than renting.

Homeownership has long been a key way to create wealth as buyers build equity, benefit from home-price appreciation and take advantage of tax benefits. However, the cost-benefit analysis for first-time buyers has shifted since last year when mortgage rates began to rise at the fastest clip in decades.

With such high price-barriers in places like California, thousands have fled to cheaper Sun Belt states like Texas and Florida over the past few years. But the savings on housing in popular pandemic boomtowns are also drying up.

Homebuyers with a downpayment of 10% would now pay $987 more for a monthly mortgage than a rental in Austin and $46 more in Miami.

“The calculation of renting versus buying on a monthly basis has definitely shifted. But the long-term benefits of buying have not,” said Bachaud. “Today, it’s a matter of who is able to really access those benefits. Many people can’t afford to buy a house whether or not they like the benefits of homeownership.”

Updated: 10-22-2023

There’s Never Been A Worse Time To Buy Instead Of Rent

Cracks In The Housing Market Are Starting To Show

It is now 52% more expensive to buy a home than to rent one because of climbing mortgage rates.

Getting on the property ladder has rarely been tougher for first-time buyers. But a tight housing market isn’t turning out to be a bonanza for landlords either.

The cost of buying a home versus renting one is at its most extreme since at least 1996. The average monthly new mortgage payment is 52% higher than the average apartment rent, according to CBRE analysis.

The last time the measure looked out of whack was before the 2008 housing crash. Even then, the premium peaked at 33% in the second quarter of 2006.

In theory, buying and renting costs should be roughly matched, according to Matt Vance, head of multifamily research at CBRE.

Although owners benefit when house prices go up, they also put more cash into their homes than tenants for things such as repairs and refurbishments.

From 1996 to mid-2003, the average cost to buy or rent did indeed work out more or less equal. After the global financial crisis, though, rock-bottom interest rates and plenty of housing supply meant it was 12% cheaper on average to buy a home than to rent one during the 2010s.

The current hefty ownership premium reflects the surging cost of debt, as rates on a 30-year mortgage reach 8%, as well as high house prices since pandemic lockdowns raised the value of domestic space.

A person taking out a 30-year mortgage today on a $430,000 home with a 10% down payment would fork out around $3,200 in monthly repayments, 60% more than if they had bought the same house three years ago.

Rents have risen by a less-blistering 22% over the same period, though this was still moderately ahead of wider U.S. inflation.

Rising house prices make it hard for renters to scrape together a 10% down payment, let alone afford spiraling mortgage costs.

“There is a lot of shadow demand for homes, with a bunch of first-time buyers waiting on the sidelines for the payment-to-paycheck calculation to work for them,” says Odeta Kushi, deputy chief economist of First American Financial
Corporation.

A collapse in prices would restore the market to balance, but seems unlikely barring a major recession. Those who bought their properties when rates were low have locked in cheap financing:

Around 80% of outstanding U.S. mortgages have an interest rate below 5%. This gives homeowners an incentive to stay put, squeezing the supply of houses for sale.

On paper, these owners might appear to benefit from the current situation, but they, too, face costs. They can’t easily move, and downsizing to take advantage of record house prices might not add up, given higher mortgage rates.

With homeownership out of reach for many tenants, landlords would normally be able to push rents higher. But the supply of homes to rent isn’t as tight, with a glut of newly built apartments depressing rent growth.

Demand from tenants is also weaker than it was during the pandemic, as most people who were planning to move have already done so over the last two years. Fannie Mae thinks vacancy rates in U.S. multifamily buildings will reach 6.25% in 2024, above the 15-year average of 5.8%.

This will hurt institutional investors, who have poured billions of dollars into U.S. rental property in recent years. Apartment stocks are also underperforming.

Since the buy-to-rent premium returned in early 2021, shares in AvalonBay Communities and Equity Residential have fallen 6% and 18% respectively, while the S&P 500 index has gained 8%.

In a dysfunctional U.S. housing market, even one that should be tailor-made for landlords, perhaps only lifelong renters are getting what they want.

Updated: 10-24-2023

Thanks to Big Data, Landlords Know How To Squeeze The Most Out Of Renters

Two firms face allegations that rent-pricing systems facilitate collusion among some big apartment owners.

If you want to know why apartment rents got so high, some people say look to big data. Many landlords outsourced their pricing decisions to software that told them what rents to charge.

These algorithmic pricing systems analyze giant troves of information about the rental market. Then they direct landlords on how much to increase rent for each lease renewal, or what to ask for newly vacated apartments.

Algorithms and other big data have changed the way many landlords do business. In the past, landlords would often make deep cuts to rents when the market started to head south, but algorithms showed them that wasn’t always necessary.

Many building owners also once believed keeping their apartment buildings as full as possible was the best way to maximize profits.

Algorithmic pricing systems, by contrast, calculated that some landlords could earn more money by pushing up rents, even if that brought about higher vacancy rates.

At least dozens of landlords across the U.S. rely on pricing systems from two companies—RealPage and Yardi Systems—to determine what they charge millions of renters.

Now, these two firms face allegations that their rent-pricing systems facilitate collusion among some of the country’s biggest apartment owners.

Two lawsuits, one against RealPage and one against Yardi, allege that the pricing systems enable an exchange of confidential pricing information to set rents across buildings and markets.

That reduces much of the natural competition that might exist if landlords didn’t outsource their pricing decisions to software, the complaints allege.

The lawsuits, brought by tenants in federal courts in Tennessee and Washington, allege that the two companies and their landlord customers are engaged in illegal behavior, and that it has translated into higher rents for tenants.

The U.S. Justice Department might soon weigh in on whether algorithms unlawfully drive up rents. The department’s antitrust division has been investigating RealPage’s practices and is considering a potential enforcement action, according to people familiar with the matter.

Earlier this month, the department filed a notice in the case against RealPage, saying it would consider posting a “statement of interest” by next month that would attempt to guide the court’s decision in that case.

The scrutiny is part of a broader effort by antitrust enforcers to examine whether the use of algorithms in price setting facilitates collusion or otherwise keeps prices artificially high.

RealPage has previously denied these allegations. It declined to comment further on pending litigation. Yardi denied the allegations against the company.

In a letter to members of Congress who called on the Justice Department to investigate RealPage, the company said last year that the purpose of its system wasn’t to boost rents or drive up vacancies. It was to analyze supply and demand so landlords can more efficiently manage buildings.

In some cases, that can mean lowering rents to preserve occupancy, RealPage said.

The firm pointed to the general decline in apartment-vacancy rates in recent years as evidence that its software didn’t contribute to an increase in empty apartments. It also played down the role that nonpublic pricing data plays in its algorithm.

Yardi, meanwhile, has said it never uses nonpublic data to adjust rents. Both firms said they don’t allow their clients to directly see each other’s pricing data.

Apartment owners are hardly alone in embracing sophisticated pricing systems. Student-housing operators also use rent-setting software, as do owners of single-family rental homes.

More companies, from grocery stores to ride-sharing entities, rely on automated pricing to make sales.

Regulators and the Biden administration have expressed concerns about the pricing effects of big data. In September, the Justice Department filed a complaint against Agri Stats, an analytics company focused on the pork and poultry industry, alleging that it was helping processors raise prices and reduce market competition.

“So many of the products we buy have prices set by algorithms,” said Zach Brown, an economics professor at the University of Michigan who has studied the effects of pricing technology. “These issues are going to be increasingly relevant, and for a long time.”

In the multifamily market, asking rents have flattened out this year and even fallen in some places after a boom in new construction. But rents rose to record levels during the pandemic, up about 25% between 2021 and 2022, according to some metrics.

The companies that offer pricing software have indicated that their technology helps landlords to raise prices. In promotions for Yardi’s pricing system, formerly called RENTmaximizer, one landlord said it allowed the firm to “push rents more aggressively” and “quickly.” Another landlord said it enabled her firm to eliminate concessions for tenants.

RealPage’s marketing materials explain how pricing software prevents “costly reactionary pricing behaviors,” such as across-the-board rent cuts. The ads also boast of the opportunity to “outperform the market by 3% to 7%.”

The first software for pricing apartment rents made its debut two decades ago. One of the early pioneers was a former airline employee named Jeffrey Roper, who worked at RealPage for more than eight years and previously worked on a pricing system for Alaska Airlines in the 1980s.

That airline and seven others later settled with the Justice Department following allegations that their systems were used to fix airfares.

Algorithms took a while to catch on with landlords. A few years ago, a large apartment-management company started raising its rents through RealPage’s pricing system. Occupancy levels at its buildings fell from 98% to 95%.

Nevertheless, the company was more profitable than it had been before, said Steve Winn, former chief executive of RealPage, during a 2018 earnings call.

“Initially, it was very hard for executives to accept that they could operate at 94% or 96% and achieve a higher [income] by increasing rents,” he said on the call.

Now, many landlords view these systems as essential to doing business. “We don’t set our rents,” Matthew Gottesdiener, chief executive of apartment owner Northland, wrote in a social-media post last year, adding that he relies on an algorithm.

The parties suing RealPage and Yardi will likely need to prove that these companies control an outsize share of the rental market, said Peter Carstensen, a former antitrust attorney at the Justice Department and professor emeritus at the University of Wisconsin Law School.

The complaints cite figures to show market power that are difficult to confirm. Until recently, RealPage’s website advertised that its pricing system was “trusted by over 4 million units,” though its transaction database is far larger.

The U.S. has about 22 million investment-grade apartment units, according to RealPage.

“Courts are quirky, and judges are not economists,” Carstensen said. “I can imagine telling a perfectly plausible story based on Econ 101 that says markets are better when everyone knows everything.”

Then again, he added, RealPage and Yardi “don’t share information with renters, do they?”

Updated: 2-16-2024

Realtors Are in Crisis—and Home Buyers Could Be The Winners

A wave of lawsuits over fees paid to agents has put the giant trade association on the defense; ‘it got arrogant’.

The National Association of Realtors appeared to hit rock bottom in October when a Kansas City jury delivered a $1.8 billion verdict, finding that the industry kept home-sales fees artificially high. But the existential threat to the powerful trade group was about to get worse.

Copycat lawsuits have been filed around the nation. Dozens of real-estate brokerages are now defendants. Federal regulators are scrutinizing the industry more closely than they have in years.

Brokerage executives are pressuring NAR to settle the legal claims nationwide, worried that more large verdicts could push residential firms and local real-estate associations into bankruptcy. They complain that NAR failed to convey the gravity of the threat.

“There has been consistently an arrogant attitude of the senior officers” of the association, said Dave Liniger, chairman of brokerage franchiser Re/Max Holdings. “It just seemed to me that it was just like a solid wall of, ‘It’s our way, and we’re going to keep it that way, and we don’t care.’” Re/Max was also a defendant in the Kansas City lawsuit, but it settled before the trial.

A NAR spokeswoman said the organization has always been committed to working with the industry to improve its policies and resolve the legal threats.

The Missouri jury found that the powerful trade organization and two brokerages had conspired to keep fees paid to buyers’ agents high. Long before that fiasco, some real-estate executives had urged NAR to change the decades-old commission structure, but the organization refused.

The industry now appears headed for significant changes in how buyers’ agents are paid, a system that NAR has fought for decades to protect. One possibility is that sellers would no longer decide upfront how much buyers’ agents get paid, giving buyers more power to negotiate. More buyers might opt to buy homes without using agents at all, which could save them money on commissions but might put less sophisticated buyers at a disadvantage.

Consumer advocates hope that changes to NAR’s rules would lower commissions, making home purchases a little more affordable. The typical commission—5% to 6% of the purchase price, split between the buyer’s and seller’s representatives—is one of the highest in the world.

For the industry, such changes could prove painful. If fewer buyers use agents, that could push many agents out of the industry, reducing NAR’s size and lobbying power. And if real-estate commissions go down, that would mean less revenue for real-estate brokerages.

NAR has 1.5 million members and boasts that it is the largest trade organization in the nation. It has total assets of more than $1 billion. Yet its future has rarely looked more uncertain.

“NAR is at the forefront of issues affecting the lives of millions of people,” said Nykia Wright, the organization’s interim chief executive, in a written statement. “We have a profound obligation when navigating complex litigation that has the potential to affect not just our industry but the entire American economy. While some are focused on the past, we are looking to the future.”

Over its 116-year history, NAR has repeatedly fended off lawsuits and Justice Department inquiries about industry practices. Its legal maneuvering and political clout enabled NAR to maintain a tight grip over the residential real-estate business, shaping how Americans buy and sell homes and the costs associated with those transactions. (News Corp, owner of The Wall Street Journal, operates Realtor.com under license from NAR.)

NAR’s members, the only real-estate agents who can call themselves Realtors, must pay hundreds of dollars a year in dues to join their national, state and local Realtor associations.

NAR is “this massive hulking institution that lives on lots of teeny members’ payments. It’s like a whale that is sustained on krill, and this gave it a certain institutional durability,” said Brian Boero, chief executive of 1000watt, a residential real-estate strategy consulting firm. “It got big, it got flabby, it got arrogant and it got complacent.”

The precursor to the modern organization was founded in 1908. Early on, the association helped professionalize an industry in which agents were afraid to list properties publicly lest other agents steal their clients by offering lower rates.

Local associations, with support from the national organization, began distributing mandatory fee schedules. Undercutting those rates was considered unethical. In 1950, the Supreme Court said that practice was illegal, and the fee schedules became recommended.

By the 1970s, the industry had largely gotten rid of recommended fees after facing lawsuits, Justice Department investigations and even criminal charges against real-estate firms for conspiring to fix prices.

Under NAR’s current commission structure, which dates to the 1990s, most sellers listing properties offer to pay the buyers’ representatives.

Plaintiffs and government regulators have argued this system keeps commissions high by preventing buyers from negotiating fees with their own agents and allowing buyers’ agents to steer clients away from homes that offer lower commissions. The association says the current commission structure helps first-time buyers who can’t afford to pay an agent out of pocket.

In 2006, real-estate listing firm Zillow began posting online information about homes on the market, attracting more than a million visitors in the first few days. Although the rise of online shopping has led to lower fees for travel agents and stockbrokers, real-estate agent commissions have risen because home prices have climbed.

Commissions paid to buyer representatives rose 32% from 2013 to 2020, adjusted for inflation, according to an expert witness report in a pending class-action lawsuit in Chicago that examined 20 regions.

Doug Miller, a Minnesota lawyer with a one-man firm, began the work that would culminate in the crushing Kansas City verdict.

When he was in law school in the 1980s, Miller worked as a Realtor in Wisconsin. He said he concluded that the industry wasn’t working in the best interest of consumers. “It all involved betrayal,” he said.

In the 1990s, Miller said, he visited the offices of Minnesota lawmakers to try to talk them out of supporting legislation that the real-estate industry was pushing. The lawmakers, he said, were wearing Realtor pins.

About five years ago, Miller approached a law firm, Cohen Milstein, with an outline for a lawsuit that would target NAR’s rule mandating how buyer agents’ commissions are paid. Drawing on Miller’s research, the firm helped file the first major antitrust class action, in Chicago.

About a month later, another law firm filed a similar suit in Kansas City, which wound up going to trial first.

As the lawsuits were progressing through the courts, the Justice Department also was looking into the industry’s practices.

In 2020, under the Trump administration, the department reached a settlement with NAR requiring agents to be more transparent about commissions.

In 2021, President Biden issued an executive order directing federal agencies to increase competition in the real-estate industry. The Justice Department has asked a federal appeals court to allow it to reopen its investigation.

Some in the industry felt NAR had a bloated bureaucracy and was ill-prepared for a crisis. The association undertook a project a few years ago to shrink its board of directors, which had about 1,000 members. Instead, it ended up expanding it. Its presidents serve one-year terms and often seemed focused on pet projects, former NAR staffers said.

With the litigation threat looming, Kenny Parcell, a Utah Realtor who had become the association’s president in late 2022, championed a $3 million initiative that involved touring the country with a bus and motorcycle to meet with Realtors and raise money for charity.

Just as the Kansas City case approached trial, the association was thrust into a leadership crisis. In August 2023, Parcell resigned after allegations of sexual harassment by several women. He has denied the allegations.

His successor, Tracy Kasper, pledged to promote what she called a “welcoming, safe and respectful workplace.” Her first video message to members as president, which came out a week later, was set to music, which some industry leaders said made NAR seem out of touch.

Parcell and Kasper didn’t respond to requests for comment. A NAR spokeswoman said an “overwhelming majority” of members “have communicated their trust in what we are doing to transform the organization.”

Industry leaders said they received little indication from NAR that the lawsuits posed a serious threat. The association’s chief legal officer, Katie Johnson, had said: “These cases are wrong on the facts, wrong on the law.”

As the lawsuits gained momentum, she gave video presentations to local Realtor associations, often sitting in front of inspirational slogans such as “Hope will never be silent.”

Top real-estate executives worried about taking the class-action lawsuits in Chicago and Kansas City in front of juries. The industry executives privately urged NAR to alter its commission policy and scrap a mandate that governed how buyers’ agents get paid. Doing that, they argued, would weaken the plaintiffs’ cases.

In February 2022, an executive at Anywhere Real Estate, one of the country’s largest real-estate brokerages, urged NAR to make that compromise.

In an email to an NAR staffer, Caitlin McCrory, head of industry relations at the brokerage, wrote: “Questions about why the mandate exists are posing unnecessary complications while providing little to no discernible benefit.”

NAR leaders dismissed this advice, expressing confidence they would win and opposing any concessions, real-estate executives recall.

But just 10 days before the Kansas City trial, the association revised the rule. The lead plaintiffs’ lawyer called it a “stunning admission of guilt.”

The NAR spokeswoman said changing the rule earlier wouldn’t have resolved the litigation, and that other industry executives opposed any change.

Anywhere, which owns several brokerage brands including Corcoran, Coldwell Banker and Century 21, settled days before the trial, as did Re/Max. The two companies agreed to pay about $140 million combined.

Things finally came to a head in a Kansas City courtroom in mid-October. On the first day, the judge dismissed 10 of the roughly 80 potential jurors because, as recent home sellers, they were members of the plaintiffs’ class—a sign of how many ordinary people could be affected by the outcome.

Kathy Helbig-Strick, a Realtor in St. Louis, Mo., drove 3½ hours to watch part of the trial and support the industry. Kansas City plaintiffs’ lawyer Michael Ketchmark, whose elderly parents came to court each day, connected with the jury more effectively than the defense lawyers, she said. “He would get his passion going,” she said.

Even after the plaintiffs settled with two major brokerages, they never got close to a settlement with NAR. “At their core they thought they were going to win,” Ketchmark said.

The jury took just over two hours to decide in favor of the plaintiffs.

NAR has vowed to appeal the decision, but the Chicago case could go to trial later this year. The damages in that case could total more than $40 billion, based on calculations of commissions paid in recent years. Executives in the industry are pressing NAR to settle.

In November, NAR’s chief executive stepped aside a year ahead of his planned retirement. Wright, who NAR said is a turnaround expert but has little previous experience in real estate, stepped in as interim CEO.

Two months after that, Kasper resigned after less than five months as president, alleging—with little explanation—that she was being blackmailed.

Real-estate agents have begun dropping their NAR memberships, and the association is bracing for a financial pinch. Membership in January declined for the third straight month. In internal budget documents, the association projects an 8% decline this year, which it attributes to the slow housing market.

In many markets, real-estate agents can’t leave NAR without losing access to databases of real-estate listings.

Real-estate brokerage Redfin announced in October that it had resigned from the NAR board and was requiring its agents to leave the association wherever possible. So far, agents in only a couple of markets have been able to leave.

More than 70% of real-estate agents surveyed in mid-October by 1000watt and BAM, a real-estate media company, said they would leave NAR if they could still view the listings databases and be able to give tours of homes for sale.

At Coldwell Banker Danforth, a brokerage in the Seattle area, some agents last year reached out to co-owner Dave Danforth saying they wanted to leave NAR. Danforth surveyed the brokerage’s more than 300 agents, and of those who responded, about two-thirds said their membership in the national and local Realtor associations provided little to no value.

Danforth, who had been a Realtor since 1990 and took over the brokerage from his mother, was frustrated that NAR policies made it difficult for some of his agents to leave and not others.

Coldwell Banker Danforth decided it wouldn’t renew its NAR membership in 2024. A few agents left over the decision, but others would have left if the brokerage had stayed in NAR, Danforth said. “I truly believe NAR needs to earn every agent’s membership fees, one by one, and if they did, it would be a much better organization,” he said.

NAR has stepped up its fight this year. In late January, it released a video in which interim CEO Wright said, “NAR does not set commissions. It never has and it never will. Period. End of story.”

The video was taken down shortly after it was posted. When it was put back up that evening, the phrase “it never has” had been edited out.

Updated: 2-16-2024

NAR Runs Out Of Liability Insurance Coverage: Sources

The trade group has run out of liability insurance coverage, potentially leaving thousands of state and local associations and MLSs on the hook for legal fees.

Three sources, who have asked to remain anonymous, have confirmed to HousingWire that the National Association of Realtors (NAR) has run out of liability insurance funds.

The news about NAR’s insurance predicament began circulating late Wednesday, with industry analyst Rob Hahn highlighting the news in the Thursday edition of his email newsletter NotoriousROB.

“NAR’s insurance policy is tapped out, and there are no funds available for REALTOR Associations and MLSs for legal defense costs,” Hahn wrote.

“That this is an enormous issue is understating things.”

NAR has two types of insurance it offers to associations, subsidiaries, affiliates and association-owned MLSs at no additional cost. These policies include professional liability insurance and patent infringement insurance.

The liability insurance, which is offered through insurance provider Chubb, is designed to cover antitrust claims, but the policy limit is $1 million per policy. Additionally, the policy has an aggregate limit of $10 million.

For an additional cost, state and local Realtor associations, as well as association-owned MLSs, can purchase excess insurance coverage. But as Hahn wrote, and as sources confirmed to HousingWire, all of NAR’s insurance funds — including the funds in its excess coverage pool — are gone.

Additionally, NAR’s professional liability insurance has been extended through June 30, 2024, but it has not been renewed and Chubb is no longer making new excess coverage policies available for purchase.

For large MLSs and Realtor associations, which have their own liability insurance independent of NAR, this news is disappointing but isn’t catastrophic. But for smaller associations that do not have independent coverage and have found themselves in the crosshairs of a copycat commission lawsuit, the news is devastating.

“Up until now, NAR’s insurance policy covered the costs of those lawyers,” Hahn wrote. “Going forward? They would have to find a way to pay those lawyers themselves.”

In Hahn’s estimates, an association with 1,000 members that charges $150 in annual dues for an annual income of $150,000 cannot afford to defend itself against one of the many copycat suits.

“If you can’t defend yourself, then you have to settle. And you don’t get to negotiate a whole lot because the plaintiff attorneys know for a fact that you can’t afford representation,” Hahn wrote. “So your only leverage in negotiating the settlement is, ‘We’ll just file bankruptcy.’”

As copycat suits continue to pile up, it is clear that this issue will not be disappearing anytime soon, and that legal costs for Realtor associations and MLSs will only increase.

It also remains unknown as to exactly when NAR ran out of insurance coverage. The trade group did not return HousingWire’s request for comment, and it did not confirm or deny that it had run out of insurance coverage.

Updated: 3-17-2024

A Look Into The Future of Home Buyers’ Agent Commissions

After the National Association of Realtors’ settlement, more buyers are expected to save on commissions, but service might be more limited.

The National Association of Realtors’ landmark settlement is upending the home buyers’ agent commission system. Companies already experimenting with different structures offer insight into what this new world of home sales might look like.

Some buyers pay their agents directly through a flat fee or an hourly rate, instead of relying on the seller to set a rate. Some sellers offer a lower commission to a buyer’s agent than the currently typical 2% to 3%.

Customers like the flexibility of these new models, which can significantly lower the fees paid to a buyer’s agent. The savings can run to several thousand dollars on a home listed at $400,000.

But these nontraditional approaches often mean buyers have to do more work themselves. And sellers who offer lower commissions could find it tougher to sell if buyers’ agents discourage buyers from bidding on their homes.

Regardless, these models look poised to become widespread this summer when the new rules go into effect and buyers and sellers become aware of the changes, according to analysts.

In a $418 million agreement announced Friday, NAR settled legal claims that the industry conspired to keep agent commissions high. In doing so, the organization agreed to make it easier for home buyers to negotiate fees with their own agents.

Starting in July, most home sellers won’t need to make an upfront offer for how much they will pay a home buyer’s agent. That means if home sellers won’t cover the cost of the buyer’s agent, buyers could have to pay their agents out of pocket.

Home shoppers paying directly for each task an agent performs could save buyers $30 billion a year compared with under the current system, because buyers would negotiate for lower prices and tour fewer homes, according to a working paper released by economists at the Federal Reserve Bank of Richmond.

Thanks to online listing sites, it is easier today for buyers to find homes and cheaper for sellers to advertise their listings, said Mike Maher, chief executive officer of Newfound, which owns discount brokerages.

“There’s a lot of excess fat in the costs to sell a home,” he said. “If you remove some of those costs, it should make homes more affordable and attainable.”

The hope for buyers is that new payment models help lower their commission costs, which could ultimately reduce home prices.

Cracks In The Housing Market Are Starting To Show

Flat Fees For Service

One way that might work is a flat-fee model. Under this approach, buyers would agree to pay their agents directly, but they could choose to ask the seller to cover this cost.

Fred Glick, founder of the Los Angeles brokerage Arrivva, represents buyers for a flat fee of $9,750. If sellers offer a higher compensation to the buyer’s agent, Glick rebates the difference to the buyer. For sellers, Glick charges a flat fee of $15,750.

In exchange for those savings, buyers take on some duties often performed by an agent. Glick’s buyers typically find homes for sale on their own. “Every once in a while we get someone who needs the hand-holding, and we tell them, unfortunately, we can’t help them,” he said.

William and Ashley Brode worked with Arrivva to help sell their Los Angeles home and buy a different one earlier this year. Brode said he appreciated Arrivva’s advice on negotiating and that they didn’t need help searching for a home.

“In this area, houses are very expensive, so a flat fee versus a percentage can make a massive difference,” Brode said.

The digital real-estate brokerage Beycome in South Miami, Fla., typically offers buyers a rebate of two-thirds of the buyer’s agent commission.

Buyers can schedule showings, submit offers and close a deal online. For most of the process, buyers essentially become their own agents and receive an information packet to answer questions.

Beycome pays local real-estate agents to open the door for home showings.

Since buyers do a lot of their own home-buying research online these days, commissions should be lower, said Beycome’s co-founder Nico Jodin.

Sellers Paying Less

DeLeon Realty in Palo Alto, Calif., began advertising in January that sellers could list their homes for a total commission of 3.5% or less, which would include 3% for the listing agent.

That compares with the 5% to 6% typical commission nationwide, which is split between the seller’s agent and the buyer’s agent.

Many of its sellers were able to save money by offering lower commissions to buyers’ agents than what was typical in Silicon Valley, said Chief Executive Michael Repka.

Of 20 sellers who used the firm in January and February, nine chose to offer the buyer’s agent $10,000. Another chose $20,000. The other 10 offered compensation ranging from 0.5% to 2.5% of the sale price.

Despite the discounted commission rates, Repka said, demand for the listings was strong. One Palo Alto home that listed at just under $2 million and offered a $10,000 buyer’s commission got 17 offers, he said.

Cracks In The Housing Market Are Starting To Show

The home sold for $2.7 million. That means if the seller paid a more typical 2.5% commission to the buyer’s agent, the fee would have come to about $67,500.

“If we had buyers’ agents being paid by buyers, I think buyers would be well-served, because they would put more thought into which agent they want to work with,” Repka said.

Some Buyers Want Service

Yet failed previous efforts to disrupt the traditional structure suggest that many buyers expect a high level of service. Seattle-based Redfin used to charge buyers $250 a tour and rebate two-thirds of the buyer’s agent commission, assuming that buyers would opt to tour homes themselves to save money.

But buyers wanted more advice from their agents, and listing agents were skeptical that buyers were serious if their agents didn’t join them on tours, said Chief Executive Glenn Kelman.

Redfin changed its model in 2008 to offer unlimited free tours and a 50% rebate.

Cracks In The Housing Market Are Starting To Show

“I’ve now become convinced, through bitter experience, that people need someone to talk to before they make an offer,” Kelman said. Still, he added, commission costs should be lower.

“People will pay for service,” he said. “They just shouldn’t overpay for it.”

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