Standard Chartered has made a number of changes to its leadership team.
The British banking giant announced Tuesday (March 11) that it had appointed Roberto Hoornweg, head of financial markets, and Sunil Kaushal, regional CEO for Africa and the Middle East, to serve as co-heads of corporate and investment banking.
They replace Simon Cooper, who had held the job since 2018 and is leaving Standard Chartered to “pursue other interests,” the bank said Tuesday in announcing a broader series of changes to its executive team.
“These changes will ensure we have the strongest possible team in place, with clear accountabilities, to drive our transformation efforts and bring renewed intensity to our focus on increased growth and returns through each of our business lines,” CEO Bill Winters said.
In addition to the investment banking appointments, the company has also given Judy Hsu — its CEO for consumer, private and business banking — responsibility for greater China and the north Asia markets.
Ben Hung, currently the bank’s CEO for Asia, will take on the new role of president, while human resources head Tanuj Kapilashrami, will assume the newly-created position of chief strategy and talented officer, the announcement said.
A report by Reuters notes that sources say the shake-up marks Winters’ last push to revitalize Standard Chartered’s talent amid China’s weak economic outlook. The report also said the moves were a surprise, and that Cooper had been considered a possible successor for the CEO.
The moves follow similar changes made by JPMorgan Chase earlier this year to its leadership and organizational structure.
“The senior management changes and new alignments announced today will help the company serve clients even better as well as further develop the company’s most senior leaders,” the bank said in January.
Among the changes is the combination of JPMorgan’s major wholesale businesses of Global Investment Banking, Commercial Banking, Corporate Banking, and Markets, Securities Services and Global Payments in an expanded Commercial & Investment Bank.
“Combining these efforts will enhance and deepen the way the company can seamlessly deliver the world’s most complete set of wholesale banking products and solutions,” the bank said.
Elsewhere in the banking space, HSBC has begun efforts to hire around 50 more commercial bankers as it steps up lending to tech and healthcare startups.
“There’s this void in the market and we’re jumping into it,” Wyatt Crowell, head of U.S. commercial banking for HSBC, told Reuters. “It’s gone way better than I thought it was going to go, both in terms of the volume of deals and our win rate on the deals.”
Marquette Savings Bank of Erie has announced plans to sell one of its two Meadville banking properties to a neighboring, non-banking business.
The bank intends to sell its drive-thru-only branch property at 349 North St. to Country Fair Inc., the Erie-based convenience store chain. The branch will close down at 6 p.m. March 29.
Country Fair Inc., with 72 convenience stores located in Pennsylvania, Ohio and New York, has two Meadville-area locations.
Country Fair’s locations are at 18163 Conneaut Lake Road in Vernon Township, and 333 North St., the intersection of North and North Main streets, in Meadville. Its North Street location abuts the Marquette’s drive-thru-only office on North Street.
“Country Fair has been exploring the potential for additional parking and storage at its location on North and Main streets,” Steve Danch, chairman of Marquette’s board of trustees, said in a statement.
Country Fair Inc. officials did not return Meadville Tribune emails and telephone messages on Thursday and Friday requesting comment about its plans or a timeline for any changes.
On Jan. 18, the Meadville Zoning Hearing Board did approve a request for a special exception for 349 North St. to serve as additional parking and additional storage space for Country Fair’s North Street location. Approval of the special exception was required for the potential land sale to move forward.
Marquette will maintain its Meadville full-service walk-in and drive-thru location at 1075 Park Ave., Danch said. The two bank branches are about three-quarters of a mile apart.
“With a full-service Marquette branch located nearby on Park Avenue, this sale offers Marquette an opportunity to support and benefit the Meadville community while maintaining a strong presence to serve our customers here,” Danch said.
No banking jobs will be lost as the North Street employees may transfer to other Marquette locations in the Meadville area, Danch said.
In addition to Park Avenue, the bank has another full-service office in the Meadville area at 16272 Conneaut Lake Road in Vernon Township.
The numbers: Home prices in the 20 biggest U.S. metros rose for the 11th month in a row and hit a record high amid a persistent shortage of resale homes for sale.
The S&P CoreLogic Case-Shiller 20-city house price index rose 0.2% in December compared to the previous month.
Home prices in the 20 major U.S. metro markets were up 6.1% in the last 12 months ending in December.
A broader measure of home prices, the national index, rose 0.2% in December and was also up 5.5% over the past year. All numbers are seasonally adjusted.
The 20-city and the national index are at an all-time high.
Key details: San Diego posted the biggest year-over-year home-price gains in December. Prices were up 8.8%.
All 20 major markets reported yearly gains for the first time in 2023, S&P said.
Home prices rose the slowest in Portland, increasing by 0.3%.
Cities | Change from last year |
Atlanta | 6.3% |
Boston | 7.2% |
Charlotte | 8% |
Chicago | 8.1% |
Cleveland | 7.4% |
Dallas | 2.1% |
Denver | 2.3% |
Detroit | 8.3% |
Las Vegas | 4.2% |
Los Angeles | 8.3% |
Miami | 7.8% |
Minneapolis | 2.9% |
New York | 7.6% |
Phoenix | 3.8% |
Portland | 0.3% |
San Diego | 8.8% |
San Francisco | 3.2% |
Seattle | 3% |
Tampa | 4.1% |
Washington | 5.1% |
Composite-20 | 6.1% |
A separate report from the Federal Housing Finance Agency also showed home prices rose 0.1% in December from the last month, and were up 6.6% in the past year.
The FHA also noted that the housing market has experienced annual home price growth every quarter since the start of 2012.
The median price of a resale home was $382,600 in December 2023, and a newly built home was $413,200.
Big picture: Even though rates went to 8% in 2023 and dried up demand, that did not push down home prices significantly, per the Case-Shiller index. However early analysis of the data indicates that some markets are seeing home price declines.
But with the 30-year dropping below 7% in December, home prices may see a boost as demand picks up. And with a persistent and severe shortage of homes for sale, home prices could be pressured upwards again.
What S&P said: “Looking back at the year, 2023 appears to have exceeded average annual home price gains over the past 35 years,” Brian D. Luke, head of commodities, real & digital assets at S&P Dow Jones Indices, said in a statement.
“While we are not experiencing the double-digit gains seen in the previous two years, above-trend growth should be well received considering the rising costs of financing home mortgages,” he added.
And the company said it was able to see the early impact of higher rates on home prices. “Increased financing costs appeared to precipitate home price declines in the fourth quarter, as 15 markets saw lower values compared to September,” Luke noted.
HSBC’s global banking and markets unit jumped 8% last year as the UK lender increased fees from dealmaking and maintained trading revenue in most asset classes.
The UK lender posted revenue of $16.1bn for its global banking and markets unit last year, according to its annual accounts. Fees from capital markets and M&A work surged 36%, with HSBC’s investment bank benefiting from a resurgence in debt underwriting revenue.
HSBC’s pre-tax profit of $30.3bn for 2023 was a record for the bank and an increase of 78%, but still below the $34bn expected by analysts. In a statement, chief executive Noel Quinn said that the results “reflected four years of hard work and the strength of our balance sheet in a higher interest rate environment.”
HSBC finished 16th in the investment banking fee league tables last year, according to data provider Dealogic, with 1.3% share of the market. This is up from 17th a year earlier.
The UK lender’s markets and securities services business posted revenue of $9bn, which was largely in line with 2022. However, equity trading fees of $552m were nearly half of the $1bn it earned in the unit in 2022.
HSBC’s GBM business dipped 4% in the final quarter of the year to $3.7bn.
READ HSBC hikes bonuses to $771,700 for its top investment bankers
HSBC has bolstered its UK investment bank over the past year, hiring two senior dealmakers for corporate broking in July, but faces stiff competition from Barclays, which is aiming to consolidate its first place finish in the UK dealmaking fee league tables last year. In recent months, hires within its investment bank have focused on its core markets of China and the Middle East.
Investment banks have struggled against an ongoing drought in deals, with Wall Street banks and Europeans alike posting sharp declines in M&A fees in 2023. UK rival Barclays unveiled a 12% decline in investment banking fees for 2023, led by a 23% slump in revenue from M&A work.
Barclays also unveiled its first investor day since 2014, separating its business into five key units including separating its investment bank from its corporate bank. While the UK lender will look to reduce its reliance on its investment bank, it is not pulling back and within its dealmaking team intends to shift the balance away from debt underwriting to do more M&A and equity capital markets work.
Deutsche Bank’s origination and advisory business was up by 25% in 2023, buoyed by a rebound in debt capital markets activity as its M&A unit slipped 25%. A hiring spree of 50 managing directors at the German lender last year aims to shift the balance of its investment bank towards more M&A and equity capital markets work.
To contact the author of this story with feedback or news, email Paul Clarke
The biggest Wall Street banks cut 30,000 jobs last year, kicked off by Goldman Sachs who informed its staff of plans to make its deepest reductions since the 2008 financial crisis shortly after Christmas 2022.
Goldman’s 3,200 job cuts were swiftly followed by 3,500 at Morgan Stanley, and then 5,000 at Citigroup. Bank of America refrained from deep redundancies, but 4,000 employees departed regardless through its ‘natural attrition’ approach last year.
With the exception of Credit Suisse, which started cutting thousands of roles before being acquired by its biggest rival UBS in March, European banks refrained from deep redundancies last year.
Times have changed.
Whether it’s an attempt to revive a flagging share price, free up funds for buybacks, the march of technology, strategic overhauls or simply reining in costs, top European banks are cutting jobs and reducing bonuses for those that remain.
READ ‘Doughnuts’ loom: Bankers brace for brutal bonus season
“It’s a balancing act for a lot of European banks, particularly after two years of poor performance for investment banking. There’s only so long you can keep paying expensive talent in the hope that revenue will recover,” said Gary Greenwood, a bank analyst at Shore Capital.
Barclays is expected to unveil a strategic overhaul alongside its annual results on 20 February, with the UK lender looking to save £1.25bn in costs. So far, job cuts have mainly hit support functions. Deutsche Bank said that 3,500 jobs will go over the next year, largely in back office functions, as it looks to save €2.5bn after headcount swelled 6% in 2023.
Societe Generale is cutting 900 jobs within its Paris headquarters as part of new CEO Slawomir Krupa’s plans to pull back on costs, while UBS has earmarked around $6.5bn in employee expenses to be stripped out as it integrates Credit Suisse.
On a smaller scale, Rothschild cut around 10 investment banking jobs in January, with former Goldman dealmaker John Brennan departing.
“The US banks are much more reactive in terms of cutting headcount than their European counterparts,” said Stephane Rambosson, co-founder of headhunters Vici Advisory. “European banks are now focused on costs, but each case is specific to their circumstances rather than market conditions. Wall Street banks are also quicker to hire again when the tide turns.”
As well as job cuts, bankers are enduring another brutal bonus round. There is widespread disgruntlement at UBS as the bank spread an already small pool around its existing employees, the influx of Credit Suisse staff and a flurry of senior Barclays dealmakers brought in last year on guarantees, according to bankers.
Barclays has handed zero bonuses to up to a third of dealmakers in some units, bankers told Financial News, with Bloomberg previously reporting that “dozens” of employees were set for doughnuts this year. Deutsche Bank, which also has to digest an expensive hiring spree and its £410m acquisition of City broker Numis, is also set to reduce bonus payments.
READ Investment banks face talent crunch even after deep job cuts
“We have observed a similar, but even more aggressive, trend with the European banks regarding layoffs and bonus pool reductions,” said Chris Connors of Wall Street compensation consultants Johnson Associates. “The European banks have struggled to keep pace with their American counterparts on business results and compensation. From the employee perspective, we anticipate European bankers to be similarly disappointed to US bankers given the muted results in advisory and other units such as underwriting, which are still well below 2021 levels.”
While US banks cut dozens of dealmakers last year, some European players took advantage of the dislocation. Deutsche hired 50 senior bankers, while Santander picked up dealmakers from both the fallout from Credit Suisse’s takeover and from Goldman Sachs and Morgan Stanley.
Most cuts so far at European banks have focused on management or back office functions, and there’s little suggestion that deep investment banker redundancies are on the cards, particularly as banks prepare for a revival in dealmaking activity after a near two-year lull. However, headhunters told FN that many banks were taking a much more cautious approach about bringing in senior talent.
During its fourth quarter earnings call, Deutsche Bank chief executive, Christian Sewing said that the bank had “positioned ourselves for a recovery in origination and advisory” after its hiring spree. “Now, this is where we see considerable growth potential,” he added.
“Investment banking is a people business, so banks will be reluctant to let too much talent depart,” added Greenwood. “This could change — a recovery is possible, but there are still a lot of risks in the market.”
To contact the author of this story with feedback or news, email Paul Clarke
A pair of large investment companies with nearly $7 trillion in assets, said Thursday they exited a climate change investor initiative that aims to pressure companies to quickly cut carbon emissions.
JPMorgan Asset Management, which manages $3.1 trillion in assets, has not renewed its membership in Climate Action 100+, saying through a spokesperson that it will oversee its stewardship on climate change with companies with its bank staff.
A second large asset manager, State Street Global Advisors, with $3.7 trillion, also dropped out, saying Climate Action’s approach “will not be consistent with our independent approach to proxy voting and portfolio company engagement,” according to a statement.
BlackRock, the world’s biggest asset manager, is also scaling back its work with the group, a spokesperson confirmed.
Launched in 2017, Climate Action 100+ aims to work with companies to halve their greenhouse gas emissions by 2030, through governance reforms, the elimination of emission through the value chain and enhanced disclosure. Its website boasts $68 trillion in assets under management.
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The moves come as Republican officials in Washington and some state governments criticize financial companies for prioritizing climate change, in some cases blocking the firms from state contracts.
Texas Attorney General Ken Paxton applauded the news, saying financial companies had undertaken an “unlawful” campaign to force environmental, social and corporate governance on customers.
“I’m pleased JPMorgan has exited the Climate Action 100+,” Paxton said on X, the former Twitter. “This is a critical step toward putting customers’ financial well-being first.”
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JPMorgan said in light of its 40 “dedicated sustainable investing professionals” and other staff, the asset manager “has determined that it will no longer participate in Climate Action 100+ engagements,” according to a company statement.
“We believe that climate change continues to present material economic risks and opportunities to our clients, and our analysts will continue to factor this into engagement with companies around the world.”
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Financial services firms have been cutting jobs for the past year, with no signs of letting up.
Banks, asset managers and consultancies have all cut swathes of jobs in recent months.
City jobs dried up in the last quarter of 2023, with the number of available financial services roles falling 42% compared with the fourth quarter of 2022, according to Morgan McKinley’s London Employment Monitor.
During the post-pandemic deal boom many major finance firms went on hiring sprees, which left them overstaffed, and a slower job market has meant that fewer of those staff moved on.
READ Bankers, lawyers and accountants won’t quit, stoking fears of more job cuts
Morgan Stanley and PwC both pointed to lower staff attrition rates as part of their motivation for cutting jobs.
Banks have been characteristically brutal in their job cuts, and major disruption such as the merger of UBS with Credit Suisse and Citigroup’s radical overhaul are set to lead to thousands of roles going.
In recent months banks have been followed by asset managers, which are shedding jobs in a tough climate for active fund houses too.
Consultancy and accountancy firms have also cut thousands of jobs as demand for deal advice dries up in a slower market.
These are the banks, consultancy firms and asset managers cutting jobs:
Banks
UBS expects half of planned $13bn cost-cuts to come from employees
UBS rolls out fresh layoffs as Credit Suisse integration continues
Citigroup to cut 20,000 roles in Jane Fraser’s radical overhaul
Citigroup offers generous redundancy package to laid-off UK bankers
Barclays cut 5,000 jobs last year in cost-reduction push
Deutsche Bank to cut 3,500 more jobs in cost-cutting push
Nomura cuts 60 investment bank jobs in difficult dealmaking conditions
Societe Generale to axe 900 jobs in France
Rothschild-owned Redburn Atlantic cuts 20 staff amid UK equity drought
Asset managers
BlackRock to cull 600 jobs as it eyes ‘opportunities for growth’
Abrdn outflows top £12bn as group prepares to cut 500 jobs
Baillie Gifford to cut jobs after fixed income overhaul
Consultancy
EY launches fresh round of UK job cuts
EY is laying off US partners amid tough economic conditions
Deloitte UK to axe 100 jobs amid slow deals market
To contact the author of this story with feedback or news, email James Booth
Citigroup Inc. dealmakers were told to be disciplined when consuming alcohol at client events after the bank received complaints of unruly behavior, according to people with knowledge of the matter.
In calls late this week, bankers at all levels — from analysts to managing directors — were reminded to keep the firm’s reputation in mind when drinking, said the people, who asked not to be identified discussing confidential information. The senior bankers leading the calls didn’t put a complete curb on consumption of alcohol, noting that drinking in business settings has wide cultural acceptance, the people said.
A representative for New York-based Citigroup declined to comment.
The stern words to Citigroup’s investment bankers come as Chief Executive Officer Jane Fraser is working to raise standards across the Wall Street giant after years of underperformance relative to peers. Citigroup’s management is cutting 20,000 roles, but has so far left investment banking less affected than other divisions.
Read More: Citi to Cut 20,000 Roles in Fraser’s Bid to Boost Returns
The bank last month reported that investment-banking revenue climbed 27% in the fourth quarter from a year earlier. Still, the division had a $322 million loss, largely the result of expenses surging 37%.
Much to the chagrin of would-be homebuyers, property prices just keep rising. It seems nothing — not even the highest mortgage rates in nearly 23 years — can stop the continued climb of home prices.
Prices increased once again in December, according to the National Association of Realtors (NAR), which reports that median existing-home prices were up 4.4% over last year — the sixth month in a row of year-over-year jumps. In another reflection of ongoing increases, the latest S&P CoreLogic Case-Shiller home price index showed a 4.8% jump in October that represented the ninth month in a row of gains.
So much for the idea that a “housing recession” would reverse some of the outsized price gains in homes. The U.S. housing market had finally started slowing in late 2022, and home prices seemed poised for a correction. But a strange thing happened on the way to the housing market crash: Home values started rising again.
NAR data shows that median sale prices of existing homes are near record highs. December 2023’s median of $382,600 is off the all-time-high of $413,800, but not by much, especially for a typically quiet time of year. (Seasonal fluctuations in home prices make June the highest-priced month of most years — the all-time-high was reached in June 2022.) “The housing recession is essentially over,” says Lawrence Yun, NAR’s chief economist.
Home values held steady even as mortgage rates soared to 8% in October 2023, reaching their highest levels in more than 23 years. (They have since dipped back down, falling below 7% in recent weeks.) The main culprit is a lack of housing supply. Inventories remain frustratingly tight, with NAR’s December data showing only a 3.2-month supply.
”You’re not going to see house prices decline,” says Rick Arvielo, head of mortgage firm New American Funding. “There’s just not enough inventory.”
Skylar Olsen, chief economist at Zillow, agrees about the supply-and-demand imbalance. Her latest forecast says home prices will keep rising into 2024 — welcome news for sellers but not so great for first-time buyers struggling to become homeowners. “We’re not in that space where things are suddenly going to be more affordable,” Olsen says.
In fact, the trend is quite the opposite. According to Realtor.com’s December 2023 Housing Market Trends Report, high mortgage rates have increased the monthly cost of financing the typical home (after a 20% down payment) by 6.1% since last year. That equates to $123 more in monthly payments than a buyer last December would have seen.
Mortgage rates fell sharply in late December, a move that boosted affordability. However, lower mortgage rates also are pulling more buyers into the market. “The potential for a decline in mortgage rates intersects with the prime homebuying time of the year — if you can find one to buy, that is,” says Greg McBride, Bankrate’s chief financial analyst.
Taking all this into account, housing economists and analysts agree that any market correction is likely to be a modest one. No one expects price drops on the scale of the declines experienced during the Great Recession.
Is the housing market going to crash?
No. There are still more buyers than sellers, and that means a meaningful price decline can’t happen: “There’s just generally not enough supply,” says Mark Fleming, chief economist at title insurer First American Financial Corporation. “There are more people than housing inventory. It’s Econ 101.”
Dave Liniger, the founder of real estate brokerage RE/MAX, says the sharp rise in mortgage rates has skewed the market. Many would-be buyers have been waiting for rates to drop — but if mortgage rates do decline, it could send new buyers flooding into the market, pushing up home prices.
”You’ve got an entire generation of pent-up demand,” Liniger says. “We’re in this fascinating position of tremendous demand and too little inventory. When interest rates do start to come down, it’ll be another boom-and-bust cycle.”
Back in 2005 to 2007, the U.S. housing market looked downright frothy before home values crashed, with disastrous consequences. When the real estate bubble burst, the global economy plunged into the deepest downturn since the Great Depression. Now that the recent housing boom has been threatened by skyrocketing mortgage rates and a potential recession — Bankrate’s most recent expert survey puts the odds at 45% — buyers and homeowners are asking, when will the housing market crash?
However, housing economists agree that it will not crash: While prices could fall, the decline will not be as severe as the one experienced during the Great Recession. One obvious difference between now and then is that homeowners’ personal balance sheets are much stronger today than they were 15 years ago. The typical homeowner with a mortgage has stellar credit, a ton of home equity and a fixed-rate mortgage locked in at a low rate — in fact, according to Realtor.com’s December report, two-thirds of all current mortgages have rates below the 4% mark.
What’s more, builders remember the Great Recession all too well, and they’ve been cautious about their pace of construction. The result is an ongoing shortage of homes for sale. “We simply don’t have enough inventory,” Yun says. “Will some markets see a price decline? Yes. [But] with the supply not being there, the repeat of a 30% price decline is highly, highly unlikely.”
Existing home prices
Economists have long predicted that the housing market would eventually cool as home values become a victim of their own success. After posting the a year-over-year decrease in February 2023 for the first time in more than a decade, the median sale price of a single-family home is on the rise again, with a 4.4% annual gain in December, according to NAR. That represents the sixth month in a row of year-over-year increases.
Overall, home prices have risen far more quickly than incomes. That affordability squeeze is exacerbated by the fact that mortgage rates have more than doubled since August 2021.
Experts say prices to hold strong
While the housing market is indeed cooling, this slowdown doesn’t look like most real estate downturns. Despite prices being high, the actual volume of home sales has plunged, and inventories of homes for sale have fallen sharply, too. Homeowners who locked in 3% mortgage rates a couple years ago are declining to sell — and who can blame them, with current rates more than double that? — so the supply of homes for sale is even tighter. As a result, the correction will be nothing like the utter collapse of property prices during the Great Recession, when some housing markets experienced a 50% cratering of values.
”We will not have a repeat of the 2008–2012 housing market crash,” Yun said in a statement last fall. “There are no risky subprime mortgages that could implode, nor the combination of a massive oversupply and overproduction of homes.”
Ken H. Johnson, a housing economist at Florida Atlantic University, says the housing market is being pulled in two competing directions. “I think we are in for a period of relatively flat housing price performance around the country as high mortgage rates put downward pressure on prices, while significant demand from household formation and an inventory shortage place upward pressure,” he says. “These forces, for now, should balance each other out.”
5 reasons there will be no housing market crash
Housing economists point to five compelling reasons that no crash is imminent.
Inventories are still very low: A balanced market typically has a 5- or 6-month supply of housing inventory. The National Association of Realtors says there was a 3.2-month supply of homes for sale in December (back in early 2022, that figure was a tiny 1.7-month supply). This ongoing lack of inventory explains why many buyers still have little choice but to bid up prices. and it also indicates that the supply-and-demand equation simply won’t allow a price crash in the near future.
Builders didn’t build quickly enough to meet demand: Homebuilders pulled way back after the last crash, and they never fully ramped up to pre-2007 levels. Now, there’s no way for them to buy land and win regulatory approvals quickly enough to quench demand. While they are building as much as they can, a repeat of the overbuilding of 15 years ago looks unlikely. “The fundamental reason for the run-up in price is heightened demand and a lack of supply,” says McBride. “As builders bring more available homes to market, more homeowners decide to sell and prospective buyers get priced out of the market, supply and demand can come back into balance. It won’t happen overnight.”
Demographic trends are creating new buyers: There’s strong demand for homes on many fronts. Many Americans who already owned homes decided during the pandemic that they needed bigger places, especially with the rise of working from home. Millennials are a huge group and in their prime buying years, and Hispanics are a growing demographic also keen on homeownership.
Lending standards remain strict: In 2007, “liar loans,” in which borrowers didn’t need to document their income, were common. Lenders offered mortgages to just about anyone, regardless of credit history or down payment size. Today, lenders impose tough standards on borrowers — and those who are getting a mortgage overwhelmingly have excellent credit. The median credit score for new mortgage borrowers in the the third quarter of 2023 was an impressive 770, the Federal Reserve Bank of New York says. “If lending standards loosen and we go back to the wild, wild west days of 2004-2006, then that is a whole different animal,” says McBride. “If we start to see prices being bid up by the artificial buying power of loose lending standards, that’s when we worry about a crash.”
Foreclosure activity is muted: In the years after the housing crash, millions of foreclosures flooded the housing market, depressing prices. That’s not the case now. Most homeowners have a comfortable equity cushion in their homes. Lenders weren’t filing default notices during the height of the pandemic, pushing foreclosures to record lows in 2020. and while there has been an uptick in foreclosures since then, it’s nothing like it was.
All of that adds up to a consensus: Yes, home prices are still pushing the bounds of affordability. But no, this boom shouldn’t end in bust.
FAQs
When will the housing market crash?
Actually, most industry experts do not expect it to. Housing economists point to five main reasons that the market will not crash anytime soon: low inventory, lack of new-construction housing, large amounts of new buyers, strict lending standards and fewer foreclosures.
Will housing prices drop anytime soon?
Probably not — or at least, not by much. Home prices did decrease year-over-year for a few months in early 2023, for the first time in more than a decade — but the decrease was relatively modest and prices have since risen sharply, reaching record highs. Greg McBride, Bankrate’s chief financial analyst, says a plateauing of prices is more likely than a steep fall. and some actually expect prices to keep rising: Zillow’s recent Home Value Forecast predicts that home values will increase 2.1% by September 2024.
How much house can I afford?
It depends on many factors, including how much money you earn versus how much you pay out in debts and expenses each month — known as a debt-to-income ratio. Many financial advisers recommend the 28%/36% rule of home affordability, which states that you should spend no more than 28% of your gross monthly income on housing expenses, and no more than 36% on total debt. Bankrate’s home affordability calculator can help you crunch the numbers.
What is a good credit score to buy a house?
Different minimum credit scores are required by lenders for different types of mortgages. However, a score of at least 620 is typically required for a conventional loan — and if it’s as high as 740, all the better. Generally, the higher your credit score the lower the interest rate you will qualify for. Successful borrowers today tend to have outstanding credit, with a high median score of 770.
Could things be about to change in the Charlottesville housing market? Prices are still up, as ever, but sales are down and mortgage rates are coming down with them.
According to fourth-quarter data, last year ended the way it started for the Charlottesville area’s housing market: properties only getting pricier. But the pattern of property values consistently creeping upward may not continue for much longer, as dropping mortgage rates meets a “tremendous amount of pent-up demand” from buyers who have not been able to afford today’s prices, said Anne Burroughs, president of the Charlottesville Area Association of Realtors.
“Our own businesses are seeing a lot of buyers coming out of the woodwork as interest rates move down,” Burroughs told The Daily Progress. “They’re ready to move out because they’ve been looking for a home for the past two years. They’re saying ‘I’ve got to move, I’ve got to get a house.’”
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After almost reaching 8% toward the end of October 2023, mortgage rates began trending down, reaching 6.6% in the third week of January. This figure is less than the 6.66% from the previous week, but still up from where it sat at 6.15% a year ago.
At the height of the pandemic, the federal government lowered mortgage rates more than it had in decades, ranging from 2% to 3%. This resulted in an almost 150% increase in people refinancing their properties, which in turn led to homeowners being less inclined to sell their houses, with mortgage rates almost three times larger than the previous year.
While Burroughs is unable to predict the Federal Reserve’s behavior, she said the agency has been indicating it intends to continue lowering the rate.
“We can’t predict when they’re going to decrease, and we don’t know how much of an impact it will have,” she said. “But it’s going to help ease us out of the lock-in effect of homeownership, because the idea of selling a home after refinancing it at 2% is hard to swallow.”
Burroughs said she believes that if interest rates were to fall into the 5% range, homeowners may feel more comfortable with selling.
“If rates continue to slide down, you have more competition and have more buyers getting off the bench so to speak,” Josh White, president-elect of the regional Realtor association, told The Daily Progress.
As for the temperature of the market’s fourth quarter in 2023, sales activity remained cool. In the Charlottesville area, which includes the city as well as the counties of Albemarle, Greene, Nelson, Louisa and Fluvanna, there were 817 house sales, which is 100 fewer sales, or 11% less, than that time last year.
The decrease is due to the rise in housing prices — the median price tag went up by 9% year over year, from $400,000 to $435,000 — in conjunction with the decline in active listings. The fourth quarter ended 2023 with 674 available houses on the market, 9% fewer from a year ago.
“Prices are up and sales are down, which sounds counterintuitive, but it has to do with the issue of offer and demand,” said Burroughs.
In Albemarle County, the median sales price rose by almost $50,000 year over year, reaching $522,160 with 25 fewer listings. Median sales prices were up to some degree in every county that the Realtor association covers; the price increased by 20% in Nelson County, a locality that has not reported an increase in the past four quarters.
Fluvanna County was the only exception where the median sales price dipped by 3%, which amounts to $10,000.
“The prices were going up everywhere, they didn’t go up as much in Charlottesville though. There was only one market where sales went down, Fluvanna, which is the most affordable county in our footprint,” said Burroughs. “Things are pretty much tracking with the level of activity in those counties.”
The prices of resale houses are increasing in tandem with the sales prices of new developments. In the Charlottesville area, new permitting activity slowed significantly, with 50% fewer permits issued for construction on multifamily properties in 2023 compared to the year prior. As a whole, 1,239 residential building permits were issued last year, 405 fewer permits than 2022.
However, Burroughs pointed to the amount of permits granted from 2020 to 2022, which indicates there are new developments coming out of the permitting process not yet on the market.
“They’re being built so we’re going to see them come online. Permit activity has dropped, but there will be an influx of developments and properties for sale, but then it will drop back down,” said Burroughs.
The price of new houses remains high, as construction costs as well as the number and wages of workers are still struggling to recover from the pandemic. The median sales price for new construction in the Charlottesville area is on par with prices in Richmond at around $492,000, according to Burroughs.
Regarding unemployment, the rate in the Charlottesville-area footprint was 2.5% in November 2023, which remains relatively unchanged from a year ago.
In the upcoming months, Burroughs recommends potential buyers get a good grasp on their financial situation and understand what are the specific “needs” and “wants” they are looking for in a house.
“The sales cycle is going quickly, so buyers need to be prepared and have a good advocate,” said White. “They should use the value and knowledge of buyers’ agents to guide them through the process.”
Given houses are not selling as quickly as they used to, per fourth-quarter data, sellers should work to price their real estate as accurately as possible, said Burroughs. Houses that are prepared for buyers to immediately move in are more likely to sell faster.