Rising mortgage rates and slower home price growth are some of the predictions pros shared with us.
Getty Images/iStockphoto
Aspiring buyers have plenty of questions right now: Will home prices fall? What about mortgage rates? (See the lowest mortgage rates you may get now here.) What else should I know? So we asked real estate pros to share their predictions for the housing market through the rest of 2022.
Prediction 1: Mortgage rates may continue to rise
Nadia Evangelou, director of real estate research for the National Association of Realtors, notes that mortgage rates have doubled since the beginning of the year, surpassing 6% in September. And pros say they may keep climbing.
“Mortgage rates are climbing with renewed urgency following the recent Fed meeting in which Chair Jerome Powell made it clear that fighting inflation is the first priority for the Fed,” says Realtor.com chief economist Danielle Hale. (See the lowest mortgage rates you may get now here.)
Prediction 2: There may be a continued deceleration of home prices
Evangelou says there’s been a gradual deceleration of home prices, and that will continue. “Home prices have increased year-over-year by less than a double-digit percentage for two straight months. With rising mortgage rates hurting affordability, price gains will continue to slow, likely 5% by year-end,” says Evangelou.
And looking into October, Greg McBride, chief financial analyst at Bankrate, says asking prices — and the eventual sales price of homes — will come down from the astronomical prices we’ve been seeing, as the housing market slows and mortgage rates continue to ratchet higher.
Meanwhile, Hale says housing prices continue to moderate and are declining on a month-to-month basis. “This is true for both the median list price and the median sales price. According to the most recent data, the median listing price continues to grow at a double-digit pace while the median sales price registered just 7.7% growth,” says Hale.
What’s more, Hale expects that housing prices will continue to moderate as rising mortgage rates curtail buyer purchasing power. “But a dwindling number of existing homeowner sellers and fewer new homes for sale will keep prices from adjusting too quickly,” says Hale.
All this might mean the housing market is actually rebalancing toward a healthier place. “Home values have fallen slightly the past two months from their record highs set in June, due to a pullback in demand. The typical US home is worth about 0.4% or $1,500 less than it was in June,” says Jeff Tucker, senior economist at Zillow.
Prediction 3: There’s a lot of variation between markets
While home prices continue to experience year-over-year increases, they’ve backed off from the high we saw in early summer. “Whether prices are truly dropping depends on the specific market,” says Kate Wood, home expert at NerdWallet. According to August 2022 data from Redfin, home prices were up 6.9% compared to last year, selling for a median price of $406,586. That said, the number of homes sold was down 18.4% year-over-year.
Some areas are indeed cooling off, but others are still hot enough that price decreases may simply herald a return to traditional seasonality. “In a normal market, we’d expect to see home prices begin to back off as fall turns into winter, but the real estate market in most parts of the country remains far from normal,” says Wood.
Prediction 4: Buyers will have a less stressful shopping experience
The affordability challenges confronting buyers have only worsened with rising mortgage rates and therefore, Tucker expects further small price declines through October. “Inventory is sitting just below its August peak, and listings are taking longer to go pending. Taken together, that all means it’s a better time to buy for those still in the market. Buyers will have a less stressful experience that they’ve had over the last couple years,” says Tucker.
The advice, recommendations or rankings expressed in this article are those of MarketWatch Picks, and have not been reviewed or endorsed by our commercial partners.
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Redbox’s 36,000 DVD-rental kiosks are now owned by Chicken Soup for the Soul Entertainment.
Dreamstime
One of this year’s most surprising tech deals was the acquisition of the movie-rental kiosk chain Redbox by
Chicken Soup for the Soul Entertainment
.
Don’t let the name fool you: Chicken Soup for the Soul is a video-streaming company that just happens to have grown out of the popular book series.
Today, Chicken Soup owns Crackle and other ad-supported video-streaming services. The Redbox deal gives the business some real scale, and it has turned the company into a bargain-bin small-cap bet on the future of video—one that the market is largely ignoring.
Chicken Soup’s roots go back to the well-known series of inspirational self-help books created by the writers Jack Canfield and Mark Victor Hansen. Since the original book was published in 1993, there have been more than 250 follow-ups (Chicken Soup for the Golfer’s Soul, Chicken Soup for the Preteen Soul, etc.), which together have reportedly sold more than 500 million copies. By 2007, Canfield and Hansen had begun to search for a buyer for their company, which included not only the Chicken Soup books but also a line of pet foods sold under the Chicken Soup brand.
They eventually found William Rouhana, who some investors might remember as the CEO of broadband provider Winstar Communications, which went bankrupt in 2001 as the internet bubble was popping.
Rouhana separated the books and pet-food business from the video segment and took the video-focused Chicken Soup for the Soul Entertainment (ticker: CSSE) public in 2017.
Prior to the Redbox deal, Chicken Soup owned a handful of other streaming assets, including Crackle (which it bought from
Sony
in 2019), a service under the Chicken Soup name, and a small ad-supported movie site called PopcornFlix.
Chicken Soup ultimately paid about $70 million in stock for Redbox and assumed $350 million in debt. The deal included an agreement to push out the due date on the Redbox debt, giving Rouhana time to clean up the company’s finances.
As the deal was pending, some Redbox holders bet that another bidder would emerge, at one point driving the price of Redbox shares to many times the value of the deal price. But Redbox never got any other options. The company was out of cash and likely headed for bankruptcy, a victim of a dramatic slowdown in film production during the pandemic. Rouhana says Redbox customers were still going to the kiosks but weren’t finding many new movies to rent.
With the transaction, Chicken Soup adds a network of 36,000 kiosks and expands its head count to about 1,500 from 200. The deal also revamps the company’s financial profile. In an interview at the modest Chicken Soup headquarters, above a CVS in Cos Cob, Conn., 35 miles north of Midtown Manhattan, Rouhana says the combined company should have earnings before interest, taxes, depreciation, and amortization, or Ebitda, of between $100 million and $150 million in 2023. Revenue should be at least $500 million, he says, about twice the Wall Street consensus forecast for 2022.
If Rouhana’s forecast is accurate, Chicken Soup’s stock—down about 50% since the deal closed—looks ultracheap. The company has a market value of just $164 million, and an enterprise value of a little over $500 million. “The market is just not accepting that there is a turnaround inherent in the situation,” Rouhana says.
Rouhana says Redbox revenue is historically tied to the number of new DVD releases available in its kiosks. In the fourth quarter, the number of new release rentals should jump to 35, from 13 in the current quarter, he says. In the long run, Rouhana expects the kiosk business to be a cash cow that generates capital for the company to invest in its core streaming business.
As my colleague Jack Hough noted in Barron’s cover story last week, the decision by
Netflix
(NFLX) and
Walt Disney
(DIS) to launch ad-supported streaming tiers has cast a new spotlight on the potential for advertising in the streaming world, a category known as advertising-supported video on demand. Rouhana says the development “provides validation for the AVOD model” and should convince more advertisers that they “need to be there.” At least a dozen smaller ad-supported services like Philo and Crunchyroll have hired Chicken Soup to sell advertising on their behalf, Rouhana says.
The CEO notes that Chicken Soup is the only pure play among the five largest ad-supported streaming services, a group that includes FreeVee, owned by
Amazon.com
(AMZN); Tubi, acquired by
Fox
(FOX) for $440 million in 2020; Pluto, acquired by Viacom, now
Paramount Global
(PARA), for $340 million in 2019; and the Roku Channel, owned and operated by streaming-platform company
Roku
(ROKU). Rouhana thinks there is consolidation coming, and says that Chicken Soup expects to be a buyer. Rouhana isn’t talking about being on the other side of the deals, but it’s also conceivable that Chicken Soup itself could one day become a target.
In the long run, Rouhana says the ad-supported streaming model should eclipse the subscription business that has come to dominate the market. What Chicken Soup and others need to do, he says, is provide quality content, make it easy to find, and offer advertising that is both relevant and interesting to consumers. “That’s all doable,” he says. “Every piece of that is under way inside our company right now.”
If Rouhana’s vision plays out, his book could be called Chicken Soup for the Bullish Soul.
Write to Eric J. Savitz at eric.savitz@barrons.com
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A new home under construction in Monterey Park, California
Frederic J. Brown/AFP via Getty Images
About the author: Susan Wachter is the Sussman professor of Real Estate and professor of Finance at The Wharton School of the University of Pennsylvania and co-director of the Penn Institute for Urban Research. She is currently an advisory committee member of the Bureau of Economic Analysis of the Department of Commerce.
The U.S. housing market has entered an unusual and confusing phase. House prices and rents year over year continue to grow at historically high rates. But construction and sales activity are at the kind of lows that normally characterize a recession. Rents and housing-cost equivalents are more than 40% of the consumer price index and their rises are big contributors to inflation. Despite high prices, developers are walking away from deals, and firms are halting production mid-process. Sales activity is also falling. What is causing these seemingly contradictory outcomes?
Construction-industry profits are at a low, due to high input costs. Supply shortages are driving profits down by causing construction costs to rise faster than prices. New-construction inventory is growing. But the major source of for-sale home inventory is the pool of existing homes, and this inventory is still low.
The reason inventory is low is monetary policy. In an unintended result of the Federal Reserve’s ongoing round of rate increases, monetary policy is causing a locked-in effect that motivates existing homeowners to stay put. When interest rates rise, homeowners frequently decide to retain their attractive mortgage rate and not move to another home. Instead, they may do a home improvement, or simply stay in their current living situation.
Expected inflation contributes to demand, particularly from investors, who often use housing as an inflation hedge. But it also motivates homebuyers who wish to take advantage of still relatively low mortgage rates. While the average mortgage rate of nearly 5.9% may seem high, for those who are motivated to buy, mortgages are a one-way bet that they cannot lose. If rates continue to rise, borrowers can lock in at today’s rates and if they fall, they can refinance. Moreover, although rates have doubled since March, and are now the highest since November 2008, they are still low historically and, adjusted for inflation, lower. Rates and prices are making it harder for the average person to afford a home, but demand is high for those who can qualify. The share of the U.S. population ages 32-36, the largest segment, is at the prime age for home buying.
For home buyers who can afford monthly mortgage payments based on their income, coming up with a down payment is typically the hardest barrier to overcome. But that’s less so at the moment. Since the onset of the pandemic, households have accumulated several trillion dollars in incremental savings. This savings increase has enabled many households to weather the initial increase in inflation, and it has given them a buffer against the effect of rising prices. In addition, the investor share of home purchases, which is not affected by either constraint, is at an all-time high.
Nonetheless, existing home sales fell 20.2% from July 2021 to July 2022. Mortgage applications for purchase are down 23% as of early September. Many would-be buyers are finding it difficult to qualify for the standard mortgage, with affordability, in the National Association of Realtors index, at a 33-year low. For June 2022, the most recent Case Shiller data shows year over year house price rises of 18%, but Black Knight data show the national market is turning, with prices falling nearly 0.8% for the month of July. The median sales price, which reflects the composition of sales, is also decreasing. The median price reached $440,000 in the second quarter of 2022. In July, the median existing-home sales price was $403,800. Although this represents a 10.8% increase from a year earlier it reflects a $10,000 decline from June 2022’s record high of $413,800.
Amid this dynamic, Fed Chair Jay Powell indicated last month at Jackson Hole, Wyo., that monetary restraint would continue until it works. The Fed’s position matters because a decline in inflationary expectations and an overall slowing of the economy provide the path to easing housing markets’ supply shortages. When that happens, buyers will face potential price declines, with a whiplash effect in previous high-growth markets. A recession will cause mortgage rates to fall and will ease the lock-in effect, driving some homeowners to sell, since they will no longer fear losing their advantageously priced mortgages. Inventories will then grow in a self-reinforcing rise, as there no longer will be a reason to wait to list due to the lack of inventory. Inventory shortages are likely to reverse quickly and with that, price rises will reverse as well.
Already we see inventory of newly constructed homes rising to new highs, which is why the construction industry is in recession and new home prices are falling. The only good news is the resulting lower owners’ equivalent housing costs and rents will equate to a lower rise in the CPI. The resulting inflation relief will get us back to economic growth.
Guest commentaries like this one are written by authors outside the Barron’s and MarketWatch newsroom. They reflect the perspective and opinions of the authors. Submit commentary proposals and other feedback to ideas@barrons.com.
Billions of dollars worth of office buildings, retail centers and apartment buildings in coastal U.S. cities sit in the path of major flooding as sea levels rise, according to a new DBRS Morningstar report.
The credit rating agency looked at a snapshot of roughly 47,000 buildings that it monitors out of the roughly $670 billion commercial mortgage bond market and found nearly 5,000 were at risk of severe or extreme flooding, given the dramatic pace of climate change in recent decades.
All told, it pegged about $539 billion worth of mortgage bond deals rated by the agency as having some exposure to severe or extreme flooding, leaving only a fraction of the market free of the threat.
“Investors and underwriters no longer have the luxury of simply checking if a property is outside of FEMA’s 100-year flood zones and verifying there is some evidence of flood insurance,” Kevin Augustyn and his credit rating team, wrote in a new report.
Instead, the team looked at the National Oceanic and Atmospheric Administration’s latest projections for sea levels, which point to an additional rise along the U.S. coastline of 10 to 12 inches by 2050, or as much as the total rise measured in the past 100 years.
Flood risks helped inform this map, which shows Miami topping the country with an estimated $1.1 billion worth of office, retail and multifamily buildings at risk of structural damages as sea levels rise, according to the report, which relied on data from Arup and the First Street Foundation.
Miami and New York City top the list of cities with commercial buildings most at risk as sea levels rise
Sources: Arup and First Street Foundation
New York had an estimated $582 billion in similar properties at risk, followed by about $450 billion in Pittsburgh, $330 billion in Boston and roughly $280 billion each in Houston and San Francisco.
“Although not all coastal, Pittsburgh is particularly susceptible to flooding because the city is at the junction of three rivers,” the report said.
Heavily exposed
Climate change has been rapidly evolving, evidenced by the stunning increase in billion-dollar weather and climate disaster events since the 1980s, which makes historical data “less accurate,” according to the DBRS Morningstar team.
What’s more, commercial property owners can tap national flood insurance coverage from the Federal Emergency Management Agency of only $500,000 for a building and $500,000 for the building’s contents, according to the report, even though many key properties in big cities have been financed with hundreds of millions of dollars in mortgage debt. The report said additional coverage would need to be purchased in the private insurance markets.
To help investors get a better grip on their potential exposure to rising sea levels, the DBRS Morningstar team found 4,704 buildings at risk of extreme and severe flooding (see chart) in bond deals it rates. The following breaks down exposure by deal type.
Most commercial mortgage bonds rated by DBRS carry some risks of climate-related flooding.
DBRS Morningstar
While the commercial mortgage bond market finances only a cross-section of the nation’s buildings, the DBRS Morningstar report still provides a grim snapshot of the near unavoidable flooding risks most investors face.
That also isn’t the only risk, particularly with the embrace of flexible work arrangements. Before the pandemic, lenders often pitched “single-borrower” commercial mortgage bond deals to investors as safe-haven investments, in part because they frequently helped fund top real estate owners looking to build, buy or refinance New York City’s priciest office towers.
The pandemic upended that view, with office buildings still only 43.% occupied more than two years after the onset of the COVID crisis, according to Kastle Systems’ latest 10-city weekly average.
With that backdrop in cities like San Francisco, lenders and investors have grown increasingly wary about financing office buildings.
Real estate owners also will face sharply higher borrowing costs when their debts come due, with the benchmark 10-year Treasury rate
TMUBMUSD10Y,
near 3.4% on Tuesday, and with the Federal Reserve expected to pull the trigger on another jumbo rate increase next week in a bid to cool rampant inflation, while risking sparking a potential recession.
Read: Any doubt Fed will raise rates by 75 basis points next week is gone after hot U.S. inflation data
U.S. stocks swooned on Tuesday after August inflation data came in hotter than expected, with the Dow Jones Industrial Index
DJIA,
down more than 900 points at last check, the S&P 500
SPX,
off 3.2% and the Nasdaq Composite Index
COMP,
tumbling 4%.
I’ve been thinking a lot about the cost of living, and how house prices, rent and food prices contribute to how we socialize with friends. I am a longtime reader of your column, and I took note of one a few years ago about how the $1 tip is dead. As a result, I always give $2 or more to a coat attendant or a bar man. Today, I have a similarly-themed question.
With sky-high inflation, is it still acceptable to arrive at a friend’s house for dinner with just one bottle of wine? I ask because on a recent visit to these neighbors a friend of theirs arrived with two bottles of champagne, three different cheeses and flowers. I was holding a two-year-old bottle of red wine from my small “cellar” (kitchen cupboard).
“‘I am happy to be on anybody’s guest list, if I’m being honest. I value their friendship, and I look forward to meeting new people at their home. Retirement can get pretty lonely.’”
I am blessed to have neighbors who water my plants when I am away — and vice versa — and sometimes invite us over for drinks if they have out-of-town visitors. I am a retiree, 67, and I am happy to be on anybody’s guest list, if I’m being honest. I value their friendship, and I look forward to meeting new people at their home. Retirement can get pretty lonely.
I also try to return the favor, but I don’t know as many people in our town as these friendly neighbors, and they are all couples who appear to have very little time between their second homes, golf clubs, tennis clubs and their own groups of friends. I lead a simple life. I have a cat, and a family who live out of state, and some college friends scattered across the country.
Maybe I’m being insecure or worrying unnecessarily, but I hate to be cheap. Am I a cheapskate?
A Wine Loving, $2 Tipper
Dear Wine Lover,
Given that you don’t attend a lot of dinner parties in your neighborhood, it’s understandable that you may feel sensitive about whether you are bringing enough of your “A Game” to the party, or simply, bringing enough wine.
When we put such a high value on something — a job interview, a first date, new friends, good neighbors — it can bring out our insecurities, and put unnecessary pressure on us to perform when all we have to do is ask questions, listen to what others say, and be engaged. We all have feelings of self doubt, and they ebb and flow over time. Even the most confident and ebullient dinner-party guest may harbor doubts about their scintillating conversation or the quality of their wine.
Whether or not you decide to bring an extra bottle depends on the lavishness of the culinary production, and your relationship with the friend.
As lifestyle magazine Real Simple pointed out earlier this year in helping readers entertain on budgets of all sizes, $100 will get you “olives for guests to munch on when they arrive, and an arugula salad with goat cheese, walnuts and pomegranate seeds for a first course; stuffed Cornish hens with parsley potatoes and green beans is the main course; with lemon pound cake for dessert. (And there’s a bottle of pinot noir, too!)”
In that case, you could bring a decent bottle of wine — not the cheapest on the shelf — and a chunk of Stilton, or some flowers.
For $25, hosts could cook a mushroom risotto and give each of their guests a lone glass of wine, supplemented by guests bringing bottles of their own. But what well-mannered host wants to risk running out of beverages? Or telling their guests that — sorry, folks — one glass of wine is your limit? That’s tantamount to flashing the light on and off, like they do in an Irish pub, and telling the startled guests, “Have you no home to go because I’ve got a bed to go to!”
In this scenario, one bottle is fine, and the knowledge that the host may have more dinners if they keep within their budget. I would rather go to a modest dinner with an interesting and lively host than an extravagant dinner party with a bunch of bores who insist on telling you their opinions on everything from politics to petty gossip.
“‘Even the most confident and ebullient dinner-party guest may harbor doubts about their scintillating conversation or the quality of their wine.’”
If you’re cooking for four people, and providing alcohol and starters and a dessert, and you’re not Gordon Ramsey or Julia Child, you may — like me — cut some corners on the preparation. So you may end up spending even more. The biggest treat when a guest walks through your door is when they are smiling, showing their obvious pleasure at being there.
If it’s your first time in their home, it’s always a great start to the evening to arrive with wine and flowers. I sometimes also pick up a book that I love on the way. It’s nice to share literature that inspires or moves you. Nor does it have to be a new book. You can choose one from your library. Homes are full of books that have been read just once that are crying out to be read again, and again — and by a new pair of eyes each time.
If you are a regular visitor — the kind of pal with which you watch TV together and have each other around a few times a month — one bottle of wine is fine, or even the offer of a salad or dessert as an alternative, especially if it’s midweek and neither of you wish to wake up with a heavy head.
If you want to show your appreciation for landing on your neighbor’s guest list, and you don’t get that many invitations, making a little extra effort will keep you on the top of their list, especially given the rise in the cost of food. (Grocery prices just had their largest price hike since 1979.)
“‘Loneliness can creep up on you. It can happen when you are surrounded by people, but don’t feel like you are welcomed by and/or truly connected to them.’”
Loneliness can creep up on you. It can happen when you are surrounded by people, but don’t feel like you are welcomed by and/or truly connected to them. It is an epidemic in rural areas, and it is also prevalent in big cities where people are living on top of each other.
Sometimes, lonely people turn to Facebook
META,
and other social media — and while that provides a connection to the world, it can also be the emotional equivalent of empty calories. You have retired in a place far from familiar faces, your routine is gone and you are naturally rebuilding your social life.
Not everyone can afford to bring two bottles of wine and a selection of cheese to dinner, but we can all bring the best version of ourselves: showing our appreciation for our host’s table and food, asking questions, sharing ideas, avoiding complaining about everything that’s wrong with the world (save that for Twitter
TWTR,
or, even better, therapy), and making sure that anyone who may seem ill-at-ease is taken care of.
A kind word, a thank-you note and thoughtful gift, however small, can go further than a second bottle of a pricey Pinot Noir, even in an era of rising prices.
Learn how to shake up your financial routine at the Best New Ideas in Money Festival on Sept. 21 and Sept. 22 in New York. Join Carrie Schwab, president of the Charles Schwab Foundation.
Check out the Moneyist private Facebook group, where we look for answers to life’s thorniest money issues. Readers write in to me with all sorts of dilemmas. Post your questions, tell me what you want to know more about, or weigh in on the latest Moneyist columns.
The Moneyist regrets he cannot reply to questions individually.
By emailing your questions, you agree to having them published anonymously on MarketWatch. By submitting your story to Dow Jones & Co., the publisher of MarketWatch, you understand and agree that we may use your story, or versions of it, in all media and platforms, including via third parties.
Also read:
‘Things are rocky between us’: My girlfriend and I sold our Florida home. Our $200,000 profit was wired to her account. She refuses to give me my fair share.
I shared expenses 50/50 with a friend on vacation. She wants me to split the cost of her credit card’s foreign-transaction fees. Is that sharp practice?
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NASA’s Space Launch System rocket, the largest launcher it has ever built, heads to space on Saturday—if all goes according to plan.
Artemis I, as the inaugural SLS mission is called, is big deal for the country and for space enthusiasts.
It is also a big deal for investors. It holds keys to trillions worth of opportunities.
That’s trillion with a T. A lot of money equivalent to roughly 5% to 10% of today’s terrestrial economy. “China sees [space] as a $5 to $10 trillion opportunity per year by 2050,” says exchange-traded-fund provider ProcureAM CEO Andrew Chanin, adding that opportunity is a big reason China is planning a to build a permanent moon presence, just like the U.S.
NASA’s Artemis missions will return Americans to the moon. They will also establish Gateway, a space station in permanent orbit around the moon.
Earth observation, space tourism, communications technology, commercial space stations—some of which have already been announced—plus those permanent installations on and around the Moon all contribute to that massive total, says the ProcureAM CEO. His firm offers investors the
Procure Space ETF
(ticker: UFO) as a way to play the space trend.
Even space mining is possible. “There’s water on the moon …that’s the reason why there is a race today for the moon,” explains The Exploration Company founder Helene Huby. “Water is the core material for propellant and also, of course, for life.”
Huby spent years at
Airbus
(AIR. France) working on space applications, including the Orion spaceship on top of the SLS, which is sitting on a launchpad in Florida. She founded The Exploration Company about a year ago. Her company is developing a reusable space ship called Nyx.
As launch costs fall and more assets remain permanently in space, vehicles such as Nyx, which can stay in orbit and be refueled in space, offer utility. It is more efficient to have what amounts to a fleet of trucks in space, explains Huby. About 98% of the energy used to go to the moon is needed to break free of Earth’s gravity. The remaining 2% gets travelers to the moon. Better to carry the fuel to the ships then the ships from earth.
Huby puts the market for her start-up company at $150 billion by 2040.
NASA’s huge Space Launch System stands 322 feet tall. It’s slated to launch for the first time Saturday.
Joel Kowsky/NASA via Getty Images
That’s not a trillion dollar opportunity, but it’s a big number. Investors might wonder if all these figures are just pie and the sky and that the odds of building truly significant space industries—with corresponding investment opportunities—are low.
There are, of course, risks to all the projected growth. One that both Chanin and Huby see is accidents with human casualties. Space is hard, even dangerous. The loss of life could have a chilling effect on investment in space tourism and other industries.
Space mismanagement is another possible pitfall. Companies from SpaceX to
Amazon.com
(AMZN) are planning to send tens of thousands of small satellites into low earth orbit. Without some management there is a risk of some massive debris field that makes low earth orbit inhospitable to spacecraft, says Chanin.
Still, he is confident space business will be real and cites an interesting factor for his bullish views: competition. China is going hard after space technology. That will ensure America does too. “If it had been kumbaya here on Earth we might not be spending the amounts of money that we’re spending.”
The U.S. is spending a lot. SLS, and Orion development have cost roughly $50 billion. Each SLS launch costs billions. The space industry needs SLS and the Artemis missions to kick-start the process and establish a moon presence, but those costs are far too high to build businesses the size of ones envisioned by Chanin and Huby.
That’s where private space players come in. SpaceX launches for a fraction of SLS costs. Nyx, in theory, will operate at a fraction of the cost of Orion. The person that gets credit for creating a cost structure that is sustainable is SpaceX founder Elon Musk, says Huby. “He brought the visibility to [space] technology, of course, but if you zoom out and you simplify [it’s all] cost.”
Lower costs enable growth. That’s true for a host of industries including space. The space business just needs a kick-start from programs like SLS.
Write to Al Root at allen.root@dowjones.com
I’m a 68-year-old single, retired nurse. I own a condo that’s worth approximately $450,000 in New York City. I have a nice amount in savings and in investments, worth about $1 million, and a good amount in Social Security and in pensions.
Here’s the problem: I hate living in New York City. It was great when I worked 8 blocks away for 33 years, but now it’s very lonely, and I’m away from family.
I want to move to a beachside town in New Jersey. But given the market right now, do I buy or do I rent? And do I sell my place or do I rent?
My head is spinning and filled with fear about making the wrong financial decisions. Please help!
No More New York
‘The Big Move’ is a MarketWatch column looking at the ins and outs of real estate, from navigating the search for a new home to applying for a mortgage.
Dear No more New York,
Having lived in New York City myself, I know the struggle. The city’s amazing when you’re young, you’ve got plenty of things to do, and plenty of easy food options nearby for when you’ve got no time to cook for yourself.
Plus, when you’ve got a demanding job that you can walk to eight blocks away, it must’ve been a dream, especially after working night shifts as a nurse.
But life happens, and things change.
I sympathize with your desire to move to a quieter place. I made this exact change myself. New Jersey is a great option because you’re not only able to enjoy a quieter pace of life (less sirens, for one), you’re also going to be closer to family.
You’re also going to be saving on city taxes, which can be hundreds of dollars, depending on your income.
But there are a couple of cons to consider before you make the move.
“‘Property taxes in New Jersey are more than double the national average and the highest in the country.’”
You’re not going to be able to get around as easily as you did before. New Jersey doesn’t have as great a subway system so you may need to invest in a car (if you don’t already have one), which could be an additional expense.
And if you decide to buy a home, property taxes are a lot less friendly in the Garden state, compared to New York, and especially the five boroughs. “Property taxes in New Jersey are more than double the national average and the highest in the country,” Bill Kowalczuk, a broker at Coldwell Banker Warburg, told MarketWatch.
If you know exactly you want to be near family, and you’re very sure of the area, you’re confident that you’ll have enough things to do during your retirement, then maybe it’s worth selling the property in Manhattan and going all in into a new single-family home in New Jersey.
But since you’re not sure of what to do, given how rents are trending in the city, it may be a good idea to put your condo on the rental market. I’m guessing your condo is in Manhattan if you’re able to walk to work, so here’s a spot of good news for you: The average rental price in Manhattan as of July 2022 is $5,113, according to Douglas Elliman. The median is $4,150.
Rentals are going to be far cheaper in New Jersey, so you can probably save a little.
Not sure which beach or town you’re targeting and the prices quoted vary by state, but the average rent in Atlantic City, N.J. was $1,575, according to Zillow, as of Aug. 24. The median rent in Avalon, N.J., which is in the county of Cape May, was $1,450, according to Zillow.
Given your assets and your pension, you’d have extra income from the rental, that would help cover the cost of living.
I know your head is spinning and the economic situation is making you feel uncertain, on top of this worry that you may be making the wrong move.
You’re not alone. A lot of people feel uncertain and have decided not to buy at the moment, for the same exact reason.
But once you feel like you’ve got a strong sense of where you want to live and feel strongly about setting down roots, then you should make plans to sell your home and jump on a property in New Jersey.
Because renting long-term can get pricey. And it looks like home price appreciation has slowed, but hasn’t fallen.
Got thoughts on the housing market? Write to MarketWatch reporter Aarthi Swaminathan at aarthi@marketwatch.com
The housing market isn’t crashing, but it’s definitely feeling the burn.
After two frenzied years, home buying is cooling off as mortgage rates rise. Some experts in the field are calling it a “housing recession.”
U.S. home values fell in July by 0.1%, compared to the month before, a new Zillow report said.
While deceleration in home-price growth is typical for this time of the year, Zillow noted, the small decline is the first monthly dip since 2012.
The typical U.S. home value fell by $366 in July, and is now $357,107, as measured by the Zillow Home Value Index.
“The typical U.S. home value fell by $366 in July, and is now $357,170, as measured by the Zillow Home Value Index.”
Given the dip in July, Zillow revised its forecast for the growth in home values to 2.4% through the end of July 2023. The current rate of growth is 16%.
But this hardly counts as a crash in prices, because the typical home value is also up 44.5% from July 2019 before the COVID-19 pandemic.
At this point, sellers are finding themselves with fewer offers, and are having to offer more concessions themselves to entice buyers.
“ Sellers are finding themselves with fewer offers, and are having to offer more concessions themselves to entice buyers.”
Buyers in turn are gaining more options, seeing inventory gradually rise, as the pendulum slowly swings into their direction.
The dip in July is a “badly needed rebalancing that gives home buyers more options, more time to shop and more negotiating power,” Skylar Olsen, chief economist at Zillow
Z,
said in a statement.
Homes have become unaffordable for many, given the high prices and mortgage rates. “As prices soften, many will renew their interest, and we will continue our progress back to ‘normal’,” Olsen added.
Home value declines were largest in San Jose, Calif., San Francisco, Calif., Phoenix, Ariz., and Austin, Texas. In these markets, the time listings spend on the market is rising fast.
“‘Our prices have come off of their irrational highs of the last 18 months. It’s kind of a rebalancing.’”
“Our prices have come off of their irrational highs of the last 18 months. It’s kind of a rebalancing,” Dave Walsh, vice president and manager of Compass Realty San Jose, told MarketWatch.
Instead of homes listed on the market getting multiple offers, there are maybe one or two offers per home. “From your buyer’s point of view, there’s a much better opportunity for them to get something at a much more affordable price,” he added.
At open houses in the Bay Area, multiple buyers are turning up — but the lines are nowhere near as long as they were during the pandemic years. “That was just off the tracks,” Walsh, a four-decade housing-industry veteran, said. “We’ve never had a year like 2020 in many of my years in being in the business.”
Home values rose the most in Miami, Fla., Richmond, Va., and Memphis, Tenn. But monthly growth has decelerated as well in these markets, Zillow noted.
Here’s the top 10 market movers:
| City | July Zillow Home Value Index | Zillow Index change from June to July | Share of listings with a price cut |
| San Jose, Calif. | $1.56 million | -4.5% | 19.5% |
| Phoenix, Ariz. | $470,800 | -2.8% | 28.8% |
| San Francisco, Calif. | $1.44 million | -2.8% | 17.5% |
| Austin, Texas | $566,533 | -2.7% | 25.2% |
| Raleigh, N.C. | $457,006 | -2.5% | 19.7% |
| Sacramento, Calif. | $611,287 | -2.5% | 23.6% |
| Riverside, Calif. | $580,593 | -2.4% | 23% |
| Denver, Colo. | $630,141 | -1.8% | 26.3% |
| Portland, Ore. | $573,768 | -1.7% | 23.5% |
| Las Vegas, Nev. | $450,931 | -1.4% | 28.6% |
Got thoughts on the housing market? Write to MarketWatch reporter Aarthi Swaminathan at aarthi@marketwatch.com
Blackstone Group
is the world’s largest manager of alternative assets such as private equity and real estate. It is also a leader in one of the industry’s biggest initiatives—attracting retail investors.
By many measures, the company’s flagship retail product, Blackstone Real Estate Income Trust, is a success. Known as Breit, it has mushroomed in value to $116 billion since its inception in 2017 and become one of the largest buyers of real estate in the country.
Blackstone (ticker: BX) describes Breit as an “institutional-quality real estate platform that brings private real estate to income-focused investors.” Now one of the largest U.S. real estate investment trusts, Breit owns nearly 5,000 properties, mostly multifamily dwellings and warehouses, as well as the real estate assets of Las Vegas hotels/casinos including the Bellagio and MGM Grand.
Though not publicly traded, it’s sold by major brokerage firms and financial advisors, with a relatively low minimum investment of $2,500. In just five years, Breit has become a lucrative part of Blackstone’s industry-leading real estate franchise, generating $1.8 billion in fees last year and $1 billion in the first six months of 2022.
That rapid growth could have a downside. There has been concern recently about Breit’s outlook, including how it is valued and whether investor redemptions will increase from low levels. BofA Securities analyst Craig Siegenthaler estimated in July that net flows, or sales less redemptions, have essentially moved to “break-even” after inflows averaging $2 billion a month for the past 18 months.
In response to analysts’ questions about Breit on Blackstone’s earnings conference call in July, CEO Stephen Schwarzman said that Breit and other Blackstone offerings provide “enormous value” to investors, “who remember it and they appreciate the firm. That builds our brand. That helps us raise money.”
Recently, however, a cloudier outlook for Breit and other Blackstone retail products such as the Blackstone Private Credit Fund appears to be weighing on Blackstone stock, which at about $102, is down 30% from its November peak.
A Barron’s analysis of Breit suggests that investors should be cautious and instead consider publicly traded real estate investment trusts, or REITs, that look more attractive. Breit has gone up in price this year while public REITs have moved lower. Breit has relatively high fees, offers limited liquidity, and is more leveraged than comparable public companies.
| Company / Ticker | Total YTD | Return 52-Week | Since Breit Inception in 2017 |
|---|---|---|---|
| Blackstone Real Estate Income Trust / BREIT | 7.2% | 24.5% | 13.5% |
| Vanguard Real Estate / VNQ | -15.5 | -6.1 | 6.7 |
| Prologis / PLD | -22.2 | 2.8 | 20.4 |
| Mid-America Apartment Communities / MAA | -20.6 | -6.2 | 15.1 |
| Camden Property Trust / CPT | -22.3 | -6.6 | 12.5 |
Note: Returns since 2017 are annualized. Breit returns are for the Class I shares and through June 30.
Sources: Bloomberg; company reports
Blackstone says Breit has appreciated this year because strong financial performance has more than offset the impact of higher interest rates. It says Breit has “delivered exceptional performance” for investors and is “exceptionally well positioned,” given its focus on apartments and warehouses.
Apartments are benefiting from double-digit rent increases, and warehouse demand has been strong. “These are the best fundamentals that I have seen in these two sectors in my entire career,” said Blackstone President Jonathan Gray on a recent webinar.
Breit’s fees are comparable to its private institutional real estate funds, and Blackstone says Breit’s leverage is modest relative to many private real estate funds.
One of Breit’s big selling points, a distribution yield of roughly 4%, is above the REIT average of about 3%. But the distribution isn’t fully earned based on a key REIT cash-flow measure. The distribution yields differ somewhat among its four share classes.
| Total Value Including Debt | $116 B |
|---|---|
| Net Asset Value | $68 B |
| Share Price | $14.98 |
| Distribution Yield | 4.5% |
| 2021 Net Income | -$805 M |
| 2021 FAD | $1,290 M |
| 2021 Blackstone Management and Incentive Fees | $1,824 M |
| Shares outstanding | 4.6 billion |
FAD=funds available for distribution
Sources: Bloomberg; company reports
Breit differs from public REIT peers like
Prologis
(PLD),
Mid-America Apartment Communities
(
MAA
), and
AvalonBay Communities
(AVB), which can be bought and sold on public markets. Breit is the only buyer of its shares, and caps monthly redemptions at 2% of the fund’s net asset value and quarterly redemptions at 5%.
Breit says its shares should be considered to have “limited liquidity and at times may be illiquid.” Breit has met all redemption requests since its inception. With inflows that have totaled about $35 billion in the 18 months ending on June 30, the fund has been on a buying spree. For instance, Breit and another Blackstone fund have a $13 billion deal to acquire one of the largest owners of housing for college students,
American Campus Communities
(ACC), which is expected to close in the next few days.
Breit’s growth has been driven by excellent portfolio selection and ample returns. Nearly 80% of its assets are in rental apartments and industrial properties, including warehouses geared toward e-commerce, which have been the two strongest real estate sectors in recent years.
Breit’s total return has averaged 13.5% a year since inception, compared with 7% for the Vanguard Real Estate (VNQ) an exchange-traded fund whose holdings are dominated by the largest public REITs. “It has done a terrific job picking sectors,” says Dave Bragg, an analyst at Green Street, an independent real estate research firm.
Breit’s value has held up amid the fallout in financial markets and in the public REIT sector this year. Breit’s total return this year through June has been about 7%.
On the other hand, the Vanguard ETF had a negative 13% total return through the end of July, while comparable public REITs like Prologis, AvalonBay, and
Camden Property Trust
(CPT) are off 15% or more based on total return. Breit has suffered just three down months since its inception in January 2017.
Breit can rise while comparable public companies are falling because it tracks private real estate markets, which can move more slowly than more volatile public markets. Blackstone prices the fund monthly based on its financial performance and other factors, including interest-rate changes.
Blackstone points to the strong performance of Breit’s portfolio—net operating income was up 16% in the first half of 2022—for the positive returns this year. Public REITs also have reported good results, but their stocks have dropped due to higher interest rates and concerns about a recession.
“When public REITs trade at discounts to underlying value of their assets, it’s a great buying opportunity,” says Bragg of Green Street. “We don’t think investors should be buying in the private markets when the public market opportunities are so great.”
He calculated that the big public REITs on average were trading recently at about a 15% discount to their net asset values.
As an alternative to Breit, investors could consider well-run public alternatives such as Prologis, a leading owner of warehouses, or multifamily REITs such as AvalonBay or Mid-America Apartment Communities. Barron’s wrote favorably on the apartment REIT sector recently.
Redemption requests by Breit investors appear to be picking up. Siegenthaler’s analysis showed that sales were roughly matching redemptions. “Given that Breit generated $9.8 billion in inflows in first-quarter 2022 ($3 billion plus per month), the fact that its flows may have slowed to break-even was surprising and occurred earlier than we expected,” he wrote. He nonetheless has a Buy rating on Blackstone and expects retail flows to Breit and other vehicles to reaccelerate in a recovery.
Blackstone noted on its recent earnings conference call that investors requested $2.9 billion of redemptions from its retail funds including Breit during the second quarter.
Blackstone says it isn’t worried. “In this period of extreme market volatility, a deceleration in fund-raising is unsurprising, but Breit net flows are still positive on the back of strong performance,” the company tells Barron’s.
Asked on the July conference call how it would handle a period of redemptions beyond redemption limits, Gray, who built the firm’s real estate empire, pointed to a “significant amount of a liquidity” at Breit. Gray himself recently invested $50 million in the fund.
Keefe, Bruyette & Woods analyst Robert Lee wrote earlier this year that alternative managers are eager to attract “locked-up capital” from individual investors. While that is not an issue when times are good, he said, “there is a risk that in times of stress, individual investors may realize they aren’t so happy with the lack of access to their capital.”
Breit levies a base annual fee of 1.25% of net assets and has an incentive fee of 12.5% of the annual total return if it achieves at least a 5% return. Bragg estimates that Breit’s fees are two to three times those of public REITs and funds, depending on the vehicle chosen by the investor.
Breit had a net asset value of $68 billion—equivalent to an equity market value—and a total value including debt of $116 billion at the end of June. Breit calculates its leverage ratio at 42%—debt divided by total value. Comparable public REITs are about half that level. The fund had $46 billion of debt outstanding at the end of the first quarter while a comparably sized Prologis had $18 billion.
No public REIT analysts follow Breit. It doesn’t issue earnings news releases or hold quarterly conference calls. It files quarterly 10-Qs and annual 10-Ks, but its financial statements, like those of public REITs, are complex.
REIT investors look at net income, but focus more on other measures such as funds from operations and funds available for distribution, which add back sizable depreciation expenses. The idea is that most of the depreciation is a phantom noncash expense since the underlying real estate isn’t falling in value.
Breit, unlike most big public REITs, has operated in the red based on net income. It lost more than $800 million in each of the past two years based on generally accepted accounting principles, or GAAP, and about $650 million in the first six months of 2022.
For 2021, it calculated its funds available for distribution at $1.3 billion, but that did not cover its distributions to shareholders of $1.6 billion. About half of Breit holders reinvested their distributions last year, reducing cash outlays.
Breit’s calculation of its funds available for distribution, a non-GAAP financial measure, excluded $1.8 billion of management and incentive fees paid to Blackstone in 2021. The reason is that the payments were made in Breit shares rather than in cash. But fees are fees regardless of whether they’re paid in stock or cash. Breit buys back stock paid to Blackstone, meaning Blackstone effectively gets cash. Breit includes management and incentive fees as an expense in its calculation of its GAAP net income.
The Breit distribution is nearly all a return of capital due to its losses. In contrast, most big REITs pay dividends at least partly from net income.
Blackstone says Breit’s net income is depressed by greater depreciation expense relative to public REITs. That high depreciation results in a tax-advantaged distribution, benefiting investors, it says. Breit says it has fully funded the distribution from cash flow from operations, a GAAP metric that excludes the management and incentive fees, since its inception.
Over its first five years, Breit has scored, thanks to smart sector allocations and a real estate bull market. But with a lofty price and high fees, it could be hard-pressed to repeat its historical returns and beat the public REITs. And it has yet to be tested in a sustained economic downturn or a period of net redemptions.
Write to Andrew Bary at andrew.bary@barrons.com
Home values in August saw their largest monthly decline since 2011. Some cities see house prices drop by 3%.
Home values are edging down as buyers remain spooked by high mortgage rates, according to a new report.
The typical value of a home in the U.S. fell 0.3% in August from the previous month, according to real-estate company Zillow’s August market report. That’s the largest month-to-month drop since 2011, the company said.
Zillow cited “the historic rise in home prices over the pandemic, compounded by this year’s spiking mortgage rates.”
Though home-price appreciation has slowed since it peaked in April, home values are still up 14.1% from a year ago. They’re up nearly 44% from August 2019, before the onset of the coronavirus pandemic.
The typical 30-year mortgage rates has now surpassed 6%, meaning that monthly payments are significantly higher than just months ago. And, with home prices retreating only modestly, many would-be buyers consider a purchase still out of reach and remain on the sidelines.
“The prime suspect to explain the pullback in home-buyer demand is the huge decline in affordability over the past year. The diverging fortunes of more and less affordable markets backs up the hypothesis,” Zillow said.
“More affordable markets in the Midwest are generally retaining their heat while competition is cooling most rapidly in Western markets, especially those with the highest home prices and the ones that saw the most home-price appreciation over the pandemic.”
Home values fell the most in San Francisco, where they were down 3.4%, a percentage decline matched by Los Angeles. In Sacramento, values were down 3.2% and in Salt Lake City 2.6%.
Home values rose in a few markets, such as Birmingham, Ala.; Indianapolis; Cincinnati; and Louisville, Ky. Homes in these areas are typically priced at under $300,000.
With people hesitant to buy homes, the typical time a listing lasts on the market is increasing slightly: In August, the average listing was pending 16 days after first going active on Zillow. That typical market time was three days longer than in July.
Inventory is crawling up, rising by 1% from July.
“Typical mortgage payments show an even starker picture of the astronomical growth of expenses for new homeowners over the past three years,” Zillow said.
The typical monthly mortgage payment for a new home has jumped from $897 in August 2019 to $1,643 this year — an 83% increase. That’s an “astronomical growth of expenses for new homeowners over the past three years,” Zillow said.
Affordability has significantly declined. In April 2021, when the benchmark mortgage rate was around 3%, the annual income needed to buy a home at the median price of $340,700 was $79,600, researchers at the Harvard Joint Center for Housing Studies said on Friday. With rates at 5.41% in July, the annual income needed to buy a median-priced $403,800 home was $115,000, they said.
Emma Ockerman contributed to this report.
Got thoughts on the housing market? Write to MarketWatch reporter Aarthi Swaminathan at aarthi@marketwatch.com.
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