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More real estate trends to watch in 2022 – The Washington Post

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Our last column covered several real estate trends that buyers, sellers and investors should be aware of as we move into 2022, including that iBuyers are evolving and interest rates are rising, which means that millennials and Gen Z may find it cost-prohibitive to buy their first homes.

Here are three additional real estate trends we’re seeing start to blossom:

Trend 4: Cash-out refis are back.

According to CoreLogic, a leading real-estate-analytics company, homeowners with mortgages saw their equity increase by more than 31 percent in the third quarter. The Homeowner Equity Report showed “a collective equity gain of over $3.2 trillion, and an average gain of $56,700 per borrower, since the third quarter of 2020.”

No wonder cash-out refinancing became a hot commodity in 2021. Black Knight, a leading provider of technology, data and analytics solutions, reported that tappable equity surged $254 billion to an all-time high of $9.4 trillion. Its latest “Mortgage Monitor” report says cash-out refinances pulled the highest “quarterly volume of equity in 14 years.”

Trend 5: Build-to-rent homes rise in an unaffordable housing market.

As home prices rose dramatically over the past few years, many millennials began to find themselves priced out of the housing market.

Take Boise, where the typical home now costs $519,081 and skyrocketed 35.6 percent over the past year, according to the Zillow Home Value Index. According to Mark Meyer, a principal and chairman of the board of TGB, a landscape architecture firm, the average price of a home in Texas has increased by 35 percent.

“In Dallas, you can’t buy a townhouse for less than $280,000 … Land prices went up during covid, and that affects the sales price of a house. We have a huge affordability issue,” he said during the NAREE conference.

While our nephew is living the Instagram lifestyle, traveling the Western United States and living out of his truck, most people prefer to have a home with walls, floors, a ceiling and indoor plumbing. So, if you can’t afford to buy, you’ve got to rent.

There are approximately 43 million rental properties in the United States, and about 34.5 percent of Americans rent, a number that has been steadily rising over the past few decades. According to RCLCO, the real estate consulting firm, about 22 million of those are single-family rental homes. And the number of single-family rental units being built is on the rise. RCLCO estimates that single-family rental homes now represent about 5.1 percent of all new single-family home construction, up from 3.5 percent in the 2000s.

Not everyone is happy with large private equity and hedge funds engaging builders to build single-family rental homes.

“It’s the most anti-American thing in the last 50 years,” said Alex Kamkar, managing shareholder for Bold Fox Development, based in Texas. He notes that the investment world is “changing the economics and those rents will never come down,” adding that the “rents being charged for these communities are so high that tenants can’t save enough for a down payment.”

For now, this trend looks well-funded and unstoppable. And in the future? Kamkar predicted that the build-to-rent movement “would go poorly. There are so many A-list build-to-rent [communities] that will become the slums of the future,” he added.

Trend 6: Covid-19 is a trend-accelerator and a change-maker.

According to the Counselors of Real Estate annual report on the Top Ten Issues Affecting Real Estate, covid-19 has not only been a trend-accelerator, but has forced fundamental economic structural change.

The report details how the foundations of the economy are now in flux. Employers can no longer take “cheap, pliant labor for granted.” The movement toward hybrid or remote work has confused the expected demand and use of both commercial and residential real estate. And as we’ve all seen, supply chains remain under pressure or are broken.

Two years ago, no one could imagine that the world would very nearly shut down, that offices would close and employees would be sent home to work remotely. Or, that employees would choose not to come back, putting small business owners, restaurants and other business service providers at deep risk of failure.

As a trend accelerator, covid-19 pushed millennials to buy homes in suburban and rural areas. Previously, younger Americans gravitated to city centers, with walkable neighborhoods, public transportation and plenty of entertainment options and restaurants. They weren’t the only ones, of course. American adults of all ages suddenly desired more space.

Covid-19 also accelerated an extreme version of political polarization, the Counselors of Real Estate report noted.

For real estate investors, “persistent pandemic uncertainty raises real estate investment risk” across the board. Commercial property owners are focused on retaining tenants, managing cash flow and training and retaining labor. Small residential landlords, who perhaps own a few properties, are focused on tenant management and getting the rent paid, while waiting for eviction moratoriums to lapse.

And covid-19 underscores the top issue affecting real estate over the past two years: remote work and mobility. As we ended 2021, the Counselors of Real Estate noted that just 36 percent of office workers were back in the top 10 markets, versus 25 percent overall. Eighty-three percent of companies are permanently shifting to a hybrid work model, with dire implications for all sorts of real estate: residential, commercial, medical, education and retail. Companies like Google have indefinitely postponed its employees’ return to the office.

Satisfaction with remote work remains high, according to a number of recent surveys. Goodhire’s recent survey found that 68 percent of employees would choose remote work versus being in the office, while 85 percent believe their colleagues and other employees around the nation prefer working remotely rather than working from the company office. And 61 percent would take a significant pay cut to stay remote.

If these numbers continue to hold up, they’ll have a profound impact on the size and location of new homes and the amenities they include for decades to come. Real estate trends have already profoundly shifted to accommodate the pandemic.

We’ll be watching in 2022.

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Toronto suburbs boast the most overvalued real estate in all of Canada – blogTO

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While people in and around Toronto have just had to accept (albeit begrudgingly) the region’s outrageous home prices for what they are, it’s downright maddening to look at what you could buy in other parts of the world for the amount it costs for even a tiny condo here.

It’s not just the downtown core, either, with peripheral markets in the province continuing to see prices skyrocket to unseen levels, and homes in even small-town Ontario now on par with L.A. and other larger and far more desirable cities.

Though it’s obvious the region’s real estate is not actually worth as much as it’s going for these days, the extent to which it is overvalued at this point is quite shocking.

New figures from BMO (via Better Dwelling) show that while Canadian homes in general are about 38 per cent overvalued, the issue is the worst in Ontario, where home prices are about 55.4 per cent overvalued as of the first few months of this year.

What’s most interesting is that in Toronto specifically, this number is lower than the province as a whole — at 41 per cent — while in the surrounding suburbs, it’s far higher.

Cottage country areas like Muskoka, the Kawarthas, and Haliburton are approximately 64 per cent overvalued, the bank says, while the suburbs just outside of the GTA have the highest levels of overvaluation.

Properties in “exurb” areas like London, Barrie, Niagara, Guelph and Kitchener-Waterloo — that is, not the suburbs directly around the city, but just beyond — are now around 74 per cent more expensive than what they’re worth.

Given how fast home prices have climbed in Toronto and, as a result, around the city, experts say we have been on the verge of bubble conditions for some time now; the city was actually just ranked the second-biggest housing bubble in the world at the end of last year due to its severe overvaluation.

This will, stakeholders seem to agree, eventually lead to a swift downtown and market correction, likely later this year due to a number of factors, even without the government intervention that so many have been demanding to quell out-of-control price acceleration.

While B.C., Quebec and Atlantic Canada all join Ontario in having substantially overvalued housing markets, prospective Canadian buyers can still get some bang for their buck if they’re willing to move to Alberta or Saskatchewan, which are considered undervalued.

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Real Estate Has Bucked the Deglobalization Trend – MSCI

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Real Estate Has Bucked the Deglobalization Trend

  • Deglobalization has had profound implications for portfolio construction in listed assets. Conversely, with real estate, there are indications that the asset class has become more global in recent years.
  • Return dispersion across national markets has decreased, while property type has become a more important return driver across all markets, suggesting stronger international alignment, as cross-border transaction volumes have remained stable.
  • Institutional real estate investors could still face challenges from deglobalization, but a historical preference for more transparent and stable markets may help counterbalance some of them.

Real estate has historically exhibited a strong home bias, with investors favoring their local markets. Where investors have sought offshore exposure, they have typically favored markets that offer higher levels of transparency, better governance and stability. This is not to say that investors have not allocated to markets that are less transparent than their home markets. Nor that they have not pursued strategies higher up the risk curve when they invested in foreign markets. But in aggregate markets with higher transparency and government ESG scores have tended to attract more real estate capital.

Globalized real estate drivers in a deglobalizing world

The demand for international real estate is driven by the world’s largest institutional investors, many of whom have explicit global real estate investment mandates. Surveys of investor intentions show continued strong demand for cross-border investments among this group.1 Despite this sentiment, the share of the volume of cross-border transactions, as tracked by MSCI Real Capital Analytics, has remained relatively stable over the last decade, ranging between 19% and 26% of total quarterly transaction volumes.2

Even with relatively stable flows across borders, there is evidence that real estate may have become more global based on return behavior. There has been a notable decline of total-return dispersion across national markets in the MSCI Global Annual Property Index since 2008. At the same time, the spread of returns across property types has increased across all markets as technology changes (like the rise of e-commerce) and the pandemic have disrupted real estate markets, causing headwinds for sectors like retail and office but boosting other sectors like industrial. These trends point to potentially stronger international alignment in the asset class: Unlike in much of the previous two decades, since 2019 there was a greater opportunity for outperformance from allocation decisions based on property type, rather than country.

Return dispersion decreased across national markets but increased across property types

Source: MSCI Global Annual Property Index

Could deglobalization affect real estate?

Political populism, the COVID-19 pandemic and increased geopolitical tensions have all contributed to concerns about deglobalization. Business cycles may become desynchronized, leading to wider variations in the performance of equity and bond markets across countries, lower correlations and higher volatilities. The investment impact of this trend emerged in recent years: In equities, correlations between countries and regional blocs have declined.

Going forward, global investors in bonds and equities may respond by taking a more nuanced approach to asset allocation — for example, by considering new, more focused country allocations for broad allocation decisions (geopolitical blocs, energy importers versus exporters or autocracies versus democracies) and placing greater emphasis on risk factors exposed by the war in Ukraine, such as sanctions risk, reputational considerations and currency convertibility. While it is possible that similar deglobalization headwinds may emerge for real estate investors, there are several factors that could mitigate this.

One example is that, as mentioned earlier, transparency, governance and stability have always been important considerations for global real estate investors, as it is an opaque and illiquid asset class, where asset-investment life cycles are typically measured in years (the median holding period for assets in the MSCI Global Annual Property Index has been six years). The result is that markets with higher transparency, better governance scores and stronger institutions represent the lion’s share of the opportunity set and transaction volumes.

Transparency, governance and stability have mattered in real estate

Where available, market-size estimates are sourced from MSCI’s Real Estate Market Size Report 20/21. For the remaining countries, market size is assumed to be 10% of GDP. Source: JLL, Our World in Data, MSCI

Institutional real estate investors may therefore have less exposure to countries significantly exposed to decoupling risk due to deglobalization. Of the approximately USD 2.3 trillion of assets that MSCI tracks in the MSCI Global Annual Property Index and MSCI Asia Annual Property Index, over 91% of the capital value was invested in liberal democracies with real estate markets rated as transparent or highly transparent by JLL.

Nevertheless, deglobalization could have knock-on effects that impact real estate. For instance, increased political polarization and pandemic-induced supply-chain disruption could drive “nearshoring” and changes to international trade patterns.3 These changes could in turn affect the volume, nature and location of real estate demand. For example, a move from just-in-time to just-in-case logistics could increase demand for industrial-warehouse space and see some of that demand shift away from markets that are further afield and more vulnerable to potential trade disruption.

While deglobalization could result in profound consequences in asset allocation and portfolio construction, different asset classes may be affected in different ways. The distinct features of the real estate investment process, as opposed to that for listed equities and bonds, as well as the nature of the opportunity set typically available to global real estate investors, may mean that real estate could be less directly exposed to the effects of this investment megatrend.

The authors thank Alexis Maltin for her contributions to this post.

1For example, see: “2021 Institutional Real Estate Allocations Monitor.” Hodes Weill & Associates and Cornell Baker Program in Real Estate, Nov. 10, 2021.

2It should be noted that purchases made by third-party managers on behalf of offshore investors will count toward domestic volumes rather than cross-border volumes and thus may underestimate total cross-border capital flows.

3Nearshoring is the practice of transferring a business operation to a nearby country, especially in preference to a more distant one.

Further Reading

Did Deglobalization Add to Inflation Woes?

The Erosion of The Real Estate Home Bias

Real Estate’s Income Risk in an Inflationary World

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With housing top-of-mind for Ontarians as election looms — Windsor's real estate market cools – CBC.ca

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With the Ontario election less than one week away and interest rates rising, the real estate market in Windsor-Essex is experiencing a cool down.

However, the price of a home is still significant, leaving many constituents feeling left out of the market, yet hopeful that the election might bring with it some improvements.

“Optimism and hope is always there because that’s all we have, right?” said Shanike Gordon, a single mom with two kids renting an apartment in Windsor.

Gordon hopes to get into the housing market soon. 

“That’s the goal at the end of the day — you have somewhere for you and your kids to be able to call home,” she said.

The latest numbers indicate a shift in the local real estate climate, with buyers taking a more conservative approach, and sellers not seeing as much competition for their houses as before, according to Windsor realtor Abe Alhakim.

“We’ve noticed a slowdown in the market over the past few months,” explained Alhakim, who works with LC Platinum Realty. 

“We’ve noticed buyers have put their plans on hold, especially with the increase in interest rates from the Bank of Canada, which has already had one interest rate increase and more is planned over the next few months. And also there’s an Ontario election coming up, so people want to kind of see how things work out over the next few months.”

After months of prices climbing, the average price of a home in Windsor-Essex dipped to $692,759 in April. It was the first decline in the average sale price of a home since September 2021. At its peak, the average price of a home reached $723,739 in March.

The number of sales also dipped by 16 per cent in April compared to the month prior. Sales also dropped by nearly 19 per cent compared to April 2021.

Alhakim describes it as a “mixed market” where some homes are still selling significantly over asking price with multiple offers and bidding wars, while other houses aren’t seeing the same kind of demand. 

Realtor Abe Alhakim says the real estate market in Windsor-Essex is experiencing a slow down. (Katerina Georgieva/CBC)

As for what’s anticipated for the coming months, Alhakim noted, “that’s the golden question.”

“I anticipate the market will stay stabilized and balanced over the next few months, but it remains to be seen how expected interest rate increases are going to affect the market — and also the Ontario elections.”

He noted that the decline has some feeling “fearful” while others are jumping at the opportunity to buy a home at a cheaper price point.

Housing key election issue

Housing costs are a key issue for voters across Ontario, with bidding wars and low supply having driven prices up in recent years. To address the issue, the PC Party, NDP and Liberal Party leaders have all pledged to build 1.5 million homes if elected.

For Leamington’s Terry Maiuri, it’s particularly concerning as he considers the impact the soaring prices are having on his son. 

“It’s just getting ridiculous for the younger generation, I’d say, to afford housing,” Maiuri said.

Terry Maiuri, left, Lisa Lum, centre, and Shanike Gordon, right have affordability of housing on their minds during this provincial election. (CBC)

His 20-year-old son is close to completing his university studies, and Maiuri is concerned about what comes next.

“I told my wife the other day, with the price of houses, I said, ‘My God, he’s going to be living with us until he’s 40.’ Like, how does someone starting out as an adult afford housing, let alone apartment rentals?” he asked. 

“It just seems a little ridiculous.”

He added that while politicians say they realize there’s a problem, he doesn’t think any party is doing enough to address the issue.

Shanike Gordon on housing

7 hours ago

Duration 0:48

Single mom Shanike Gordon shares her hope of buying a home one day.

Windsor voter Lisa Lum says affordable housing is key for her this election. She said, after living in her Walkerville home for eight years, she was recently evicted after her landlord sold the duplex she was renting. 

Now, she’s in a new home in the same neighbourhood, but it’s significantly smaller, paying $500 more in rent. 

As for whether she might want to buy down the road, she doesn’t believe that to be realistic given the state of the market. 

“I wouldn’t be able to with the bidding wars that are here,” she said.

“I mean, how do you even get the down payment when homes that were bought, you know, five years ago for $120,000, and now they’re going for five and $600,000?”

While she’s optimistic more can be done by political leaders to address rent control, she doesn’t have confidence much will change when it comes to real estate.

As for Gordon, she’s not sure she’ll be voting at all in the provincial election, but explained stronger action on housing could sway her.

“Anything that caters for housing, families, single families especially, I’m all for it,” she said. 

Meanwhile, Alhakim continues to monitor the market, adding that he doesn’t expect a major correction in the market, but envisions the market settling into a plateau this year.

The housing market in Windsor-Essex is experiencing a cool down, with a dip in the average price of a home and fewer offers on some homes, according to realtor Abe Alhakim. (Katerina Georgieva/CBC)

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