July 22, 2024

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

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