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For real estate, a year like no other – The Real Deal

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Clockwise from left: Donald Trump, Joe Biden, Airbnb CEO Brian Chesky, Opendoor CEO Eric Wu, Black Lives Matter protests (Illustration by The Real Deal)

Clockwise from left: Donald Trump, Joe Biden, Airbnb CEO Brian Chesky, Opendoor CEO Eric Wu, Black Lives Matter protests (Illustration by The Real Deal)

“Unprecedented” may have been overused in news stories this year, but no word better describes the events of 2020.

The coronavirus pandemic defined the year, claiming several hundred thousand American lives and wiping out millions of jobs. Huge sectors of the economy were shut down, flipping the real estate industry on its head and forcing developers, landlords and brokers to scramble. Covid exacerbated problems in brick-and-mortar retail, strained offices and housing in city centers and pushed the hospitality sector to the brink.

Moreover, it raised existential questions about city living and central business districts.

The year also saw mass civil unrest, perhaps the most divisive election in U.S. history and an unexpected stock-market boom. Read on for the biggest real estate stories from the most tumultuous year in recent memory.

The Covid reckoning

The pandemic decimated the economy, leaving millions of Americans unemployed and unable to make rent and mortgage payments. Some local tenant groups orchestrated rent strikes. But by and large, government inserted itself between renters and landlords, and homeowners and lenders, to keep people in their homes. The situation has left some landlords, who have their own mortgages to pay, in a lurch. And despite unprecedented — there’s that word again — federal aid, critics say Washington has not done enough to help individuals or real estate businesses.

Covid accelerated consumers’ shift to online shopping and put countless stores, gyms, restaurants and bars out of business. Residential sales froze in major urban centers including New York and San Francisco, as many who could afford to leave cities fled to the suburbs and second-home markets.

Commercial transactions as well ground to a near halt for the better part of the year. The real estate industry brought its own workers back to the office, but it failed to inspire others as very few have followed suit. A full return is unlikely until the vaccine is widely available, and even then, work-from-home will surely not give up all of its gains.

Many employers are seeing the cost savings and recruiting benefits of remote work and have signaled they may reduce their physical footprints. Altogether, the change in consumers’, workers’ and employers’ preferences call into question whether some longtime real estate strategies have a place in a post-pandemic world. Will shoppers return to stores? Will workers reoccupy offices and expensive cities? Is the central business district dead?

But in the immediate, the pandemic forced the industry to adapt. Virtual home showings and closings were initially the only ways to get deals done, and are likely here to stay. As more Americans began shopping online, the industrial sector went from merely hot to smoking. Brokerages and other firms cut staff to preserve cash, struggling developers fought to keep projects and deals afloat, and businesses of all types were sucked into legal battles and in some cases bankruptcy. For many, it’s now sink or swim.

No more developer-in-chief

The election of Joe Biden marked an end to a wild four years, in which a developer from Queens seemingly broke every rule of presidential politics.

Though Donald Trump’s approach won him a diehard following, it alienated huge swaths of voters. And while his administration has been a mixed bag for real estate, anti-industry sentiment grew during Trump’s time in office and blue states pushed further to the left. The world seems immutably changed from when Trump was elected in 2016.

Real estate executives by and large saw an ally in the Oval Office, but in the months leading up to November, more began donating to Biden — perhaps sensing his win or seeking a different response to the pandemic.

Though it’s not clear what, besides Covid, Biden will prioritize first, the president-elect has pledged to change some Trump-era policies that have a direct impact on real estate. He has promised to reinstate the Affirmatively Furthering Fair Housing rule, which Trump repealed in July because he said low-income housing would destroy the “Suburban Lifestyle Dream.” Biden also has his eye on adding reporting requirements to the Opportunity Zone tax break and changing who is eligible to use 1031 exchanges.

A promise for reform

George Floyd’s death at the hands of Minneapolis police set off nationwide protests, leading real estate executives to pledge solidarity and change.

But some demonstrations devolved into vandalism and looting, while police were called out for brutalizing protesters. That put the industry in an awkward position. Developers, brokers, bankers and attorneys have long provided political and financial backing to the New York Police Department. The looting led some in the industry to double down on their support for law enforcement while others broke rank.

Floyd’s death and the ensuing unrest prompted the industry to reflect on what it could do to address structural racism, not to mention its own well-documented diversity problem. Executives from Douglas Elliman wrote to agents and staffers in June, “Our hope is that we channel our deep anger, frustration and despair into collective and production action.” Corcoran Group CEO Pam Liebman said, “The murder of George Floyd is an abomination. It’s more unwelcome evidence — as if we needed it — of a specter that’s haunted this country for four hundred years.”

The Black Lives Matter protests also inspired some agents and staffers to speak out about issues and incidents at their own firms.

It was a stark contrast to the industry’s silence when Trump hesitated to condemn white supremacist and neo-Nazi violence in Charlottesville, Virginia, in 2017.

This time, the industry promised more than “just lip service.”

“I’m heartbroken that all this pain we’re feeling, all of the energy being generated, all of the moral clarity that a moment like this creates — might still not lead to enough change,” Compass CEO Robert Reffkin wrote to his firm in June. “I know how rare it is to feel this much momentum on something so important, and how easy it is for the moment to slip away or get out of control.”

The IPO boom

In the biggest year for IPOs since 2007, proptech got in on the action.

U.S. equities made a major comeback from a pandemic-induced plunge, with investors bullish on tech companies in particular — a result of the work-from-home boom.

While Airbnb’s public offering was the most high-profile real estate IPO of the year, its traditional listing was a rare sight in 2020. Other firms gravitated toward blank-check companies, also known as special-purpose acquisition companies or SPACs, in the hopes of leaving less money on the table. (Airbnb shares soared 113 percent on its first day of trading. Had its bankers priced its shares higher, it theoretically could have raised an additional $4 billion.)

SPACs, which were a popular way to go public in the 1980s, have no underlying assets. They raise money from investors to acquire and take a target company public down the line. They negotiate share price ahead of an IPO, unlike traditional offerings, where bankers pick an initial stock price based on perceived interest from investors — and perhaps a desire to reward favored clients.

Instant-homebuying startup Opendoor and home-services software company Porch.com took that route. Both went public in December and saw their valuations soar to $18 billion and $1 billion, respectively.

There’s more to come in 2021, as residential brokerage Compass lays the groundwork for its own offering. And SoFi, an online lender also backed by SoftBank, is eyeing a SPAC deal.

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Real eState

What Is the Canada Mortgage and Housing Corporation (CMHC)

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The Canada Mortgage and Housing Corporation (CMHC) is a Canadian Crown Corporation that serves as the national housing agency of Canada and provides mortgage loans to prospective buyers, particularly those in need.

Understanding the Canada Mortgage and Housing Corporation (CMHC)

The Canada Mortgage and Housing Corporation (CMHC) serves as the national housing agency of Canada. CMHC is a state-owned enterprise, or a Crown corporation, that provides a range of services for home buyers, the government, and the housing industry.

CMHC’s stated mission is to “promote housing affordability and choice; to facilitate access to, and competition and efficiency in the provision of, housing finance; to protect the availability of adequate funding for housing, and generally to contribute to the well-being of the housing sector.”1

A primary focus of CMHC is to provide federal funding for Canadian housing programs, particularly to buyers with demonstrated needs. CMHC, headquartered in Ottawa, provides many additional services to renters and home buyers, including mortgage insurance and financial assistance programs. CMHC acts as an information hub for consumers, providing information on renting, financial planning, home buying, and mortgage management.

CMHC also provides mortgage loan insurance for public and private housing organizations and facilitates affordable, accessible, and adaptable housing in Canada.2 Additionally, CMHC provides financial assistance and housing programs to First Nations and Indigenous communities in Canada.3

Professionals and Consumers

CMHC provides services to both professionals and consumers. For professionals, CMHC aims to work in collaboration with different groups to provide affordable housing. Services include project funding and mortgage financing, providing information to understand Canada’s housing market, innovation and leadership networks to access funding and talent to spur housing innovation and increase supply, and providing speakers and hosting events for the industry.4

For consumers, CMHC seeks to provide all the tools an individual would need to either buy a home or rent a home and a variety of information and assistance for current homeowners, such as managing a mortgage, services for seniors to age in place, and financial hardship assistance.56

For financial hardship and mortgage assistance, CMHC provides tools that include payment deferrals, extending the repayment period, adding missed payments to the mortgage balance, moving from a variable-rate to a fixed-rate mortgage, and other special payment arrangements.7

Canada Mortgage and Housing Corporation (CMHC) and the National Housing Strategy

In November 2017, the Canadian government announced the National Housing Strategy.8 Rooted in the idea that housing is a human right, this 10-year, $70 billion project will largely be administered by CMHC, although some services and deliverables will be provided by third-party contractors and other Canadian federal agencies.9

Strategic initiatives of the National Housing Strategy include:

  • Building new affordable housing and renewing existing affordable housing stock
  • Providing technical assistance, tools, and resources to build capacity in the community housing sector and funds to support local organizations
  • Supporting research, capacity-building, excellence, and innovation in housing research10

History of the Canada Mortgage and Housing Corporation (CMHC)

CMHC was established in 1946 as the Central Mortgage and Housing Corporation by the federal government in Canada with the primary mission of administering the National Housing Act and the Home Improvement Loans Guarantee Act and facilitating discounts to mortgage companies. Initially, CMHC began by providing housing to returning Canadian war veterans, and toward the end of the 1940s, CMHC began to administer a program providing low-income housing across Canada.11

In 1947, CMHC was responsible for opening Regent Park, a large low-income housing project, and Toronto’s first urban renewal project. By the 1960s, CMHC introduced co-op housing and multi-unit apartment buildings throughout Canada.11

In 1979, the Central Mortgage and Housing Corporation changed its name to the Canada Mortgage and Housing Corporation

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Real eState

Canadian home price gains accelerate again in May

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Canadian home prices accelerated again in May from the previous month, posting the largest monthly rise in the history of the Teranet-National Bank Composite House Price Index, data showed on Thursday.

The index, which tracks repeat sales of single-family homes in 11 major Canadian markets, rose 2.8% on the month in May, led by strong month-over-month gains in the Ottawa-Gatineau capital region, in Halifax, Nova Scotia, and in Hamilton, Ontario.

“It was a third consecutive month in which all 11 markets of the composite index were up from the month before,” said Daren King, an economist at National Bank of Canada, in a note.

On an annual basis, the Teranet index was up 13.7% from a year earlier, the 10th consecutive acceleration and the strongest 12-month gain since July 2017.

Halifax led the year-over-year gains, up 29.9%, followed by Hamilton at 25.5% and Ottawa-Gatineau at 22.8%.

Housing price gains in smaller cities outside Toronto and its immediate suburbs again outpaced the major urban centers, with Barrie, Ontario leading the pack, up 31.4%.

On a month-over-month basis, prices rose 4.9% in Ottawa-Gatineau, 4.3% in Halifax and 3.7% in Hamilton.

The Teranet index measures price gains based on the change between the two most recent sales of properties that have been sold at least twice.

Canada‘s average home selling price, meanwhile, fell 1.1% in May from April, Canadian Real Estate Association data showed on Tuesday, but jumped 38.4% from May 2020.

 

(Reporting by Julie Gordon in Ottawa; Editing by Christopher Cushing)

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Economy

Bank of Canada seeing signs of cooling in hot housing market

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The Bank of Canada is starting to see signs that the country’s red hot housing market is cooling down, although a return to a normality will take time, Governor Tiff Macklem said on Wednesday.

The sector surged in late 2020 and early 2021, with home prices escalating sharply amid investor activity and fear of missing out. The national average selling price fell 1.1% in May from April but was still up 38.4% from May 2020.

“You are starting to see some early signs of some slowing in the housing market. We are expecting supply to improve and demand to slow down, so we are expecting the housing market to come into better balance,” Macklem said.

“But we do think it is going to take some time and it is something that we are watching closely,” he told the Canadian Senate’s banking committee.

Macklem reiterated that the central bank saw evidence people were buying houses with a view to selling them for a profit and said recent price jumps were not sustainable.

“Interest rates are unusually low, which means eventually there’s more scope for them to go up,” he said.

Last year, the central bank slashed its key interest rate to a record-low 0.25% and Macklem reiterated it would stay there at least until economic slack had been fully absorbed, which should be some time in the second half of 2022.

“The economic recovery is making good progress … (but) a complete recovery will still take some time. The third wave of the virus has been a setback,” he said.

The bank has seen some choppiness in growth in the second quarter of 2021 following a sharp economic recovery from the COVID-19 pandemic at the start of the year, he added.

(Reporting by David Ljunggren and Julie Gordon; Editing by Peter Cooney and Richard Pullin)

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