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Why US Real Estate Has Prospered During COVID – International Banker

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By Cary Springfield, International Banker

This article was originally published in the Winter/February 2021 edition of International Banker

It is safe to say that the majority of financial markets experienced unparalleled levels of turbulence in 2020. A global pandemic caused a sharp worldwide economic contraction, leaving a spate of global markets decimated—in many cases, both demand and supply were severely affected. The devastation has been nowhere as apparent as it has been in the United States, where the virus continues to wreak havoc, with the daily death rate remaining well above 3,000. But although most US markets endured bearish periods during 2020, the real-estate market was one of the few to experience continuous sustained growth, as house prices rose consistently throughout the year.

Of course, house-price appreciation in the US is nothing new. Since January 2012, prices have risen almost continuously by around 70 percent on average across the nation. But with the coronavirus severely impacting household incomes, it would only be reasonable to assume that the resultant lack of income security would have a dampening effect on demand for homes. Indeed, according to figures published in November by the US Congressional Research Service, nearly half of all American households had experienced “at least some loss of employment income since March 2020, when the economic effects of the pandemic first became apparent”.

And yet robust demand for homes coupled with decidedly constrained supply have allowed the housing market’s bullishness to continue throughout 2020—a bullishness that is expected to remain throughout the coming year at the very least. The outbreak of the pandemic at the end of 2020’s first quarter initially saw home sales plummet, as uncertainty gripped the country and led to a nosedive in market interest for both buying and selling homes. Government directives such as shelter-in-place and social-distancing requirements meant that buyers were discouraged from seeking new accommodations, while sellers were less keen on listing their properties and interacting with prospective buyers.

In April and May, therefore, home sales plunged to their lowest levels since the aftermath of the 2007-09 global financial crisis over a decade before. But activity subsequently rebounded, with sales surging over the summer and throughout the latter half of the year. Sales of previously owned houses reached a 15-year high in October, before marginally declining a month later.

Further highlighting the buoyant US residential real-estate market last year, the Mortgage Bankers Association (MBA) Builder Application Survey (BAS) data for November showed that mortgage applications for new home purchases increased by a whopping 34.7 percent from a year earlier. “November new home sales activity, both mortgage applications and home sales, ran at a pace considerably ahead of 2019, showing the ongoing strong growth in housing demand and new residential construction,” noted Joel Kan, MBA’s associate vice president of economic and industry forecasting.

Accompanying this flurry of housing-market activity has been strongly appreciating house prices, which have risen consistently throughout the year. The S&P CoreLogic Case-Shiller 20-City Home Price Index, which covers changes in the value of single-family housing stock in Boston, Chicago, Denver, Las Vegas, Los Angeles, Miami, New York, San Diego, San Francisco, Washington DC, Atlanta, Charlotte, Cleveland, Dallas, Detroit, Minneapolis, Phoenix, Portland (Oregon), Seattle and Tampa, posted a 9.1-percent year-over-year gain in November, up from 8.0 percent in the previous month. Even in April and May, when housing-market activity was relatively subdued, house prices continued their upward march.

So, why has this been the case? It would seem that a combination of higher housing demand and limited supply has contributed to the appreciation. From a demand perspective, buyer interest has surged since the summer on the back of a significantly expansive monetary policy adopted by the Federal Reserve System (the Fed). In early March, the Fed cut rates by 50 basis points, before lowering them again 10 days later to its lower bound of 0-0.25 percent. The US central bank has also bought substantial volumes of mortgage bonds since March 2020—it purchased $300 billion of the debt securities backed by US home loans during each of March and April, followed by a further $100 billion per month since then, which has helped to send mortgage rates repeatedly to new record lows during the year. As such, prospective homebuyers were incentivised in 2020 to take advantage of the historically low rates and purchase a home, with the International Monetary Fund (IMF) noting that the housing demand was largely prompted by a “fear of missing out” on such attractive rates.

On the supply side, meanwhile, there has been a much greater reluctance from homeowners to sell their homes during the pandemic. A handful of states have stay-at-home orders still in place, while mask mandates and some degree of restrictions on business are currently in effect throughout most states. As such, the pandemic has only emphasised the need for residents to remain in their homes while authorities strive to bring the spread of the virus under control. The coronavirus’s highly infectious nature has further underlined the tendency for people to remain in their current dwellings and follow the new social-distancing norms.

This dearth of supply has underpinned much of the positive price action the US real-estate market has witnessed over the last year or so. Indeed, even when home sales fell in April and May, the low existing inventory of houses meant that prices remained resilient in the face of declining demand. And when demand surged during the following months, the supply of houses remained muted, with concerns surrounding the transmission of COVID-19 and economic anxiety keeping homeowners in their existing homes. “New listings, despite improving from their April lows, were only slightly higher than one year ago through August,” the Federal Reserve Bank of St. Louis noted in October. “As a result, inventory continued to decline: In August 2020, there were less than two-thirds the number of homes on the market as there were in August 2019.”

In a clear attempt to prevent another full-blown housing-market crash in the same vein as the global financial crisis, moreover, US authorities have been significantly more proactive in ensuring the pandemic does not put homeowners under any undue pressure. Specifically, it has provided relief in the form of a foreclosure and eviction moratorium, which was enacted in March and prevents direct mortgage servicers from any new foreclosure action as well as suspending any in progress for single-family properties insured by the Federal Housing Finance Agency (FHFA). “Extending Fannie Mae and Freddie Mac’s foreclosure and eviction moratoriums through January 2021 keeps borrowers safe during the pandemic,” said FHFA Director Mark Calabria. “This extension gives peace of mind to the more than 28 million homeowners with an Enterprise-backed mortgage.”

Will house prices continue to rise in 2021? Given how far the US remains from achieving any semblance of normalcy due to the coronavirus, it would seem that restrictive measures will force the Fed to keep its accommodative monetary policy in place for some time to come. Indeed, it stated in late January that it planned to keep its benchmark rate near zero, where it is likely to remain until at least next year, if not longer. The Fed’s review of its monetary-policy framework, which was completed last year, concluded that a new policy framework that “seeks to achieve inflation that averages 2 percent over time” will also ensure that rates remain low until inflation at least moves above its target. Such a scenario seems highly unlikely to transpire in 2021.

“Circumstances are far from being back to the pre-pandemic normal. However, the latest stimulus package and with the vaccine distribution underway, and very strong demand for homeownership still prevalent, robust growth is forthcoming for 2021”, Lawrence Yun, chief economist for the National Association of Realtors (NAR), stated in December. Yun expects home prices to rise by 3 percent in 2021, further underlining that the strong bullish sentiment the US real-estate market experienced during a COVID-wracked 2020 is not going away anytime soon.

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Calgary housing market sees best Q3 since 2014, says real estate board – CBC.ca

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Calgary had its strongest third quarter for housing sales since the price of oil plummeted in 2014, according to the latest report by the Calgary Real Estate Board (CREB).

There were 6,628 sales in the third quarter of this year, a sign that even as the pandemic is continuing to dampen the local economy, Calgary’s housing market remains resilient, says CREB’s quarterly update report released on Wednesday.

The report says much of the growth in demand has been driven by the low interest rates and the fact that many buyers’ incomes were not impacted by the pandemic and in fact saw their savings grow.

Overall, residential prices in Calgary rose by one per cent over the previous quarter and are about nine per cent higher than prices recorded in the third quarter of last year, the report said. 

CREB’s chief economist, Ann-Marie Lurie, says much of the upswing in activity was driven by detached and semi-detached home sales. And she said while supply has risen, it’s still somewhat of a seller’s market in Calgary. 

“Supply-demand balances improved for buyers compared to what we saw in the spring, but the market continued to favour the seller in the third quarter,” she said.

The report says the benchmark price is $538,700 for detached homes. That’s up 10.5 per cent from last year.

In the semi-detached market, the benchmark price is $427,767. That’s up 9.3 per cent from 2020.

For row housing, the benchmark price is $299,933 — 8.5 per cent higher than last year.

And in the apartment-condo market, demand rose in the third quarter, but to a lesser extent, the report says.

“The condominium market never entered sellers’ market conditions like other property types, but at five months of supply, this market is considered relatively balanced,” the report said.

The benchmark price in this sector is $253,533. That’s up by roughly 2.5 per cent year over year.

CREB also notes that, aside from strong resale figures, the newly built side of the market is also doing well, with housing starts up by more than 70 per cent in Calgary. 

CREB says in its report that the boost in the local housing market activity is contributing to an economic recovery that’s also being driven by the uptick in oil and gas prices. 

“This has contributed to employment growth in not only the finance, insurance and real estate sectors, but also the construction industry,” the report said. 

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Why people are paying real money for virtual real estate in the metaverse – Financial Post

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These virtual properties could be vacant parcels for creators to build on, or structures that reflect real-life properties and completely original creations

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Location, location, location. That’s the common phrase for success in the real estate market, and it’s no different when these properties are listed in an alternative virtual reality, called a metaverse.

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The metaverse is a growing topic in tech and some crypto circles, describing a virtual reality space into which users can log in and interact with one another using avatars to represent their real selves. It has been growing particularly in the gaming space with titles like Fortnite, Animal Crossing: New Horizons, Roblox, and many others fostering a metaverse community for players. Social media websites such as Facebook are also pushing into the space with Horizon Worlds and is planning to hire 10,000 people in the European Union over the next five years to help build their vision of a metaverse.

It’s no coincidence that this concept has sci-fi vibes to it, the term “metaverse” was originally coined in science fiction writer Neal Stephenson’s book “Snow Crash” in 1992 to describe a virtual world that people would plug into using their own virtual avatars. Online games like Second Life, which launched in 2003, were a pioneers for metaverse economies, allowing users to trade goods and services using their in-game Linden dollars — including virtual real estate.

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It is also taking off among the decentralized finance crowd with platforms like Decentraland, an online metaverse space that calls itself the first fully decentralized virtual world owned by its users where they create, explore and trade virtual goods using smart contracts on the Decentraland marketplace. Along with virtual clothes and accessories you can purchase using the platform’s native MANA crypto, you can also secure virtual land parcels and estates.

These virtual properties could be vacant parcels for creators to build on, or structures that reflect real-life properties and completely original creations. They are represented by co-ordinates on the metaverse platform where users can meet up using their avatars to socialize and decorate their own spaces with collectibles.

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The possibilities are endless

Andrew Kiguel

Monetizing this space is starting to give rise to metaverse real estate companies, the first being Metaverse Property. Being a nascent industry, the company works to secure a wealth of land assets in the virtual real estate space. It focuses on buying and selling, managing business properties, offering rentals in the metaverse, virtual land development, as well as consultation and marketing. Metaverse Property currently operates on platforms including Decentraland, The Sanbox, Somnium Space, Cryptovoxels, and Upland.

Beyond being virtual landlords and developers, Metaverse Property also says it is creating what it’s calling the first “metaverse real estate investment trust (REIT)”, which will trade through a non-fungible token (NFT) that is backed by the company’s virtual land portfolio.

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With a bullish bet on metaverse real estate, crypto and decentralized financial services company Tokens.com Corp purchased a 50 per cent stake in Metaverse Group this week valued at about $1.7 million, reportedly a record equity investment in a metaverse real estate company.

Andrew Kiguel, the chief executive officer at Tokens.com, explained that the company’s goal is to secure as many virtual real estate land parcels as possible to rent them out to clients.

On platforms like Decentraland, which has seen more than $50 million in virtual sales for goods like real estate, clothes, accessories, usernames and avatars, an outlying parcel in an area less travelled could run a user around $5,000 MANA, or roughly over $4,600 Canadian dollars as of mid-October. These prices can jump up quickly in larger built-out properties in popular zones, with the highest-selling virtual plot of land recorded on the platform being a $1.3 million MANA property in June, equal to about US$900,000 at the time.

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Skeptics might find it bizarre to spend any amount of money on a property that they themselves cannot live in, though Kiguel told the Financial Post that there are valid uses for these virtual properties.

“Really, it’s the foot traffic,” Kiguel said. “So, you might want to build a house to invite friends over, you can decorate the walls with your NFTs, it’s a way of socializing…. COVID drove a lot of this: when the world shut down, people turned to their computers as a means of interacting with people, and so the foot traffic in the metaverse continues to grow at a very high rate.”

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Kiguel added that celebrities like Snoop Dogg are getting into the metaverse as well. In late September, Snoop Dogg partnered with The Sandbox to reconstruct his real-life mansion on the platform’s NFT metaverse. Paris Hilton signed a partnership with Decentraland as one of the headline celebrities being featured on the platform’s first-ever Metaverse Festival slated for October 21 to the 24th. Hilton will be using a Genies avatar, which are animated avatars that can speak using the celebrity’s voice.

With this growing adoption and promotion among brands and celebrities, Kiguel expects that more users will flock to the metaverse space.

“The possibilities are endless. There’s museums and galleries, if you want to go in and see some of the most expensive NFTs sold in the world … you can go to Decentraland,” Kiguel said. “So, the possibilities are really endless, here’s all the different things you could do to attract people here.”

• Email: shughes@postmedia.com | Twitter:
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Real estate cooling with fall temperatures, still on record pace – Winnipeg Sun

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The Manitoba real estate market started to cool off in September, but the province is still expected to smash 2020’s record year.

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There were 1,575 residential properties that were sold last month for total sales of $506.4 million. This is down 12.9% and 9.3%, respectively, from September 2020’s record numbers, but Stewart Elston, president of the Manitoba Real Estate Association said these sales still out-paced September 2019 by 15%.

He said the pandemic push for home offices and bigger yards has died down some but is still a factor. There is, however, an even bigger motivation for homebuyers.

“The pandemic is still playing into it a little bit but by and large it’s interest rates, low-interest rates are still driving the market,” said Elston.

He noted there are consumer protections in place to protect homebuyers in case the low-interest rates shoot up, specifically the stress test required for mortgages.

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The sector is still in good shape to improve on the high-water mark set last year for sales, fuelled by a red-hot spring. So far in 2021, there have been 16,013 residential properties sold, up 23.7% over last year and approaching the year-end record of 16,789 sales. The sector has already surpassed total dollars from 2020 with $5.28 billion in total dollars, up 35.3% over the first nine months of 2020, when the year-end total was $5.1 billion.

There have been 20,362 new listings through September, up 0.3%, and the average sale price of $329,998 is up 9.4%.

Elston said the big shift has come in the sale of condos — which includes apartment and townhouse-style dwellings. While single-home sales are still up 21%, condo sales are up 49% as people look for more affordable options.

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The average two-bedroom condo is selling for about $200,000, and one-bedroom condos are even cheaper.

“For a number of years the Winnipeg condo market was a little on the saturated side, listings took longer for a home to sell,” he said. “Now what we’re finding, we’re not getting a lot of bidding wars on condos or multiple offers, but they’re selling faster and they’re selling for closer to list price. There isn’t the excess of inventory on condos now there either.”

The market slowdown is good news for first-time buyers. As the sector cools the prices will also start to calm down as well.

“I think that’s a good thing and I think that should give any first-time buyer there’s hope of getting into something,” said Elston, who also recommended expanding their neighbourhood search and to consider condos as an affordable alternative.

jaldrtich@postmedia.com

Twitter: @JoshAldrich03

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Postmedia is committed to maintaining a lively but civil forum for discussion and encourage all readers to share their views on our articles. Comments may take up to an hour for moderation before appearing on the site. We ask you to keep your comments relevant and respectful. We have enabled email notifications—you will now receive an email if you receive a reply to your comment, there is an update to a comment thread you follow or if a user you follow comments. Visit our Community Guidelines for more information and details on how to adjust your email settings.

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