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Interest rates have gotten higher, but that doesn’t mean they’re high.

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Interest rates have gotten higher, but that doesn’t mean they’re high.

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The pandemic has made us re-examine how we do just about everything in our lives. I have been going to the same barber, Shukuru, for many years and I’m always joking that I never understood why I’m charged more as the years go by, because I have less hair to cut. Now, my wife does my hair. It’s a more efficient and a cheaper way to cut my dwindling amount of hair. This is a personal story, but it’s just one example of consumer behavior change during the pandemic. And, it’s an example of how certain businesses have suffered. Of course with these changes comes opportunity. Change is certainly playing out in the real estate markets as well. You can argue that, once the pandemic is over, things will go back to normal, but some of our behavior will be permanently changed. In my last post, I wrote about some of the changes we expect to see in the real estate markets. At Roc360, we continue to monitor and share how real estate trends have changed as we return to normalcy, whatever that may mean.
 
Today I want to share some more detailed insights on the power of interest rates. I will also share some of the creative ways our borrowers have overcome challenges in order to get their deals done.
 
A. Interest rates
-We have been in a low interest rate environment for so long that we sometimes take these low rates for granted, assuming that they will always be available to make our real estate deals work. Mortgage rates have been rising over the past few weeks. Last week the average rate for a 30 year fixed mortgage climbed above 3% for the first time since July when the rate was at a record low of 2.65%.
Even small interest changes can have an impact on the affordability of housing.
 
Let’s illustrate with some specific examples.
 
The median home purchase price climbed above $300,000 for the first time last year so if we use
that figure as the loan amount at the record low rate of 2.65% in July that would require a monthly payment of $1208. A 3.25% 30 year fixed rate mortgage which is closer to where we are currently would necessitate a monthly payment of $1305. To put it in perspective the historic peak mortgage rate was at 18.63% in 1981 when a monthly payment of $4675 was necessary. Even in December of 2018 when rates were at 4.64% the monthly payment was $1545 . The point is that rates matter and even the recent increase in rates has resulted in about $100 a month increase in costs. If you add in the higher prices of homes which increased by 10.8% in the fourth quarter which was the biggest annual increase since 1992 you can see why some might question the continued rally in home prices. Additionally many economists expect mortgage rates to continue to increase this year.

Rising rates would not only affect the ability to do new deals, but also adversely impact
“borrowers” (including the federal and local government)
ability to pay their existing floating rate debt and roll over their existing debt. If rates do continue to rise, we’ll be dealing simultaneously with higher debt-service costs across the economy on existing projects along with a curb on new economic activity because of the higher cost of debt for new ventures.
 
So, where are rates going from here?
 
Many of us think that we will be in this low interest rate environment for a long time.
 
Federal Reserve Chairman Jerome Powell was quoted as saying “We think that the economy’s going to need low interest rates, which support economic activity for an extended period of time—it will be measured in years. However long it takes, we’re going to be there—we’re not going to prematurely withdraw the support that we think the economy needs.”
 
So, if you believe the Fed chairman, rates will stay low, although, bear in mind that the Fed controls short term rates to an extent but certainly does not have control over longer term rates and broader market forces. If you believe the writer Norman Cousins who said “History is a vast early warning system”, low interest rates are not going to last forever. It might be foolish on my part to bet on a writer rather than the chairman of the Federal Reserve, but that’s exactly what I am going to do. Call me old fashioned, but I don’t believe that governments can print money with no consequences—that you will be able to get a 30 year mortgage at 3.25% forever and this time it’s different…not likely. Housing affordability is a function of financing costs, income and home prices. One can argue that each of these factors could cause stress on the system going forward. But for now, even with this recent increase in rates, many of the factors that have created demand for single family housing remain in place. Owning your own home is still theAmerican dream and housing stock is still in short supply. Just understand that rates weren’t always this low and might not stay like this forever.
 
B. Borrower story-
We applaud our borrowers’ entrepreneurial spirit and vision in pursuing their projects and dreams. Each and every day we observe our borrowers doing deals that transform communities and people’s lives. One of our borrowers bought three multi-family buildings with 70 units in North Carolina. He grew up nearby in the same town but wasn’t even allowed by his Mom to go near the location of the properties because they were so rundown. He did some incredible work rehabbing the buildings and the units are now rented and the property is stabilized. An article ran in the local newspaper about how he improved the community with his rehab of these properties. This is just one illustration of how our incredible borrowers create their vision and get things done. The pandemic has put up additional roadblocks, but our borrowers always seem to find a way. People’s lives are enhanced time and again because of this initiative. More stories to follow.
 
C. Trivia-
Let’s review the answers to the trivia from the previous blog first.
 
What is the largest private real estate development project in American history?
Answer: Hudson Yards in New York City, with a cost of $25bn on 28 acres.
 
What was the nickname of the Empire State Building when it was opened in 1931?
Answer: The Empty Space building, because it was hard to lease after The Great Depression.
 
In what country do homeowners paint their front door red when they pay off their mortgage?
Answer: Scotland, although I believe it might be a bit of a myth.
 
New new trivia question: Who is the world’s largest landowner?
 
Post your answers on our Facebook page and we may have a prize for you.
About the author
Brandon Dunn is the Chief Capital Markets Officer at Roc360. Brandon began in fixed income sales and trading roles at institutions such as JP Morgan, Deutsche Bank, Smith Barney and LF Rothschild. He later became co-head of trading groups and Managing Director and Head of Structured Product Marketing at UBS. At Roc360, Brandon is responsible for all capital markets related activity and investor relations. He supports these efforts by leading the origination team and being involved with due diligence processes.

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Residential Real Estate Economics Research and Insights

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Residential Real Estate Economics Research and Insights

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About the Author
The following is a repost from Roc360’s blog, authored by CEO and cofounder, Arvind Raghunathan. Originally an accomplished professor of computer science with published, influential research papers; Arvind established one of the top prop trading teams on Wall Street, generating substantial profit for Credit Suisse and Deutsche Bank.
Preface

This post summarizes and contextualizes research from around the residential real estate industry, covering supply and demand, construction and materials, general trends and specifics in the Single Family Rental segment of residential real estate. Sources are cited so that you can dig deeper into any given topic, but this post is designed as a five minute read.

Infrastructure

As a nation, the United States has been discussing the rebuilding of the country’s infrastructure for over a decade. It has been a major part of campaign promises for both parties’ candidates in every election cycle. Anyone who travels abroad marvels at the modern airports in the Middle East, the highways of Europe and the clean energy infrastructure in the Far East. According to Citi research, our country’s infrastructure is underbuilt both on the “heavy” side (the American Society of Civil Engineers issues US infrastructure a “D+” grade ) and the “light” side (housing starts averaged 0.7 mm in 2010-19, well below the historical avg. of ~1.5mm) according to census info and The National Association of Home Builders.

Last year, this theme started getting its due, with two infrastructure-minded presidential candidates and housing construction beginning to return to historical levels. Covid temporarily threw a wrench in the works, but the theme only strengthened due to an enormous number of secular tailwinds – low interest rates, likely for several years, enormous amount of fiscal spending, “work from home” gaining traction, the rush to buy or rent second homes, the need to create jobs in the construction industry, to name a few.

Residential Real Estate Construction
We expect residential real estate construction to strengthen on all fronts, based on a multi-year US housing recovery, fueled by the above tailwinds. Major Wall Street research houses are united in this optimistic view. (Our data comes from several sources, including Citi Research and Morgan Stanley Research). While existing home sales will likely be above 5mm in 2021, we expect over 1 mm new home starts in 2021, a healthy increase over 2010-2019. Our 2021 forecast would represent the highest level of starts in 11 years; with single family expected to dominate (+11% Y/Y). Leading indicators show activity remains strong at various stages of the home buying process, from online searches to showings to mortgage applications. While there is some recent choppiness around rate expectations, we ultimately do not see a path to a rapid increase in rates in the next three years. Further, a market now accustomed to lower terminal rates, and a very gradual pace of hikes, ultimately gives the Fed more flexibility in unwinding some of the extraordinary accommodation currently in place as there is less risk of a true “taper tantrum.” While rates tend to be the major factor in residential construction, the increasing “work from home” phenomenon, combined with the boom in people seeking second homes means more business for home enlargement and improvement, increased existing home sales, likely more single-family rentals, and increased “Fix and Flip” activity.
Some Supply Estimates (Based on Citi Research)

Based on Citi Research, in terms of housing starts, we expect single family to dominate (+11% Y/Y in ’21) while multi-family declines -10% Y/Y. The recovery of housing starts will continue into 2022 (est. 1.5mm), as inventories remain tight in an undersupplied market. Among other key assumptions, household density will tick down to around 2.08 adults per household in 2021, with population growth driving ~1.3mm new households, 85% of which are expected to be owner occupied (in-line with recent years). New single-family home sales will grow +13.3% Y/Y in ’21 while owner-built homes will remain flat (total single-family starts +11.1. Multifamily starts will decline -10.3% in ’21, leading to the forecast for total starts growth of +5.1% in ‘21.  

The Demand

The demand response that followed from Covid was almost the exact opposite of the industry’s experience in 2008, with lockdowns pulling forward demand and low rates boosting affordability. Some reasons: 1) Underbuilt housing stock which preceded the pandemic (housing inventories remain at historic lows following a decade of underbuilding; fig. 11); 2) Millennial demographic shift (higher than average birth rates during the ’45-’60 period as well as the ’85-’95 period are now translating into Millennials entering the market for the first time and Boomers retiring and potentially downsizing); 3) De-urbanization that began before the pandemic (Covid has accelerated de-urbanization and Sun Belt migration though the trend can be traced at least back to the 2017 Tax Cuts & Jobs Act, which capped SALT deductions); 4) Most importantly, low rates, which are here to stay for some time. This info comes from the following sources: Bloomberg, Investopedia, and The Hill.

The Indicators

Several leading indicators show that activity remains strong at various stages of the home buying process, from online searches to real estate showings to mortgage applications. The Mortgage Bankers Association’s (MBA) seasonally adjusted purchase index was up double digits Y/Y for the 32nd consecutive week (week ended 1/1/2021), although on a sequential basis, the index has seen some choppiness since the start of June.

Consistent with the recovery in mortgage applications, real estate viewings continue to accelerate. Following 5 years of overbuilding heading into the 2008-09 downturn, the industry underbuilt for 13 consecutive years coming out of “the Great Recession.”
Supply/demand remains favorable with supply of existing homes near all-time lows. Furthering favorable supply/demand characteristics, many potential sellers of existing homes took their properties off the market due to Covid fears.

This has advantaged home sales with virtual tours & online design offerings. The combination of rebounding home demand and persistent underbuilding has led to the supply of resale single-family home inventories (on both a months’ supply and absolute basis) hitting record lows. We also have not seen the Covid-driven economic slowdown significantly impact housing demand, as high unemployment & tighter lending standards are disproportionately impacting lower income consumers that were not in the housing market to begin with. 

Single Family Rentals (SFR)

The single-family rental (SFR) market is having its moment. While other asset classes like retail and office have stumbled during the coronavirus pandemic, the SFR market has thrived, thanks to ultra-low interest rates and occupancy in rentals remaining steady compared to pre-Covid. Inventory has been tight and demand has been tighter. A recent study by Mynd found that Milwaukee, Memphis and Detroit are expected to attract a lot of activity for SFR investors in 2021 as home appreciation in those cities jumped between 2019 to 2020.

Other cities like Houston and Charlotte, N.C., have remained attractive. This marks the first time that the SFR market — which cropped up in the wake of the housing crisis roughly 12 years ago — faced a downturn and its performance disproved those who questioned its long-term viability. It has this just proved to be a very resilient asset class. We expect the strength to continue for the next several years. 

Construction Materials

Construction material prices have been on an upswing. Lumber prices, for instance, have tripled since the March 2020 low, and are at the highest levels of all time.
Copper has almost doubled since the March 2020 lows and is at the highest levels in five years.
Lumber, Copper, and other materials are showing some weakness early in 2021. One should largely look past this inevitable demand air pocket in 1H ’21 as project delays and cancellations continue. As a 2H ’21 recovery materializes and the Biden administration proposes infrastructure stimulus, we expect construction materials to go higher. In general, “heavy” construction materials will outperform “light” materials” more linked to rehab projects, as these have already been in demand right through 2020. This information is via: Transportation Today News and Investopedia.

Conclusion

All indicators of supply and demand show a bullish picture for homebuilding, home rehab and renting (SFR) and selling activities. There are secular trends that support this view, trends likely to last for several years. This should support prices of not only residences, but also infrastructure activities and construction materials, especially “heavy” materials used in large projects.

 

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When Is a 7.95% Rate on Your Fix and Flip Loan Better than a 6.95% Rate? Here’s How Lenders Trick You with Deceptively Low Rate Offers

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When Is a 7.95% Rate on Your Fix and Flip Loan Better than a 6.95% Rate? Here’s How Lenders Trick You with Deceptively Low Rate Offers

Uploaded to: When Is a 7.95% Rate on Your Fix and Flip Loan Better than a 6.95% Rate? Here's How Lenders Trick You with Deceptively Low Rate Offers
Is that a trick question?

A 6.95% rate is always going to beat a 7.95% rate, that’s grade school math, right? That’s what some lenders want you to think when they advertise a low rate, but that’s not always the case.

The problem is in the fine print, specifically relating to how the interest rate is applied to the loan principal. Here’s what you need to know to understand whether the low rate you’re offered is really the lower payment amount you’re expecting.

The Basics
Many fix and flip loans are structured with a construction reserve: the larger part of the loan is allocated toward the purchase of the property, while the remainder is for construction expenses and is not actually needed until many months later. For these loans, there are generally two ways interest is charged: Interest is charged on the FULL loan amount from day 1 (a “full boat” loan, also known as “Dutch interest”). Interest is charged on the funds of a loan ONLY as they are disbursed to the borrower (“as disbursed” loan). When comparing a “full boat” loan versus an “as disbursed” loan, what you pay looks very different in the end. That’s exactly how a “low rate” offer can turn out to be anything but.
How Deceptively Low Rates Cost You More

Here’s a simple example. Your company is looking for a $150,000 loan with a one year term. $75,000 is to be used toward the initial purchase of the property and there will then be three subsequent $25,000 construction draws at months 5, 6, and 7.

With a full boat loan at the “low” rate of 6.95%, you’ll pay interest against the $150k from day one for the full 12 months. However, with an “as disbursed” loan at the higher rate of 7.95%, you pay interest only against the money you’ve actually received. Here’s a closer look at the math:

When Is a 7.95% Rate on Your Fix and Flip Loan Better than a 6.95% Rate? Here's How Lenders Trick You with Deceptively Low Rate Offers
When 7.95 is lower than 6.95

In the example chart, a “lower” rate full boat loan actually results in you paying close to $1,000 more in interest vs. an as disbursed loan. Haus Lending charges interest as disbursed.

Unfortunately, charging full boat interest is a common practice that lenders use: they advertise loans at low rates that appear to be better deals, but because you pay interest on the total amount right away, you end up paying more in the long run.

Don't Just Shop for a Rate – Make Sure the Interest is calculated and charged “As Disbursed”
Finding construction loans that promise low rates is easy, but protecting yourself by assessing how they can cost you a lot more in the end requires looking beyond the advertised numbers. Haus Lending helps investors find transparent and fair loans for fix and flip, multifamily, and rentals. If you want to learn more about how we can save you money versus deceptive “low rate” offers, connect with the Haus Lending team at hello@hauslending.com and let’s talk about your project.

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Haus Lending Named to MReport’s Inaugural Top 25 Fintech Innovators List

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Haus Lending Named to MReport’s Inaugural Top 25 Fintech Innovators List

Haus Lending Named to MReport's Inaugural Top 25 Fintech Innovators List
Score a victory for disruption in the intersectional space where fintech and the mortgage industry meet: we’re excited to share that Haus Lending has just been recognized as an organization “poised to shape the mortgage industry in 2020 and beyond” by MReport’s Top 25 Fintech Innovators list.

This accolade not only marks Haus Lending as an innovator in the real estate lending industry, it also demonstrates the transformative nature of new technologies and processes that are designed to more efficiently connect qualified investor leads with private lenders.

“What is truly transformative is Haus Lending’s ability to unite lenders and borrowers, two interdependent groups who often struggle to find one another. Haus Lending provides a powerful platform for private lenders, but also creates a seamless experience for borrowers, instantly connecting them with available capital.” – MReport Magazine, March 2020
Eric Abramovich, Chief Credit Officer and Co-Founder, celebrated being recognized and praised the hard work of the Roc360/Haus Lending team: “We’re honored to be recognized by MReport Magazine as a fintech innovator and a company-to-watch in the lending industry. Many platforms at this stage in their development are still looking to demonstrate proof-of-concept, but it’s evident we’ve matured well past that phase in our journey. This award represents the integration of our highly skilled team, our vision for implementing disruptive solutions into the real estate lending space, and our continued investment in revolutionary technologies and processes that aim to transform the lender-investor relationship.”

2020 marks the inaugural Top 25 Fintech Innovators list. MReport’s methodology included soliciting submissions from mortgage companies working in all sectors, from lenders and servicers to title companies and property preservation experts.

MReport is recognized as a leading source of breaking news and up-to-date information for housing and mortgage professionals.

MReport Magazine features expert commentary, industry feedback, and cutting-edge features that make it an insiders’ guide for up-to-the-minute information impacting the mortgage business.
While this award validated and recognized the relevance of our vision and our commitment to our community of users, we will continue to work on new innovations to help empower investors and lenders. Haus Lending is institutional in scale, yet retains the capability to create a personalized, boutique experience, and our 5 core values – Personalization, Responsibility, Expertise, Speed and Service (P.R.E.S.S.) – are built around perfecting the customer experience.
Haus Lending is an ideal partner for multifamily, rental and other loan products. If you are looking for a solution that deploys data science as an efficiency multiplier to overcome the supply-demand mismatch in housing, connect with the Haus Lending team at haus.leads@hauslending.com to get started today.

Top 25 Fintech Innovators List

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Haus Lending remains bullish on housing, strong in commitment to lending despite COVID-19 pandemic

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Haus Lending remains bullish on housing, strong in commitment to lending despite COVID-19 pandemic

Haus Lending remains bullish on housing, strong in commitment to lending despite COVID-19 pandemic

The 2019 novel coronavirus pandemic – with its travel restrictions, shelter-in-place orders, and uncertain future – has caused a significant damper on the United States economy. On June 8, the National Bureau of Economic Research officially declared a recession, adding that the economic slump began in February 2020.

Though there is worry on Wall Street and Main Street, our expert team at Haus Lending remains bullish on the housing market and reiterates our commitment to lending despite the virus.

This positive stance is not without foundation; according to a recent article from the Wall Street Journal, housing numbers are showing strong recovery after an initial hit because of the virus. This V-shaped recovery demonstrates buyers’ pent-up demand for real estate.

Overall, sales of previously-owned homes rose nearly 21 percent in June over the previous month to a seasonally-adjusted annual rate of 4.7 million. This data, which comes from the National Association of Realtors, recapitulates the strong desire for property on the part of prospective and existing homeowners alike.

Before news of the coronavirus began to spread across the US, the country was already facing a massive shortage of housing. Half of the users on Redfin, for example, faced competition when making an offer on a property in May. This is up 44 percent from April, demonstrating not only confidence in low mortgage rates, but the desire to move as the economy continues to open.

home sale prices up
People migrating to the suburbs translates to housing market strength.

It is no secret that the coronavirus has more intensely impacted urban areas of the country. Cities like New York City, Seattle, and Chicago that have seen heavily-concentrated case counts – paired with widespread concern about the transmissibility of sickness in confined living quarters – has caused a short-term preference for suburban living over urban dwellings.

Although it is unclear, as of now, how long this trend will last, this suburban migration is intensifying competition in the housing market. This tendency is also partially fueled by record low interest rates; buyers are moving COVID-related concerns to the side and taking advantage of an otherwise negative situation.

When comparing the coronavirus pandemic to previous crises – the housing crisis of 2008, for example – government assistance in the form of stimulus and rescue packages has more aggressively assisted US consumers. In an interview with Originate Report magazine, Roc360 Chief Credit Officer Eric Abramovich explained the important distinction of COVID-19 government assistance.

Eric said the amount of stimulus coming from policymakers has been ‘outstanding’ when comparing the ‘institutional response’ of the 2008 crash to the current crisis. He went on to say that more capital is flowing into the hands of ‘Main Street, not Wall Street.’ What we are seeing in the stock market today is a direct result of government stimulus, which is also potentially highly inflationary and in turn, will manifest in higher housing prices.

These are only some of the reasons that our team remains bullish on the housing market throughout the pandemic. Our parent company, Roc360, is known in the real estate world as the firm of choice for investors of every stripe. We arm you with the right set of tools to make sure that every deal goes smoothly. If you are interested in what Haus Lending’s platform can do for you, get in touch with us today!

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Haus Lending and Roc360 Are Partnering with The Simons Institute at UC Berkeley

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Haus Lending and Roc360 Are Partnering with The Simons Institute at UC Berkeley

Haus Lending and Roc360 Are Partnering with The Simons Institute at UC Berkeley

Here at Haus Lending, a Roc360 Company, we’re focused on helping experienced real estate investment professionals fund and finance their real estate investment projects, including fix-and-flip, rental loans and more. Today, we’re thrilled and honored to be designated an Industrial Partner of the Simons Institute for the Theory of Computing at the University of California at Berkeley.


The Simons Institute for the Theory of Computing is the world’s leading venue for collaborative research in theoretical computer science.

The mission of the Simons Institute focuses on advancing the frontiers of research in mathematics and the basic sciences. The Foundation sponsors a range of programs that aim to promote a deeper understanding of our world.

The Simons Institute also welcomes contributions to the Richard M. Karp Fund, which honors the scientific contributions of Founding Director Dick Karp. The fund provides vital support for the mission and activities of the Simons Institute.


As a data driven company, Roc360 and Haus Lending will continue to innovate and educate in real estate investment. We are honored to partner with the Simons Institute at UC Berkeley, and we will seek to further the exploration of theoretical computing and AI within the real estate, lending, and insurance industries.

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Préstamos privados para inversionistas profesionales en el sector inmobiliario residencial

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Préstamos privados para inversionistas profesionales en el sector inmobiliario residencial

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No dude en llamarnos, mí número directo 1-877-GO-4-HAUS.
Información sobre Haus Lending
Haus Lending presta dinero a inversionistas experimentados en el sector inmobiliario residencial en todo los Estados Unidos. Financiamos proyectos para reparación y venta de viviendas existentes, nuevas construcciones y una variedad de préstamos para alquiler de propiedades unifamiliares y multifamiliares. Nuestro servicio es el mejor y somos competitivos en tarifas. Tenemos la experiencia y los conocimientos necesarios para ayudarlo a obtener préstamos rápidamente, con las mejores tasas de interés y condiciones de pago. Haus Lending ha prestado más de $3.5 mil millones de dólares y mantenemos aún el trato personalizado con nuestros clientes.
Cómo te podemos ayudar:
Nuestros préstamos no son todos iguales. Ofrecemos 4 categorías claves de productos crediticios, que incluyen:

• Reparación y venta
• Alquiler unifamiliar
• Alquiler multifamiliar
• Construcción desde cero (nuevas)

En Haus Lending queremos brindarle una fuente de financiamiento confiable para comprar nuevas propiedades o refinanciar inversiones existentes. Intentamos ser flexibles para satisfacer las necesidades de los diferentes inversionistas en alquiler de propiedades, lo que te permite acceder a financiación a largo plazo a una tasa fija. Haus Lending es líder en propiedades de inversión multifamiliares y préstamos para nuevas construcciones, y ofrece las mejores opciones de préstamos.

Nos encantaría saber de ti.
Puede hacer clic aquí , y luego hacer clic en Aplicar ahora e ingresar información sobre usted y sus necesidades de préstamos de inversión inmobiliaria. Una vez enviado los datos, uno de nuestros expertos en préstamos se comunicará con usted por teléfono, correo electrónico o SMS.

Nuestros expertos en préstamos te ayudarán en el proceso de aprobación lo más rápido posible.

Gracias por su tiempo, estamos para servirle. No dude en llamarnos, mí número directo 1-877-GO-4-HAUS

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The State of the Market 2021

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The State of the Market 2021

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Major League Baseball’s iconic Hall of Fame catcher, Yogi Berra, famously said this about a restaurant awhile back but the pandemic has created inconsistencies in the real estate market that makes the joke relevant in this context as well. While we certainly don’t want to diminish the tragic loss of life and economic hardship caused by Covid-19, this post will focus on the real estate implications of the pandemic. This giant forced experiment has upset real estate fundamentals as we previously understood them. Here’s where I think real estate fundamentals go from here. As much as we love partnering with you on your real estate transactions we also would like to have an exchange of ideas so please let us know what you think as well.
To quote Yogi one more time: It is tough to make predictions, especially about the future.
One can argue that residential real estate will move seamlessly back to “business as usual” once the pandemic recedes. Overall, the economy should bounce back quickly when normalcy is restored. Because asset prices are a function of money supply, with the central banks being accommodating, real estate will stabilize along with the rest of the economy. Employees working from home and retail weakness were factors that everyone was very aware of well before the pandemic so all this past year has done is accelerate these trends. So maybe the answer is that simple and aside
One can argue that residential real estate will move seamlessly back to “business as usual” once the pandemic recedes. Overall, the economy should bounce back quickly when normalcy is restored. Because asset prices are a function of money supply, with the central banks being accommodating, real estate will stabilize along with the rest of the economy. Employees working from home and retail weakness were factors that everyone was very aware of well before the pandemic so all this past year has done is accelerate these trends. So maybe the answer is that simple and aside from a funny cartoon and the trivia at the end of this blog we can stop our analysis right there.
The problem is we all know recovery is going to be a lot more complicated than that.
Even in “normal times” it is easy to forget that macro factors drive real estate markets. We often get caught up in the specific transaction, whatever it may be, and we don’t recognize that the takeout for our deals is driven by macro factors that are changing in a variety of ways. The uncertainty of the pandemic has created many more variables potentially impacting the real estate market for many years to come.
Workspace
Work-from-home levels post pandemic will impact office, retail, residential and every other area of the economy. An estimated 18% of US workers will likely work from home every day in the post-pandemic era, more than double the 7% who did beforehand, according to a director of the Transportation Laboratory at the University of Illinois at Chicago. This could very well be a conservative estimate and if you then include those workers who use some hybrid model the impact on all of these sectors cannot be overstated. Just to take one non real estate example, think about the potential impact to municipal finance as public transportation ridership decreases by these kind of numbers. This is the kind of change not discussed in mass media right now. Factors such as these will slow investment in many sectors until we get more clarity on how and where we will work going forward.
Interest Rates
Given that real estate is often a game of leverage, changes in interest rates can have huge implications. The 10 year treasury has already moved from 50 bps in early August to 1.10 % today so rates have been moving up. We continue to be in a very favorable interest rate environment even with this recent move up in rates, but that could change quickly in these uncertain times. In March, when Covid spread rapidly, financing dried up and so did the real estate markets that were fueled by it. If interest rates rise significantly, a similar slowdown in real estate could occur.
Residential
In a nutshell, single family residential is hotter than ever. Covid has encouraged people to move from urban apartments to suburban homes. People want more space for an office, kitchen, home gym, and, frankly, to remain a safe distance from others. US home prices jumped in October by the most in more than six years. The pandemic has added to a perfect combination of factors that are driving home prices in just one direction. Of course, we all know that markets don’t just move in one direction forever, so, the question becomes, what will slow this rally in residential home prices and what is the timing? Will housing affordability finally be thwarted by an increase in interest rates? Is everyone going to move to Montana to build a house on 20 acres because workers no longer need to be near an urban office? Is a house that just sold for a price way above where it traded two years ago, because of Covid flight, simply go back down in value when fears subside?
All fair questions for sure. But, I do believe that the basic demand for better housing options will continue even when this pandemic is far behind us.
Commercial
There is plenty of negative data to go around to make a case for challenging commercial markets, for many years to come. One survey said that 43% of all tenants are looking to reduce their office space needs going forward. Office vacancies in Manhattan jumped to a twenty first century record. A partner at a global law firm told me that they plan on reducing their office space by about 25-33% as lawyers are working productively from home. I am sure we can all add our own stories to the negative commercial office space case, but there are some positives as well. First of all, we are all social creatures by nature. Management wants collaboration and brainstorming to take place. Less experienced employees need access to mentors. There are many reasons that an office place is needed for companies to operate at peak productivity.
Further, many companies are talking about increasing the square footage per person to go from 125 to 175 for social distancing purposes, which could offset some of the workstation reductions.
Retail is also suffering . A commercial real estate broker representing a tenant who owns a chain of coffee shops told me that he negotiated a lease for his client whereby he pays 40% of the rent until sales reach pre pandemic levels. On the other hand, supermarkets and banks were paying full rent throughout the pandemic. Hospitality is also having its issues. One can argue that even after leisure travel returns to pre pandemic levels, business travel will diminish as a zoom call is almost as productive and much less costly and more efficient. There is certainly a lot to think about in the commercial sector.
All Real Estate is Local
If you believed in that adage before the pandemic, it is even more accurate today. The pandemic has had very different impacts on real estate depending on location. Some areas have suffered more severely from Covid than others. Urban has, generally speaking, suffered more than suburban or rural real estate. If you are involved in a foreclosure state, you were relying on a process that shutdown. One multifamily deal had an occupancy decrease from over 90% to 70% because the tourist industry in that city has been hit so hard. Location matters now more than ever in real estate, in ways we never would have imagined just one year ago.
Yogi Berra predictions
When I worked on Wall Street, I hated when firms would put out research without any conclusions, so here it is: In residential the enduring desire to live in a new or improved single family house will drive that market higher. It might not be in a continued straight line, but the pandemic has only reinforced this inclination. Residential will continue to thrive. Commercial offices will be in for a challenging few years, but ultimately office demand will bounce back.
Trivia — Just for the fun of it.
Here is some real estate trivia:
  1. What is the largest private real estate development project in American history?
  2.  What was the nickname of the Empire State Building when it was opened in 1931?
  3. In what country do homeowners paint their front door red when they pay off their
    mortgage?
To get the answers, follow us on Twitter , Facebook or LinkedIn, we’ll be sharing the answers to our trivia questions over the next several days.
Thanks so much for reading this — we would be happy to discuss any of this in more detail if you have any questions or thoughts.
About the author
Brandon Dunn is the Chief Capital Markets Officer at Roc360. Brandon began in fixed income sales and trading roles at institutions such as JP Morgan, Deutsche Bank, Smith Barney and LF Rothschild. He later became co-head of trading groups and Managing Director and Head of Structured Product Marketing at UBS. At Roc360, Brandon is responsible for all capital markets related activity and investor relations. He supports these efforts by leading the origination team and being involved with due diligence processes.

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