Housing Bonds Hit 10-Year High Amid Rising Mortgages
A 57% year-over-year jump in issuance of such bonds seen.
Jordan B.
March 31, 2024
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Good morning. Welcome to the weekend edition of CRE Daily.
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📰 Feature: Housing-bond sales hit 10-year high.
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⏪ Catch up: The most-read stories from the week
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👍️ Reviews: 4 new product reviews on CREDaily.com
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📈 Chart: Multifamily drops due to high borrowing costs.
Today’s issue is brought to you by Calvera Partners.
AFFORDABLE HOUSING
Housing Bonds Hit 10-Year High Amid Rising Mortgages
State and local governments in the United States have ramped up their borrowing to fund affordable housing initiatives, reaching a near $9 billion milestone—the highest in over a decade.
Record-breaking: The first few months of 2024 have witnessed an unprecedented surge in housing-bond sales by state and local entities, totaling nearly $9 billion — a striking increase from previous years.
Case in point: This surge is partly attributed to initiatives by entities like the Michigan State Housing Development Authority, which aims to provide over 2,700 families with more affordable mortgages through a $425M bond sale. Similar efforts are noted in Rhode Island and the ski town of Telluride, focusing on assisting first-time homebuyers and developing affordable rental properties.
Behind the surge: A 57% year-over-year growth in housing bond issuance is seen during a time of comparatively lower borrowing costs in the municipal market despite mortgage rates being double what they were two years ago. This push towards affordable housing is driven by a need to retain middle-class populations, essential for maintaining a stable community and economic base.
Tax-exempt financing: Utilizing the tax-exempt market for borrowing offers a more economical avenue for states and cities to provide middle- and low-income individuals with lower mortgage rates than traditional banking methods. This approach not only makes housing more accessible but also supports the construction of affordable housing units.
➥ THE TAKEAWAY
Why it matters: State and local governments' use of lower municipal borrowing costs to support affordable housing initiatives is providing a crucial lifeline for Americans with tighter budgets, signaling a potential turnaround in the housing market's affordability and accessibility despite recent challenges.
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If you missed the runup in the S&P (or Bitcoin), how can you position yourself to take advantage of a recovery in the real estate market?
Apartment values have already declined 20-30% since 2022. Since 1978, institutional real estate has returned, on average, 9.3% per year on rolling 10-year hold periods. It has also never had a negative return viewing the data this way. And the lowest 10-year return was 6.1%.
⏪ Weekend Wrap-Up
Catch up on the most clickworthy stories of the week.
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Taking the lead: Private investors, notably high-net-worth individuals, have stepped up, accounting for 60% of U.S. commercial real estate transactions in the past two years.
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Metro movements: The AFIRE Survey for 2024 positions LA, DC, Seattle, Dallas, and NYC as leading U.S. cities for real estate investment, highlighting an 84% investor optimism.
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Debt dilemmas: In Chicagoland, multifamily debt exceeds $240M, as entities like Torchlight and Strategic Properties grapple with the challenges of surging loan interest rates.
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Does it pencil? CRE is adapting to tighter lending, facing a new norm where equity investors have the upper hand vs. debt deals.
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Troubled debt: Charles Cohen is battling a $534M lawsuit over unpaid loans on his portfolio of hotels, design centers, and theaters, with his total overdue debt topping $966M.
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Spreading: MSCI's 2023 report shows a peak 24-year spread between corporate debt and CRE mortgages in the U.S.
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Rework: Adam Neumann, the ousted co-founder and CEO of WeWork, is making headlines with a bid to buy back the bankrupt coworking firm he helped create for over $500 million.
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Fee frenzy: Dallas may implement development fee increases of up to 2,400%, generating $8.5M in revenue if implemented immediately.
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Cooling: Since the pandemic, apartment rents in the Western region of the U.S. have grown at the slowest rate in the nation compared to other regions, according to new data from RealPage.
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