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The real estate sector lost 21.2% in 1H22 and the Real Estate Select Sector SPDR ETF (XLRE) lost 21.1%.
Unprecedented increases in mortgage rates (currently at 5.7% from an average of just 3.2% at the start of 2022), rising home prices and an imbalance between home supply and demand have been some features of the US housing sector over the past 6 months.
For the first half of 2022, the following emerged as the biggest winners/losers; Opendoor Technologies (OPEN) and DigitalBridge (DBRG) are among the big losers, while Mortgage REIT Chimera Investment (CIM) also joins the list. Two healthcare REITs — National Health Investors (NHI) and Sabra Health Care REIT (SBRA) — are among the biggest gainers; NHI earlier in June reaffirmed guidance for FY22, which points to a modest increase in portfolio occupancy in May. Residential REIT, American Campus Communities (ACC) was up 13.2%; it beat its Q1 earnings consensus in its last earnings report before its sale to Blackstone.
In May, new home sales rose 10.7% M/M while posting 5.9% Y/Y growth; Existing home sales fell 3.4% in May, marking the fourth straight month of decline, and on a y/y basis is down 8.6%.
The market generally assumes that this will be a seller’s market where buyers have no advantage in the market.
While housing affordability is at its lowest since the financial crisis, the rental market is not boding well either, with occupancy rates at all-time highs and rents rising.
A CoreLogic chief economist is forecasting a gradual slowdown in home price growth to single-digit growth a year from now, while the U.S. Bank’s chief economist sees a strong housing market with low housing stock, low unemployment, wage growth and a large buyer population in their peak home-buying years.
Realtor.com economists recently revised their forecasts:
It further added, “While housing costs remain elevated and forcing homebuyers to make difficult decisions about their budget priorities, the number of homes for sale is expected to continue to rise, building on the trend reversal that began in May.”
Most industry analysts expect inventories to remain tight in 2022 and 2023, with prices increasing at a slower rate than the past two years; The increase in offers and the high demand continue.
Freddie Mac expects some cooling in housing demand and forecasts a slowdown in house price growth from 15.9% in 2021 to 6.2% in 2022 and then to 2.5% in 2023; Fourth quarter home sales are expected to reach 7.1m and reach 6.9m in 2022 and increase to 7m in 2023.
Altos Research shows that more than 25% of homes currently on the market have reduced their prices, in contrast to how prices have increased over the past two years.