NPLA Conference Session Recap: Macroeconomic Outlook for Housing

NPLA Conference, Austin, TX — October 17, 2023
Guest Speaker: Devyn Bachman

Author: Tucker Wade, Senior Director of Legal and Compliance at GoDocs

The NPLA Conference sessions kicked off today with compelling guest speaker Devyn Bachman from John Burns Research & Consulting. The primary focus of the session was the macroeconomic outlook for the housing market, with several key takeaways:

  1. High-Risk Economic Fundamentals: Bachman began by highlighting the shift in economic growth from robust to normal. Inflation, which had soared to 9% a year ago, has now decreased to 3%. Despite this drop, the Federal Reserve remains steadfast in its commitment to the 2% inflation target. Notably, approximately 33% of the core Consumer Price Index (CPI) is accounted for by housing, which could significantly reduce inflation. The market has begun to factor in higher risks, with the current 2.9% mortgage rate spread over the 10-year treasury being one of the highest in 35 years. Bachman further forecasted that mortgage rates will likely exceed 5% over the next several years.

  2. Commercial Real Estate Concerns: The commercial real estate market is poised for a significant disruption as considerable debt is approaching maturity, necessitating recapitalization in the coming years. Capital markets may be hesitant to provide the necessary funds, creating an opportunity for private lenders to step in and revitalize the commercial real estate market.

  3. Implications for For-Sale Housing: Findings from a consumer survey indicate that mortgage rates below 5.5% continue to fuel demand in the housing market. However, due to rate lock-in effects, the resale market is currently stuck in a “gridlock” situation, resulting in limited resale supply. This could lead to a 22% decline in resale volume, reminiscent of conditions not seen since the 1990s. On the bright side, new construction sales are becoming increasingly popular, with builders willing to offer price cuts and other incentives to boost ground-up construction sales.

  4. Implications for For-Rent Housing: At 4.3% year-over-year, single-family rent growth outpaces apartment and build-to-rent (BTR) growth. While apartment and BTR occupancy rates usually follow a similar trend, BTR landlords appear to aim for a higher stabilization rate. The Sunbelt markets are experiencing rapid apartment inventory growth, but transaction volumes in capital markets are slowing down, providing an opportunity for private lenders.

  5. Impact on Flipping: Flipping, as defined here, involves buying and selling a property within a 12-month period. According to the statistics, 42% of flippers consider the current sales market to be “good,” which is an improvement from 36% in Q1 of 2023. The data revealed that 66% of flipped home sales in Q2 of 2023 were driven by consumer activity. However, flippers’ ability to purchase new properties continues to be affected by financing costs.

  6. Market Performance by Region: The session also touched upon regional disparities in housing markets, with the shift towards remote work contributing to changes in the real estate landscape. This shift has created opportunities in the market, emphasizing the importance of both macro and micro trends. As traditional capital market options for commercial real estate and business financing dwindle, private lenders are emerging as a valuable alternative.

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The NPLA Conference’s first speaker session, featuring Devyn Bachman, provided valuable insights into the housing market’s macroeconomic outlook, highlighting the potential impact of shifting economic fundamentals and commercial real estate concerns. As the housing market anticipates higher mortgage rates and addresses commercial real estate disruptions, private lenders emerge as vital facilitators, offering flexible financing solutions to navigate these challenges. Their agility, adaptability, and innovative approaches position them as vital partners in fueling growth, supporting new construction, and revitalizing the resale market— an affirmation of their enduring significance in an ever-evolving real estate landscape.

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