Published: Nov. 2, 2023 at 8:02 a.m. ET
By Rob Curran
Jones Lang LaSalle’s third-quarter net income and revenue fell as a commercial-real-estate slump continued.
The Chicago commercial real-estate developer posted earnings for the quarter ended in September of $59.7 million, or $1.23 a share, down from $140.2 million, or $2.88 a share, a year earlier. Excluding certain items, Jones…
By Rob Curran
Jones Lang LaSalle’s third-quarter net income and revenue fell as a commercial-real-estate slump continued.
The Chicago commercial real-estate developer posted earnings for the quarter ended in September of $59.7 million, or $1.23 a share, down from $140.2 million, or $2.88 a share, a year earlier. Excluding certain items, Jones Lang LaSalle posted adjusted earnings of $2.01 a share, matching the average Wall Street target, as tabulated by FactSet.
Third-quarter revenue fell by 1% to $5.11 billion, compared to the mean analyst estimate of $5.04 billion, as tallied by FactSet.
Commercial real estate developers have struggled in recent quarters because of a toxic combination of stubborn work-from-home trends and rising mortgage rates.
“The industry-wide slowdown in investment sales and leasing transactions continued,” during the third quarter, said Chief Executive Christian Ulbrich, in a statement.
Write to Rob Curran at rob.curran@wsj.com
Existing-home sales in August buckled under pressure from higher mortgage rates. New home sales, a bright spot in an overall dreary housing market, might not be immune.
With data expected this week on August’s new home sales, investors will get a read on whether rising mortgage rates will continue to slam home builder stocks as they did recently.
Existing-home sales in August dropped for the third straight month to a seasonally-adjusted annual rate only 1% higher than its recent 12-year low, set in January. Mortgage rates are the likely culprit: the average 30-year fixed mortgage rate rose above 7% in mid-August before ascending to its highest level in more than 20 years.
Sales activity looks unlikely to have rallied in September: Mortgage rates measured by
have remained above 7% so far this month, at a recent 7.19%. One leading indicator of future sales, the volume of applications for home purchase loans, has remained well below year-ago levels this month, according to Mortgage Bankers Association data. “As homebuyers continue to face higher rates and limited for-sale inventory, which have made purchase conditions more challenging,” Joel Kan, the trade group’s deputy chief economist, said in a statement last week.
Should the bond market reaction to expectations of fewer rate cuts in 2024 hold, this week’s Freddie Mac survey will likely move higher: the 10-year Treasury yield, with which mortgage rates often move, reached its highest level since 2007 on Thursday. Rocket Mortgage, a large mortgage originator, was quoting rates at 7.63% on Friday morning.
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Mortgage rates could reach 8% in the short-term, National Association of Realtors chief economist Lawrence Yun said last week. That could put further pressure on existing-home sales, driving them to a new cyclical low, he said.
Shares of home builders, who had been the beneficiaries of the unusual housing market dynamic created by higher rates, have fallen recently as mortgage rates have risen. Earlier this year, builders stepped in to fill the void created by homeowners who have stayed put thanks to their ultralow mortgage rates. New home sales, as a result, soared: the metric rose as much as 32% above year-ago levels in July to its highest seasonally-adjusted annual rate since February 2022.
But mortgage rates’ recent rise has shaken confidence that the trend can continue: builder sentiment measured by the National Association of Home Builders turned negative earlier this month, while single-family housing starts in August slumped about 4% from the month prior.
Economists expect sales of new homes to have fallen in August, too: consensus estimates compiled by
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expect the government’s measure of contract signings to buy a new home to drop 2% from July, to a seasonally-adjusted annual rate of 700,000. The data is expected Tuesday at 10 a.m.
Economists at
the government-sponsored enterprise that buys mortgages from loan originators in the secondary market, expect sales of new homes to slow in the fourth quarter, and in the first half of 2024. The winter months are typically cooler seasonally, but the higher cost of buying a home—a combination of higher mortgage rates and prices—will add further pressure.
Fannie Mae expects a mild recession next year, says Doug Duncan, Fannie Mae’s chief economist, which would also weigh on sales. The economists expect the average mortgage rate to end 2023 at 7.1%, and fall to 6.3% by the end of 2024 as job losses rise and the economy softens.
But all hope is not lost for home builder stocks. “As the easy money has been made, a close inspection of homebuilding points to a fairly decent backdrop for the industry, supported by favorable credit spreads, elevated demand, and low inventory,” Cirrus Research strategist Georgiana Fung and Director of Research Satya Pradhuman wrote in a Sept. 21 note titled “Homebuilders—Buy the Dip!”
”Although mortgage rates have risen rapidly in response to the aggressive Fed rate hikes, the current pause and even the expectation of a reversal in policy should shine a ray of light on the housing market,” they wrote, highlighting
(ticker: PHM) and
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(MTH) as small- and mid-cap ideas. The companies’ shares were down 3.1% and 4.8% last week, respectively, but up about 62% and 33% so far this year.
Write to Shaina Mishkin at shaina.mishkin@dowjones.com
Sales of new homes have been a bright spot in an overall sluggish market. Now, two housing technology companies plan to take advantage of the new construction trend to boost their businesses.
(ticker: Z) and
(RDFN) on Tuesday announced a partnership through which
will provide
with listings of newly built homes. The agreement “will dramatically expand the reach of home builder listings on Zillow and allow Redfin customers to explore a broader range of new-construction homes for sale, creating a seamless home-buying experience,” Zillow and Redfin said in a press release.
Redfin and Zillow have different business models, but both are known in part for their home listing search tools. Through the partnership, Zillow will provide Redfin with new home listings from builders. The additional homes will be those not already listed for sale on a multiple listing service, the databases that agents and brokers use to list homes.
There are “tens of thousands” of active new construction communities listed on Zillow that will soon come to Redfin, a Zillow spokesperson told Barron’s. Zillow’s new construction listings will begin to appear on Redfin in the fourth quarter, according to the release.
“Zillow provides a standout platform for home builders to highlight their communities and connect with potential buyers,” Owen Gehrett, Zillow’s vice president of new construction, said in a statement. “The partnership with Redfin extends this unique and valuable resource to a wider audience.”
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The initiative comes as new home sales continue to command the spotlight in an otherwise slow housing market. About a third of all single-family homes for sale in the first half of the year were new construction, the release said, citing a Redfin analysis.
“With buyer demand outpacing the supply of existing homes for sale, Redfin’s home-buying customers are increasingly turning to new construction,” Adam Wiener, Redfin’s president of real estate operations, said in the release.
In a difficult year for home buyers, shares of builders and housing technology companies have outperformed. The
exchange-traded fund (XHB), which tracks home builders and related industries, has returned about 41% so far this year, exceeding the broader S&P’s roughly 21% gain. Redfin and Zillow shares have also soared, rising 70% and 254% year-to-date, respectively, and well outpacing the Nasdaq Composite.
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The announcement comes ahead of earnings for both companies. Zillow will publish its second-quarter results after the bell on Wednesday, while Redfin will report after the market closes on Thursday.
Write to Shaina Mishkin at shaina.mishkin@dowjones.com
Increases in rent prices have settled down since their rapid rise earlier in the pandemic, thanks to more choices on the market and less demand. It’s a trend that will stick around for a while.
Two measures of growth, collected by ApartmentList and
Zillow
,
show that asking rents continued to cool in June, compared with year-ago levels. Zillow clocked national rent growth at 4.1% in June, its lowest level since April 2021, while rents gauged by ApartmentList were flat—a level the rental website hailed as a “big milestone” following months of rapid increases in late 2021 and early 2022.
Part of the slowdown is weaker demand, says Christopher Salviati, a senior economist at ApartmentList. Rents are 24% more expensive than in January 2021, Salviati said. “Renters are finding that their money isn’t going as far,” Salviati said via email—adding that inflation, consumer confidence, and recession fears don’t help. “All of this is leading to more cautious behavior when it comes to household formation, meaning less rental demand.”
Increasing rental supply is also behind the slowdown. Construction in buildings with five or more units has been completed at a higher rate than average since September 2022, Census data show. Completions in February rose to a seasonally-adjusted annual rate of 542,000, the measure’s highest level since 1987. Those units will eventually be available, adding to supply.
And there’s more coming: there was a record level of such units under construction in May, seasonally-adjusted Census data show. The supply of rentals under construction means any growth in prices is likely to remain tempered. Those units will hit the market over the next one to two years, according to Zillow.
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Single-family homes built as rentals also are coming to the market. In the fourth quarter of 2022, 8.8% of all new construction started on single-family homes was for rental stock, a record high, according to a BTIG analysis of nearly five decades of Census data. That share remained high to start the year, the analysis shows.
There are questions about what the rental landscape means for the broader housing market, says Carl Reichardt, a BTIG analyst covering home builders. One question is how the cost of renting a home compares with that of owning a home, the analyst says, citing the increase in single-family rental construction.
“If there’s an excess of competition in that business and rents fall, and renting a single-family home becomes potentially even more attractive than owning it, that creates competition for the builders,” says Reichardt. The shares of public builders have been on a tear this year as demand has picked up for new homes. New home sales in May spiked, even as existing-home sales remained tepid.
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Despite the gain in new home sales, buyer sentiment has remained largely sour: 22% of respondents to Fannie Mae’s National Housing Survey in June said it was a good time to buy—higher than all-time low levels of 16% late last year, but well below the historic average of 57%. Respondents were more positive on the prospects for sellers, with 64% saying it was a good time to sell a home.
Another unknown is whether slowing or declining rents lead landlords to list for sale homes they have previously rented, says Reichardt. The ownership of single-family rentals by big institutional investors and online short-term rental listing platforms are relatively new developments, he says. “These are two new dynamics that have impacted the amount of supply on the market, and ways to monetize shelter capacity, that we haven’t seen before,” he says. “We’re not seeing this in any kind of enormous way, but it’s something to watch.”
Write to Shaina Mishkin at shaina.mishkin@dowjones.com