This isn't a work from home story 'it's a financing story', says Jonathan Litt on empty offices
Published May 28, 2023, 9:20 p.m. by Arrik Motley
This is a financing story. And I'm not talking about the kind of financing that you get when you go to work for a company or when you're starting a business. I'm talking about the financing that you get when you're buying a home.
The median home price in the U.S. is now $226,800, according to the National Association of Realtors. That's up 5.8% from a year ago, and it's the highest median price since 2007.
But here's the thing: The median home price is only half the story. The other half is what you're actually paying for your home after you factor in all the financing costs.
When you include all the financing costs - the interest, the points, the fees - the median home price jumps to $313,000. That's an increase of 38% from a year ago.
And it's not just the median price that's going up. The average price of a home in the U.S. is now $370,900. That's up 7.1% from a year ago.
If you're in the market for a home, you're probably wondering how you're going to finance it. Here are a few things to keep in mind:
1. Interest rates are still low by historical standards. The average 30-year fixed-rate mortgage is now 4.32%, according to Freddie Mac. That's down from 4.40% a week ago and 4.54% a year ago.
2. Mortgage rates are likely to rise in the coming months. The Federal Reserve is widely expected to raise interest rates in December, and that could lead to higher mortgage rates.
3. You'll need to put down more money if you're buying a home. The average down payment is now 21%, according to the National Association of Realtors. That's up from 20% a year ago.
4. You'll need to have good credit to get a low interest rate. The average credit score for a 30-year fixed-rate mortgage is now 745, according to Ellie Mae. That's up from 731 a year ago.
5. You'll need to pay for private mortgage insurance if you're putting down less than 20%. Private mortgage insurance protects the lender if you default on your loan.
6. You can get a government-backed loan if you're a first-time homebuyer or if you have good credit. The most popular program is the Federal Housing Administration loan, which has a 3.5% down payment requirement.
7. You can get a VA loan if you're a veteran or active duty military member. VA loans don't require a down payment and they have lower interest rates than conventional loans.
8. You can get a jumbo loan if you're buying a home that costs more than $453,100 (or $679,650 in high-cost areas). Jumbo loans typically have higher interest rates than conventional loans.
9. You can get a home equity loan if you have equity in your home. home equity loans typically have lower interest rates than other types of loans, but they're also more risky because you're putting your home up as collateral.
10. You can refinance your mortgage if rates go up. If you have a fixed-rate mortgage, you can lock in today's low rates by refinancing.
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FROM A STALLED RETURN TO OFFICE
PLANS AND THE ISSUES MAY GET
WORSE.
THE CHIEF INVESTMENT OFFICER AT
LANDEN BUILDINGS IS WITH US.
YOU CAME ON THE SHOW, ACTUALLY,
AT THE BEGINNING OF THE
PANDEMIC, THAT'S WHEN YOU SAID
WE ARE SHORTING.
WHERE ARE WE RIGHT NOW IN THAT
HURRICANE PHASE?
>> AH -- ONE BROKER DESCRIBED IT
AT GALE FORCE WINDS.
SO, IT'S STILL RAGING.
WE WERE OVERLY OPTIMISTIC WHEN
WE WROTE THAT WHITE PAPER IN MA
MAY OF '20
WE THOUGHT 40% DECLINES IN
VALUES, WE HAVE 40% LESS PEOPLE
IN THE OFFICE AND PROBABLY GOING
TO HAVE 50% 60% DECLINES IN THE
VALUE OF THE OFFICE BUILDINGS.
>> SO, OF THAT -- WHAT WERE YOUR
ASSUMPTIONS ABOUT INTEREST RATE
AT THE TIME?
BECAUSE THAT CAP RATE ISSUE WITH
INTEREST RATES HERE IS, YOU
KNOW, THAT'S AN ENORMOUS --
>> YEAH, THE TWO THINGS WE
DIDN'T ANTICIPATE INTEREST RATES
BEING WHERE THEY ARE AND
INFLATION BEING WHERE IT IS.
>> THOSE TWO THINGS BIGGER THAN
THE OTHER TWO?
>> MUCH BIGGER
THE -- INFLATION, IF YOU HAVE NO
RENT GROWTH AND YOUR VACANCIES
ARE GOING UP AND YOU HAVE GIANT
OPERATING EXPENSES TO RUN AND
OFFICE BUILDING, YOU'RE GOING
BACKWARDS FAST
AND THAT'S ONE OF THE BIG
SURPRISES THAT WE DID NOT
ANTICIPATE
>> WE'VE SEEN A LOT OF WASHOUT
FOR A LOT OF THE STOCKS, SL
GREEN IS TRADING BACK TO, LIKE,
IPO LEVELS BACK TO 1997.
I WANTED YOU TO WALK THROUGH, IF
YOU COULD, A SHORT YOU HAVE ON
CURRENTLY AND JUST THE SORT
OF -- TO GIVE US CHARACTER ICKES
OF WHAT YOU'RE LOOKING FOR IN A
SHORT IN THE SPACE CURRENTLY
JBG SMITH IS ONE OF THEM
>> YES
SO, WE'VE BEEN SHORT THE SPACE
SINCE MAY OF '20
THERE'S NOT A LOT OF MARKET CAP
LEFT IN A LOT OF THE COMPANIES
AND I KNOW A LOT OF THE
MANAGEMENT TEAMS, I FEEL BAD FOR
THEM, IT'S NOT THEIR CHOICE.
JBG OPERATES IN WASHINGTON, D.C.
WASHINGTON, D.C. IS ONE OF THE
TOUGHEST MARKETS IN THE COUNTRY
TODAY.
WE HAVE -- AND THEY HAVE A
SUBSTANTIAL OFFICE SUPPORT
PORTFOLIO.
I'M GOING TO DO THE RULE OF 40
FOR THEM
40% OF THEIR LEASES COME DUE IN
THE NEXT TWO OR THREE YEARS.
40% OF THEIR DEBT COMES TOLL IN
THE NEXT TWO, THREE YEARS.
40% OF THEIR RENT COMES FROM
AMAZON AND THE GOVERNMENT.
AND THEY HAVE OVER 40% LESS
PEOPLE IN THEIR BUILDINGS.
SO, THEY HAVE A REAL CHALLENGE
WE KNOW AMAZON IS MOVING OUT
THAT'S 15% OF THEIR RENT ROLL
THEY'RE GOING TO LOSE FROM THEIR
OFFICE PORTFOLIO
GOING TO BE REALLY HARD.
THIS ISN'T A WORK FROM HOME
STORY ANYMORE.
THIS IS A FINANCING STORY.
YOU KNOW, IT'S KIND OF LIKE THE
MALL BUSINESS WENT FROM THE MALL
PROBLEM TO THE FINANCING
PROBLEM, NOW IT'S A FINANCING
PROBLEM AND AS THE DEBTS COME
DUE, THERE'S REALLY NOWHERE TO
GO, BECAUSE LENDERS AREN'T
LENDING TO THE SPACE
>> HISTORIC TRADE, JONATHAN,
CONGRATULATIONS.
CONNECT THE DOTS
WHAT DOES IT MEAN FOR LOCAL
COMPANIES?
BECAUSE SO MANY OF THESE
BUSINESSES ARE BASICALLY BUILT
ON
ON, PREDICATED ON, PEOPLE
SHOPPING IN THE AREA
IT'S GOT TO BE CATASTROPHIC FOR
A LOT OF THESE LOCAL BUSINESSES.
>> YOU KNOW, THE MAYOR OF
WASHINGTON, D.C. CAME OUT AND
WAS COMPLAINING THAT NOT FORCING
GOVERNMENT WORKERS BACK INTO THE
OFFICE
AND HE SAID, WE'RE GOING TO HAVE
TO DRAMATICALLY CUT THE BUDGET
IF WE DON'T GET PEOPLE BACK IN
THE OFFICES TO SUPPORT ALL THE
LOCAL BUSINESSES
IT'S GOING TO BE A REAL PROBLEM.
THE FLIP SIDE IS, IT'S HAPPENING
IN THE SUBURBS
PEOPLE ARE WORKING FOR HOME,
GOING FOR COFFEE, GOING TO THE
STORES, THE SUPERMARKETS ARE
DOING BETTER, BUT THE CITIES ARE
GOING TO STRUGGLE.
>> HOW WILL YOU KNOW WHEN IT'S
TIME TO GO LONG?
>> THAT'S A GOOD QUESTION.
WE MONITOR IT, ONE OF THE THINGS
WE MONITOR IS CELL PHONE DATA TO
SEE IF PEOPLE ARE GOING BACK
INTO BUILDINGS
WE COULD PUT A BOX AROUND EVERY
OFFICE BUILDING A COMPANY OWNS
WE'RE WAITING TO SEE UPTICK AND
JUST NOT SEEING IT
BUT THAT'S GOING TO BE THE
SIGNAL ON THE OTHER SIDE
>> FROM YOUR VANTAGE POINT, HOW
BIG OF AN ISSUE IS COMMERCIAL
REAL ESTATE?
>> IT'S A GOOD QUESTION.
I GET A LOT OF CALLS ON THIS AND
I'M GOING TO GO THROUGH THE MATH
QUICKLY.
$5 TRILLION OF COMMERCIAL REAL
ESTATE DEBT.
PEOPLE THINK IT'S GOING TO TAKE
DOWN THE REGIONAL BANKING
SYSTEM
THE PROBLEM'S OFFICE
AND THAT'S A TRILLION.
REGIONAL BANKS HAVE ABOUT 600
BILLION.
SO, IF YOU TAKE A THIRD HIT TO
THAT 600, TO $200 BILLION
PROBLEM FOR THE BANKS, I THINK
THAT'S MANAGEABLE.
THE BANKS NEED TO END WILL
THEY
