Home prices increased nearly 15% from April 2020 through the end of the year, and another 18% in 2021. Collectively, home prices appreciated 40% between April 2020 and April 2022. 2021 actually had the highest level of existing home sales since 2006, the height of the previous homebuying boom.

As a result, the number of people working in the real estate industry exploded. For some context, loan processor employment increased 23% from Q3 2020 to Q3 2021 as companies scrambled to meet the growing mortgage demand.

However, 2022 has not been as friendly to the real estate industry. Rapidly rising home prices, coupled with high mortgage interest rates, greatly reduced homebuying and mortgage demand. After a 15-year high for home sales in 2021, existing home sales fell 23.8% from September 2021 to 2022.

Mortgage applications were also way down from a year prior, falling 42% from October 2021 to October 2022 to a 25-year low. During the same period, refinance applications were down a whopping 86%.

“The ongoing trend of rising mortgage rates continues to depress mortgage application activity, which remained at its slowest pace since 1997,” Joel Kan, Vice President and Deputy Chief Economist at the Mortgage Bankers Association, said in a statement.

Widespread Industry Layoffs

After a recent jobs boom, the number of loan originators or loan processors has been down 10% since the beginning of 2022. According to reporting from NBC News, there are about 1.6 million realtors, but that number could decline by 25% come 2025 or 2026 due to decreasing homebuying demand.

Many major real estate firms will have reduced their workforce in 2022. In July, RE/MAX announced that 17% of its staff, or 120 employees, would be let go by the end of the year. Wells Fargo began reducing their mortgage staff in April and expects more layoffs shortly as mortgage originations at the firm are down an astonishing 90% from a year prior.

In October, Zillow laid off 300 employees, while Realtor.com laid off an undisclosed number of employees in September. Compass, a large real estate brokerage, also announced that they were going through with a round of layoffs in September.

Layoffs from many prominent real estate brokerages and mortgage firms reflect a tightening housing market with declining demand. Unaffordable home prices, high-interest rates, and low housing inventory will keep homebuying and mortgage demand down. As a result, economists predict home prices will decline substantially in 2023. For example, Moody’s Analytics predicts that home prices will fall 10% next year.

The post Large Real Estate Firms Reduce Workforce as Homebuying Demand Cools appeared first on CitySignal.

According to YIMBY’s Q1 Report, permit activity in Q1 and Q2 were very similar, with only 5 more filings in the first quarter compared to the second. So far, monthly construction permit filings this year are almost twice as high as monthly levels from 2021. It’s also worth noting that a strong Q2 performance proves that positive outcomes in Q1 weren’t a short-lived trend. 

The first six months of 2022 signal a strong uptick in future construction in the Big Apple, and a broader resurgence in a city that was walloped by a declining population, shuttering businesses, and reduced tourism during the Covid Pandemic. 

Q2 Data by Borough

In Q2, Queens led the pack with 309 permits, while Brooklyn came in second with 238. Staten Island was third with 161, followed by The Bronx with 117. Manhattan was in last place by far, with only 32 permits. 

Manhattan had a low number of permit filings in comparison to other boroughs because of its high density. In fact, the average floor area per permit filing in Manhattan was 55,862 square feet, almost three times as high as the Bronx, which was second place at 19,077 square feet. Not surprisingly, Staten Island had the smallest average floor area per permit filing at 4,490 square feet, since most new construction in the borough consists of single-family homes or small multifamily buildings. 

Some of the most enlightening data from YIMBY’s Q2 report are the total residential and hotel units filed per borough. As the most populous Borough, it’s not surprising that Brooklyn came in first with 3,162 units. However, on a surprising note, The Bronx was just behind at 3,115, beating out more populous boroughs Queens (2,303) and Manhattan (1,016). Staten Island was in last place with 401 units filed. 

The Bronx and Manhattan have similar populations, but the former had three times as many residential and hotel units filed during Q2. With the expiration of the 421a affordable housing tax credit, developers may be more reluctant to build new housing in more expensive areas of the city like Manhattan. Developers are likely more keen on The Bronx because the land is cheaper there, which offers potentially greater returns on investment.

New Residential and Hotel Units Fall Significantly in Q2

While the total number of permit filings held steady between Q1 and Q2, there were significantly fewer new residential and hotel units included in those filings during the latest quarter. The decline was steep, falling from 19,337 to 9,997. The only borough to hold steady in the category was The Bronx, with 3,115 units compared to 3,160 units in Q1. Every other borough experienced a substantial decline. 

The Bronx really punched above its weight in this category, recording around a third of Q2’s new residential and hotel unit filings despite only having about 17% of the city’s population. 

Unfortunately, residential development in NYC as a whole isn’t keeping up with demand — and demand for housing in the city is very strong. The apartment vacancy rate in Manhattan declined from 7.59% in May 2021 to 1.55% in May 2022. Additionally, between May 2021 and May 2022, median rents in Manhattan grew 25%, while Brooklyn and Manhattan rents grew by close to 20%.

The post NYC Permitting Activity In Q2 Was Almost Twice as High as it Was in 2021 appeared first on CitySignal.

Fintech startups were one of the most financially backed industries of 2021, securing 21% of all venture capital dollars worldwide. Across 4,969 deals, fintech startups received a generous $131.5 billion in financing. Yet, in 2022, they’re accounting for the third largest number of layoffs globally. Proptech companies raised a record-breaking $32 billion in 2021 but are laying off employees in droves in 2022.

Auspicious startups that were well on their way to billion-dollar valuations and international expansions are now backtracking on hiring promises. An alarming amount of layoffs, hiring freezes, and rescinded offers have spread the tech industry in the last few months. 

Analysts are comparing the phenomena to the dot-com bubble of the late ’90s, where Nasdaq lost two-thirds of its value in just three years between November 1999 and May of 2002. Notable dips in economic activity and talks of a possible recession further exacerbate founder and investor anxieties. 

With venture capital funding down 20% across all industries, founders are cutting costs in case their investors start to get cold feet. 

U.S. Jobs Are Abundant, Unless You Work In Tech 

Fintech has been especially plagued by a lack of investment. The total dollar volume raised by private fintech companies is down 31%, having only reached $27.5 billion so far in 2022. Given that we’re already two quarters into the year, it’s not likely this year’s numbers will be able to compare to last year’s.

Proptech startups, on the other hand, have managed to secure $13.1 billion investment dollars in just the first half of 2022—marking a 5.65% year-over-year increase. Despite these funding wins, several proptech companies have decided to follow the herd and lay off large portions of their workforce. 

As the U.S. economy continues to struggle with the highest inflation since the 80s, investors are strategically shying away from risky investments such as early-stage VC funding and placing their bets on more stable assets. However, newbie startups aren’t the only ones feeling the effects. Established tech companies such as Netflix, Salesforce, and Meta have announced hiring freezes and layoffs, as well. 

The economy doesn’t look great. That’s no secret. But it’s not exactly tanking. Following the Great Resignation, American employees have managed to shift the balance of power back to themselves. Job seekers are experiencing a considerable amount of bargaining power in the quest for new employment. 

In fact, job opportunities outside the tech industry are growing at a healthy pace. According to the Bureau of Labor Statistics, U.S. employers added 428,000 jobs in April alone, marking the 12th straight month of job growth above 400,000. Average hourly wages are also growing (although not at the pace of inflation).

The Economy Doesn’t  Make A Lot of Sense Right Now

More than uncertain, the economy is slightly contradictory. Events that are supposed to be occurring in tandem, aren’t, which makes it that much harder to predict an outcome and answer the golden question–are we headed into a recession?

In periods of inflation wages are supposed to grow. This is because the cost of living rises as our purchasing power declines. However, when adjusted for inflation, weekly earnings growth has actually been falling, even as the job market continues to grow. Growth in the labor market is supposed to indicate economic growth, yet the economy is shrinking.

The numbers are at odds. 

The national unemployment rate is currently 3.6 percent. It’s one of the lowest unemployment rates we’ve seen since the end of World War II. In June of 2020 when the pandemic was at its peak, the unemployment rate shot up to 11 percent. That’s an impressive turnaround in just 2 years. 

But, despite this healthy growth in job opportunities, economic growth has been lagging. The Atlanta Fed’s unofficial GDPNow forecast suggests that GDP is contracting by 1 percentage point annually. Two consecutive quarters of negative growth usually indicate a recession, although not always. 

So if there’s no certainty of a recession on the horizon and jobs are growing in various industries, why is the tech industry witnessing a massive wave of layoffs?

Are Layoffs and Hiring Freezes Necessary?

Financial uncertainty is hardly a deterrence for tech investment. After all, tech investors need a high-risk tolerance, given that startups can take years to finally turn a profit. When the economy is actively expanding, some investors will even forgo profitability for long-term growth. 

However, the investing landscape starts to shift when borrowing becomes more expensive, as it is now. High inflation and high-interest rates aren’t supportive of startup founders in need of funding, leading them to cut back on their most costly expenditures—salaries. 

High-interest rates are particularly unfavorable for proptech startups who work with homebuyers, a demographic heavily impacted by mortgage rates. Many prospective homeowners are waiting for the average 5.70% interest rate on a 30-year fixed mortgage to drop, causing a number of proptech employees to sit idle. 

In 2021, not a single fintech employee was laid off, and in just the first half of this year, a total of 4,189 fintech employees were let go. When looking at the U.S. tech sector as a whole, that number jumps to a shocking 32,000 tech layoffs. 

Tech companies cite lingering effects of the pandemic and overhiring during periods of growth as two of the main reasons for widespread layoffs. Even the most promising tech companies have made significant cuts. Many of these companies began announcing layoffs at the start of the Spring, after less than satisfactory Q1 reports rolled in for some of the companies mentioned below.

Loft

Having achieved a valuation of $2.9 billion in April of 2021, Sao-Paolo-based proptech startup Loft had high hopes for the near future. That same year the company acquired Mexico City-based startup, TrueHome, marking the start of its international expansion. 

According to TechCrunch, $700 million of its impressive $2.9 billion valuation had been acquired in just a matter of weeks. At the time, the company had also claimed it was “the real estate e-commerce platform with the highest revenue in emerging markets outside China.”

On July 5th, Loft announced it had laid off 380 employees, citing “a reorganization of its operation.” In April of this year, Loft had already cut 159 jobs, bringing the total number of layoffs in 2022 to 540. The company currently has about 3,200 employees. 

HomeLight

Real estate referral company, Homelight, laid off 19% of its workforce in mid-June. This came as a surprise to some, given that the proptech startup had successfully secured $60 million in its most recent round of funding. 

In an interview with TechCrunch the company’s founder and CEO, Drew Uher, stated that “This fundraise and acquisition allow us to play both offense and defense — expanding our business while also positioning the company to weather uncertainty this year and into next year.”

Compass

Residential brokerage company, Compass, recently laid off 450 employees representing 10% of its workforce. Having debuted on the stock market at $20 a share in April of last year, Compass is now down 80%, trading at less than $5 a share. In addition to the layoffs, Compass plans to pause its expansion plans to acquire other companies and combine some of its offices. 

Robinhood

Popular trading app Robinhood laid off about 9% of its full-time workforce in late April. CEO Vlad Tenev disclosed in a company blog post that after a period of hyper growth, the company was forced to cut down duplicate roles in order to “improve efficiency, increase our velocity, and ensure that we are responsive to the changing needs of our customers.” Although the total number of layoffs was not mentioned in the article, Techcrunch reports the layoffs affected about 340 Robinhood employees.

Knock

Back in March, Knock laid off 46% of its staff, about 120 employees in total. That same month the company had plans to go public at a $2 billion valuation. However, the company instead only managed to raise $70 million in equity and $150 million in debt via private funding. The proptech startup helps homeowners make an offer on a new house before selling their old one. 

Understanding How Tech Companies Work

In their public announcements, CEOs and founders frequently reference the need to “remain lean” and “improve operational efficiency.” While they can’t come out and explicitly say that tech salaries are an expense they simply can’t afford at the moment, that’s what’s happening. 

Worker wages are large expenditures for any company—but especially tech companies—who are known to offer new employees alluring, six-figure salaries. In the wake of a massive (perhaps miscalculated) amount of growth, tech companies are now struggling to fulfill their promise to rookie employees. 

With the prospects of new investor dollars looking weak and talks of a recession on the rise, founders can’t risk not having enough cash to stay afloat, should the economy tank.  

At the end of the day, startups dance to the beat of the drum of their investors. Founders need to be able to show that they can weather periods of economic distress to secure the trust of existing and future investors. Many startups, if not most, aspire to go public, further extending their financial responsibility to shareholders. 

The Desire To Go Public

Going public provides startups two key advantages: increased capital and a higher market value. When a company goes public, they’re granted liquidity to invest in the company’s growth. Increased liquidity and transparency strengthens trust among investors, resulting in more frequent investments and ultimately, increasing the company’s overall market value. 

Now that Nasdaq Composite is down 22.4% for the second quarter, and has lost 30% of its total value since January, the likelihood of going public is well out of reach for new startups this year. 

“Many technology startups that saw tremendous growth in 2020, particularly in the real estate, financial and delivery sectors, are beginning to see a slowdown in users,” says Andrew Challenger, senior vice president at Challenger, Gray & Christmas. 

Challenger’s statement to Yahoo Finance aligns with what tech leaders have been saying in their company announcements—they simply grew too fast. 

The Effect On Wall Street

Talks of hiring freezes and layoffs have even reached Wall Street, as desires for IPOs and other corporate investments die down. The NY Post reports that in early July, JP Morgan’s investment banking fees had slumped to 54% in the second quarter, and that Morgan Stanley’s equity underwriting fees were off an alarming 86%. 

In June, JP Morgan began laying off hundreds of bankers in the mortgage division. There’s concern that bankers focused on special purpose acquisition companies—a new vehicle for taking companies public, popular among early-stage startups—will be next. 

SPACs, also known as “blank check companies,” allow for startups to bypass the traditional public offering process. Having accounted for half of all U.S. initial public offerings last year, SPACs quickly became a viable alternative for early-stage startups to access capital without having to face the many regulatory hurdles associated with traditional IPOs. 

To meet demand, big banks such as JPMorgan, Morgan Stanley, and Goldman Sachs offered existing and new employees lofty bonuses, making 2021 an exceptional year for the investment banker. Now that SPAC deals are drying up, bonuses are much less likely this time around. 

The Financial Logic Behind Cutting Jobs As A Tech Startup

Latch, a proptech company that raised $152 million in private capital before its debut on the stock market as a SPAC in 2021, has already conducted multiple rounds of layoffs this year. The company recently announced it has reduced 28% of its workforce, amounting to 130 employees. 

Having decreased a stark 80% in value since its June 2021 debut, from $11 to just $2 per share, Latch had to quickly cut costs in order to regain investor confidence and achieve a leaner state. 

Severance payments and operational restructuring is expected to cost the company between $4 and $6 million in cash. However, once the workforce reduction is complete, Latch anticipates it will achieve an annual run rate cost savings of $40 million across multiple departments. Financially, it’s not hard to see why cutting salaries is the best option for startups.

A Call For Hiring Transparency In Tech

When it’s all said and done, startups respond first and foremost to their investors. And when veteran venture capital firms such as Sequoia urge you to cut costs or face a “death spiral” amid economic turbulence—you fall in line. 

In times of inflation, high-interest rates, and stock market lows, investors want to see founders take initiative. Right now, a startup’s success has less to do with how innovative or popular the company is among customers—and more to do with how investors feel about what startups are doing with the money they’ve already been given. To be able to grow in the future, startups feel the need to lay low now.

Still, it’s hard to justify massive and rapid layoffs such as the ones at Coinbase, who laid off 1,100 employees in June, alone. CEO Brian Armstrong cited the possibility of entering a “crypto winter” and the mistake of having “over-hired” as the reason for the cutbacks. 

Most startup founders and CEOs say they now understand that they grew too fast and, unfortunately have to conduct layoffs to achieve sustainability. They’re all saying the same thing in different words. 

It’s unlikely they had no idea whatsoever that widespread tech layoffs were a possibility, if not a probability. If this is the reality of the tech job market, then perhaps startup leaders should be more forthcoming about the longevity of life-changing, six-figure salaries they’re offering new employees.

Tech salaries are enough to change an employee’s life, motivating them to relocate and make life decisions based on the assumption that they are going to stay for at least a few years. 

In an unpredictable environment such as startups and an uncertain economy like now, tech companies could be more transparent in the hiring process, or at least not bite off more than they can chew.

The post Widespread Tech Layoffs and Hiring Slowdowns: Could They Have Been Avoided? appeared first on CitySignal.

The past couple of years haven’t been easy on first-time homebuyers. From being unable to view homes in person due to health restrictions, to having homes go off-market before buyers could even get an offer in, first-time homeownership has never been harder to achieve. 

According to data obtained by Fortune Magazine, the typical home price has increased 20.3% year-over-year. This comes at a time where inventory is scarce and homes are staying on the market for an average of just 18 days. 

Realtors in today’s increasingly competitive market know it’s better to set realistic expectations from the beginning than to promise results they aren’t likely to deliver. 

Putting thousands of dollars towards non-refundable fees and offering tens of thousands above asking price are some of the harsh realities prospective buyers must face to even have their offers considered. 

Difficult buying conditions are partially due to low housing inventory, but they’re also a reflection of a growing market trend—investors putting in hard-to-deny cash offers on homes and then turning them into rentals. This tendency is said to further exacerbate the shortage of available properties for first-time homeowners, but perhaps we should take on a different perspective. 

Real Estate Investors Buy Up Home Inventory

According to Nadia Evangelou, Senior Economist at the National Association of Realtors, close to 2.5 million households shopping for their first home will be shut out of the market this year, amounting to 15% of all first-time homebuyers.

“The more that investors buy up entire communities and turn them into rentals — people don’t have a choice anymore,” says Sarah Ortiz Hilton, a real estate agent who moved from New York to North Carolina in search of a more affordable market. “They either can’t afford to buy anymore, or there’s nothing to buy.”

In the fourth quarter of last year, real estate investors bought up a record 18.4% of homes sold in the U.S—up 12.6% from 2020. Even relatively affordable regions in the Sunbelt are experiencing intense shortages due to corporate influence. 

In Charlotte and Atlanta, investors claimed more than 30% of homes for purchase from October to December of 2021. In Jacksonville, Vegas, and Phoenix, real estate investors bought just short of 30% of available home inventory.

Companies such as Zillow have arguably played a major role in funneling available homes into the hands of investors. Late last year the real estate giant had to offload $2.8 billion worth of houses onto investors after the company reportedly “bought too many.” 

Although Zillow had the intention of buying up property and selling it to prospective homeowners and landlords, its ambitious plans came to a halt when the company found itself with an excess of inventory and not enough conventional buyers to sell to. 

In an effort to make up for its losses, Zillow decided to sell more than 7,000 of its excess housing inventory to “institutional investors.” Although the real estate browsing app still lost half a billion dollars in home value, it wasn’t left with much of a choice after its house-flipping side of the business came to a standstill.

Skyrocketing Rental Prices Further Hinder Chances at Homeownership

As investors continue to dominate home purchases in areas where first-time homeowners are looking to buy—or renters are looking to simply live—it’s obvious who gets the short end of the stick. 

In places like Tampa, where the average studio apartment is renting for 30% more than what it was just a year ago, aspiring homeowners are starting to lose hope. 

“No one is taking into consideration the people who are really trying to live and not just make this a vacation home, or an extended home. We actually live here, and we can’t afford it,” says Crystal Robles to ABC News Tampa Bay. Robles is a Tampa resident in search of a new apartment. 

With rent increasing faster in Tampa than almost anywhere else in the country, it’s hard to believe that in 2019, the city was one of Florida’s most affordable places to live. Currently ranking 4th in the U.S. for the worst change in renting affordability, that’s no longer the case. 

However, it’s worth noting that there are different kinds of real estate investors. Various studies have found that corporate landlords are worse for renters than smaller landlords. Large corporations are more likely to raise rents, evict their tenants, and poorly maintain their properties. 

In 2018, the Department of Housing and Urban Development found that corporate owners in Atlanta were 68% more likely to file eviction notices than local landlords. 

Local landlords Are Better For Renters Than Corporate Owners

It’s hard to say beyond a shadow of a doubt that real estate investors are robbing first-time buyers of their chances at becoming homeowners, when many of these investors are actually local landlords operating under an LLC.

While corporate landlords tend to be more demanding of their tenants, local landlords are often more forgiving, allowing for stable price increases that don’t overwhelm renters. 

For tenants in the process of saving up for a down payment, this consideration on behalf of landlords makes a major difference in their financials and ultimately, their ability to own a home.  

Tenants Pressure Landlords

Local municipalities across the country have taken it upon themselves to combat the encroachment of corporate buyers in their neighborhoods. Tampa residents have requested landlords notify their tenants of rent increases a minimum of 6 months in advance. 

In certain communities throughout Charlotte, homebuyers are required to live in the unit for a year before renting it out, similar to laws in New York regarding subleases. Although this specific measure has been enacted in favor of renters aspiring toward homeownership, some industry officials have described these efforts as discriminatory toward renters. 

“Why should a young family who is not in a position to buy a home for whatever reason be prevented from living in a neighborhood that is close to schools, close to jobs, and other neighborhood amenities?” says David Howard, executive director of the National Rental Home Council. 

“Companies are coming in and trying to satisfy demand [for rental homes]” he adds. He also mentioned that large corporations are doing their part to address supply shortages by building new rental home communities from the bottom up, wielding resources the average local landlord simply does not have. 

These differences in opinion point to perhaps a bigger issue at hand—the ability to live in a better community and enjoy access to quality neighborhood amenities. 

Residents Struggle To Stay In Their Ideal Zip Codes, Regardless If They Rent or Own

Homeownership offers many Americans the opportunity to build wealth and establish long-term stability. However, it’s worth noting that homeownership is not right for everyone at all times. Sometimes renters aren’t in need of a home nor in a position to buy one, they simply need to live in a certain area for an extended period of time. Such is the case Jameisha Wilkes shared with the New York Times.

After months of searching for a home that would keep her close to her mother’s house, her job at a food services warehouse, and her daughter’s therapy for autism, Wilkes gave up and decided to instead rent a one-bedroom within the zip code she preferred. 

Having only been approved for a mortgage of $180,000 in a neighborhood where homes start at $300,000, her chances at becoming a homeowner this year were unfortunately slim. However, her goal of living close to her job, child’s doctor, and mother’s house was achieved. 

Ms. Wilkes’ decision to rent in her ideal neighborhood while saving up for a home speaks to the importance of living in a community that caters to your needs. Ultimately, this is what first-time homeowners are looking for when searching for a house. 

If landlords can find a way to meet renters’ needs at a reasonable price point, then perhaps there’s an alternate solution to the housing crisis, one that doesn’t involve pressuring renters into a home they can’t afford. 

The Rent Guidelines Board in NYC Recently Voted to Increase Tenants’ Rents

Perhaps the housing crisis is felt nowhere more strongly than in New York City, where the median rent for a 1-bed has reached $4,000. The RGB, which is made up of nine mayoral appointees, cast a preliminary vote to increase rents up to 6% last month. Out of the two tenant advocates, two landlord advocates, and five members appointed to act on behalf of the general public, a total of five board members voted in favor of the proposed hikes. 

If approved in the final upcoming vote, one-year leases could increase between 2 and 4% while two-year leases are looking at a 4 to 6% increase. These percentages mark the biggest margins in nearly a decade and would affect the city’s 2.4 million rent-stabilized tenants living in 940,000 apartments across all five boroughs. A third of these tenants are estimated to learn less than $40,000/year for a family of four. 

The last time stabilized rents rose was in 2013, when one-year leases went up 4% and two-year leases saw a 7.75% increase. After almost a decade of Mayor Bill de Blasio’s tenant-friendly RGB and a year and a half rent freeze due to the pandemic, to say NYC landlords are frustrated would be an understatement. Landlords are pointing to increases in the cost of fuel, maintenance, and insurance as reasons for struggling to break even on their rental properties. Many argue that the proposed rent increases aren’t steep enough. 

“These preliminary ranges have proven our biggest fear – that the RGB continues to believe its duty is to operate solely as an affordability program for tenants,” said Joseph Strasburg, the president of the Rent Stabilization Association. “The process is not meant to provide rent relief to tenants – that’s government’s job through subsidy programs – which is why the RGB must now consider the highest end of the preliminary ranges so that owners can meet across-the-board increases in inflation, property taxes, water bills, and heating oil and other operating costs.” 

President Biden Announces the Housing Supply Action Plan

In response to a housing market that is increasingly out of reach for buyers, the federal government has decided to act by releasing the Housing Supply Action Plan. The plan is intended to alleviate the burden of housing costs for Americans across the country by improving the supply of quality housing in every community. 

Over the course of five years, a combination of legislative and administrative actions will help close the housing supply shortfall we’re seeing today. This starts with the preservation of existing affordable housing units and the creation of new ones over the first three years laid out in this plan. 

While building and preserving rental housing for low-and moderate-income families is a priority, it’s not clear whether this will actually help them attain homeownership or further exacerbate the housing crisis. Rental units are profitable ventures for real estate investors and there aren’t many policies limiting just how many of these properties investors can accumulate. 

Rental subsidies and the building of new affordable units may help alleviate the cost of living, but it won’t solve the underlying issue of unattainable homeownership unless real estate investor activity is regulated.  

The post First-Time Homeownership Increasingly Difficult for the Average American Family  appeared first on CitySignal.

The median rent in the borough grew from $3,195 in May 2021, to $4,000 in May 2022, a 25.2% annual increase, but not all regions of the borough are the same. The median rental price is $4,495 in Downtown Manhattan, $4,200 on the Westside, $3,750 on the Eastside, and $2,500 in Northern Manhattan. Rents in Northern Manhattan, the cheapest region of the borough, grew 11.1%, while rents in other regions grew close to 30%. 

Rental prices for studios and one-bedroom units appreciated by 26.3% and 25.0% respectively, much higher than two bedrooms (15.4%) and three bedrooms (8.4%). Higher rental increases among studios and one-bedrooms suggest that rental demand in Manhattan is primarily driven by single professionals, as opposed to families or larger households. 

A lack of adequate housing units is a clear culprit for Manhattan’s rapidly rising rents. In May 2021, the borough had a vacancy rate of 7.59% with 19,025 available listings. In May 2022, the vacancy rate dipped down to 1.55%, with only 5, 776 available listings. Because of low vacancy, rental homes are on the market for an average of only 52 days, down from 107 a year prior. 

Because of low vacancy and high demand, landlords can charge high rents with few concessions. The Douglas Elliman report found that, when factoring in diminishing concessions from landlords, effective rents in Manhattan are up a staggering 29.8% compared to last year. 

The report also revealed data for Brooklyn and Northwest Queens. In Brooklyn, the median rental price is now $3,250, up 18.2% compared to a year prior. Listing inventory is down a staggering 78% from last year, from 13,410 to 2,954, causing headaches for prospective renters in the borough. Northwest Queens isn’t any better. Median rents there are up 19.6% to $2,950 and listing inventory is down 87.5%. 

How to Save on Rent or Negotiate Your Lease Terms

New York City has the most expensive and competitive rental market in the country, so residents need to know how to save on rent. The most obvious answer is getting a couple roommates, as it lowers costs. On top of that, rents on two and three-bedroom apartments didn’t grow as fast as rents on studios and one-bedrooms. Taking a macro view of all the neighborhoods and their average rental prices can also give you an idea of where to find a good starting point to find a place that fits your budget.

Negotiating favorable lease terms will be tough in this market, as landlords don’t have to offer up many concessions to lease their space. However, the average rental listing still sits vacant for about 50 days, so a landlord may be willing to offer up some concessions or slightly reduced rent if a tenant negotiates once their lease is up. The landlord won’t want their apartment to go vacant, but even quality tenants won’t have much negotiating power. 

Another option is offering to sign an extended lease, such as a two year agreement. Tenants may be able to reduce their rent a bit with this method. Of course, having a solid credit score and consistent income will only work in your favor.

The post The Median Rent in Manhattan is $4,000, Up 25% Annually appeared first on CitySignal.

Boom to Bust?

For several years, the real estate industry has been hot, but signs have been pointing to a change in the market. Mortgage rates are on the rise and home sales have been down for several months in a row and are expected to fall further. This week alone mortgage rates went up more than half a percentage point. The average rate of a 30-year fixed mortgage was around 3.5% in January as compared to 6.28% as of Tuesday, according to Mortgage News Daily. This is the highest rate since 2008. At the same time, the demand for mortgages has fallen to its lowest level in over two decades. Home prices which are inflated as much as 20% as compared to last year at this time, coupled with high inflation this year, have made homes unaffordable.

Real Estate Firms’ Reaction to Market Changes

Concerned with the downswing of the market, Compass made the decision to cut their workforce. A spokesperson from the company explained, “Due to the clear signals of slowing economic growth we’ve taken a number of measures to safeguard our business and reduce costs, including pausing expansion efforts and the difficult decision to reduce the size of our employee team by approximately 10%.” This layoff will affect about 450 workers.

The company is also reducing other costs, such as the wind-down of the use of Modus Technologies, a real estate software platform the company purchased two years ago, when home sales were surging.

Redfin CEO Glenn Kelman posted in the weekly blog, “With May demand 17% below expectations, we don’t have enough work for our agents and support staff, and fewer sales leaves us with less money for headquarters projects.” Mr. Kelman also stated that since mortgage rates are increasing faster than at any point in history, it could be years of slower home sales.

The company laid off about 470 employees, which will take place throughout the month of June, or 8% of the total staff. The Redfin staff that is being laid off will receive a minimum of 10 weeks base salary in addition to three months of health care and severance pay that will be equivalent to sales bonuses.

Today, news broke of Zumper laying off 15% of their 300-person staff last Friday. Zumper, like the other companies, stated that these lay-offs were due to revenue, not performance-based.

Cooling U.S. Economy

The cooling off of the real estate market comes at the same time as other parts of the U.S. economy that are showing signs of heading to a potential recession. Many companies have initiated layoffs over the last few months, the most recent being cryptocurrency trading firm Coinbase also announced an 18% layoff of its workers on Tuesday. Latch, a proptech smart lock company that raised $152 million in known private capital cut 130 people, or 28% of its full-time employee base last month. Rhino, another proptech startup that offers an alternative to security deposits laid off more than 20 percent of its staff, or 57 employees, earlier this year.

As economic growth slows and labor costs increase, there will be more layoffs to come. Most likely with higher prices for goods, rising fuel prices, as well as higher mortgage rates, the real estate industry could be in for a rough patch this summer, and possibly beyond.

The post Real Estate Firms Compass and Redfin and More Announce Layoffs appeared first on CitySignal.

Redfin also found that the number of homebuyers touring and offering on homes experienced its largest annual decline since April 2020, just before home prices began to skyrocket. The Redfin Homebuyer Demand Index, which tracks the touring and offering data, found a 12% year-over-year decline in requests for tours and other home-buying services. Searches for “homes on sale” during the week ending May 21 were down 13% compared to last year. 

Additionally, touring activity from the first week of January through May 22 was 29 percentage points lower than the same period in 2021, according to ShowingTime, a home tour technology company. Mortgage purchase applications were also down 16% from a year earlier. 

The data and verdict are in. Significantly fewer Americans are searching for a home to buy, touring a property, offering on a house, or applying for a mortgage. The comparatively low number of home tours, searches, mortgage applications, and offers is due to a combination of high mortgage interest rates and asking prices that make homeownership out of reach for too many Americans. Redfin researchers say that the latest data suggests that home prices may finally start stabilizing and appreciating at a normal clip. 

“The picture of a softening housing market is becoming more clear, especially to home sellers who are increasingly turning to price drops as buyers become more cost-conscious under higher mortgage rates,” said Redfin Chief Economist Daryl Fairweather. “For now, mortgage rates have stabilized, and I expect prices to do the same. This will remove some uncertainty for buyers. That means that as long as a home is priced conservatively, it still has a good chance of selling quickly.”

Americans increasingly can’t afford a home. According to Redfin, the median home sale price was up 16% year over year, a staggering and unprecedented rise. For newly listed homes, the asking price grew an even greater 18%. Home prices aren’t the only factor pushing up the cost of purchasing a home. The average interest rate on a 30-year fixed-rate mortgage is now around 5.1%, a substantial rise from the 2.95% interest rate from last year. 

High home prices and high-interest rates worked together to push up the average monthly mortgage payment by 42% compared to a year earlier, from $1,708 to $2,425.

The post The Housing Market May Be Cooling Down, According to a Redfin Study appeared first on CitySignal.

Working remotely is set to change more than our work lives. It’s also changing the way we spend our money—and consequently, how local governments make theirs. 

In October of 2021, PwC, one of the world’s largest consulting firms, told 40,000 of its U.S. employees they could work from home indefinitely. In December, the law firm Quinn Emanuel Urquhart & Sullivan, did the same. Verizon, which is headquartered in New York, started allowing hybrid employees to come to the office on a voluntary basis. 

What do these changes mean for New York, one of the largest and most fast-paced economies in the country? 

The pressure to return to the office is strong, but mostly one-sided 

Many say the widespread acceptance of remote work is shifting power away from employers and into the hands of employees. While others, particularly those in political office, worry it’s a dangerous workplace trend and a threat to the economy. 

Mayor Eric Adams and Governor Kathy Hochul have voiced their concerns on the matter, urging the City’s 1.3 million private-sector office workers to get back in their cubicles. 

“You can’t stay home in your pajamas all day. That is not who we are as a city.” said Adams when asked about remote work at a press conference earlier this year. “We must socialize to get the energy that we need as a city,” he adds. 

President Biden seems to share the Mayor’s sentiments on remote work, calling on Americans to “get back to work and fill our great downtowns again,” in his State of the Union address.

Biden, Hochul, and Adams aren’t lone wolves in their pleas for a return to the office. A number of politicians and CEOs have expressed their disapproval of remote work as a long-term business practice, claiming it hampers workers’ abilities to collaborate and remain efficient. 

Although united in their message, these power players may not realize how out of touch they sound to Americans who have witnessed rents rise about 16%, home prices go up 30%, and gas prices increase by 78% since the onset of the pandemic. Getting back in the office, which would also mean coming back to the city, is a sacrifice many workers aren’t willing to make.  

Drop in consumer spending adds to the pressure to ‘return to normal’

The New York Times recently reported that as hybrid work becomes permanent in the Big Apple, “the average NYC office worker is predicted to reduce annual spending near the office by $6,730, from a pre-pandemic total of around $13,700—the largest drop of any major city.”

Economists at Instituto Tecnológico Autónomo de México, Stanford University, and the University of Chicago conducted a study revealing how consumer spending is expected to drop across some of the biggest economies in the U.S.

While NYC is destined to witness the biggest reduction in annual spending around the office, LA is a close second at $5,665. San Francisco doesn’t trail too far behind at $5,293, while Atlanta and D.C. can expect a reduction closer to $5,000. 

Furthermore, the absence of Manhattan office workers poses a serious threat to the City’s real estate-reliant tax base. According to the NY State Comptroller’s Office, office buildings in Manhattan supplied more than a quarter of the city’s property tax revenue. These funds are used to fund public services around the city such as schools, parks, and police. 

Public transit systems in the City are also expected to suffer as the growing vacancy of white-collar workers on the Metro could result in service cuts, leaving blue-collar workers who must show up to work in person with limited transportation options.

Small businesses catered to commuters, such as coffee shops, dry cleaners, and food vendors are also left vulnerable to the economic side-effects of remote work. 

Flexible work policies threaten to fundamentally change the largest business district in the country

In late March, about 37% of New York employees went into the office. Compared to the early stages of the pandemic, it’s a strong percentage, but still well below the 90% norm prior to March of 2020. 

Head of human resources at Verizon, Sam Hammock, doesn’t think offices will be occupied at the rate they once were. “It’s never really going to be a return like it was,” he says. “We’re treating people like the adults that they have proven to be over the last 24 months,” citing Verizon’s permanent work from home program. 

Penguin Random House, a New York firm employing close to 2,500 people in the NYC area has stated they have no plans of requiring employees to go back to its Midtown offices. “We have said if you want to move, have at it,” said Paige McInerney, director of human resources at the publishing house. 

After two years of being able to work from home, many employees have already relocated outside of the City into the suburbs and “exurbs” defined by Time Magazine as “places further away from city centers than suburbs and that are less dense than half of American zip codes.”

With thousands of NYC employees having migrated inland to the neighboring suburbs of Hoboken, Jericho, and Norwalk, downtown businesses dependent on commuter spending may have to consider new kinds of clientele.

Remote-first companies are appealing to new talent, especially women

Software startups like Unqork are catching on to the new workplace trend, having recently announced it would become a remote-first company. During the pandemic, the company experienced substantial growth and currently employs 600 workers worldwide. 

“It’s a more efficient way to find talent,” said Gary Hoberman, the firm’s chief executive, about the decision to go remote. 

Unqork was previously headquartered in a 50,000 square foot office space in Manhattan’s Flatiron neighborhood. During the pandemic, the NYC startup reduced its office space to just 8,5000 square feet while growing nearly tripling its employee base. 

Several companies have adopted a remote-first model in hopes of attracting new talent in what has become an increasingly competitive job market for employers. A survey conducted by Accenture revealed that 83% of workers prefer a hybrid work model. 

With a record 5 million more job openings than unemployed people in the U.S., it’s clear that workers are willing to hold out for the right opportunity and are in no rush to get back to the office. This is especially true for women, who are twice as likely as men to say they were only looking for remote work. 

Repurposing of commercial buildings not popular among policymakers

Despite the societal and economic changes ushered in by hybrid work, policymakers have only just begun to grapple with what this means for Manhattan. Zoning regulations continue to prevent underused office buildings from being turned into residential housing. 

The City authorized a $100 million fund to help real estate professionals convert vacant hotels and commercial structures into housing last year. Due to regulatory hurdles, the fund is yet to be accessed by developers. 

New York City comptroller, Brad Lander, believes city leaders have been slow to repurpose Midtown office buildings for education, entertainment, and start-up incubators as well. 

“We are not going back to 100 percent Midtown office occupancy,” says Lander. “The sooner that stakeholders come to grips with that reality, the sooner we can take smart action.

Private-sector employers are adamant about bringing workers back to the office

The slow adoption of commercial building conversions may have something to do with the fact that several employers have every intention of bringing their workers back into the office full-time. Around 46% of companies brought workers back to the office between January and February of this year, compared to just 29% at the end of 2021. 

CEOs such as Jamie Dimon are adamant about bringing back as many knowledge workers as possible to their desks. He sent out his annual shareholder letter earlier this month, stating that about half of his 271,000 employees would be in the office five days a week. It’s worth noting that his company, JPMorgan, is New York City’s largest private-sector employer. 

In his letter, Dimon criticized remote work, stating that it was counterintuitive to effective decision making and “spontaneous learning and creativity.” Certain industries are more likely to require employees to be in-office than others. Many companies in the real estate and investment banking fields started calling back employees as early as June 2020. 

Is the worker revolution a threat to the economy, or just capitalism?

According to a University of Chicago analysis, more than a third of jobs can be performed from home. While many of these jobs are reserved for individuals with a college degree, that’s not always the case, as can be observed with self-taught professionals who have received little-to-no formal training in their fields. 

Many remote-first companies have admitted that their employees are just as efficient, if not more efficient when working from home. So why are companies still resisting flexible work environments?

While politicians and CEOs point toward the survival of small businesses as a valid reason to get back in the office, there may be another reason behind why local governments and big-name companies aren’t buying into remote work. 

Remote work provides employees with considerable amounts of choice throughout the day, taking away mindless routines that naturally feed into the consumer economy. During the pandemic, people started reevaluating the moments that filled their day and emptied their pockets, such as coffee runs, gas station stops, and daycare pickups. 

Perhaps the economy as a whole is not what is under threat, but rather the size of it. NYC, like many other American cities, is resilient and has overcome economic strife in the past. The City is likely to do so again, even if its local economy reduces in volume. 

The post Worker’s Revolution Set to Restructure the NYC Economy appeared first on CitySignal.

Nevertheless, it is also clear that markets have been “heading towards a recession”—at least in the eyes of most economists from all sides of the spectrum—many times before, and everything ended up being alright. So, before you start liquifying your current assets, it will be important to take a closer look at some of the most important financial and economic stories in the news.

Let’s take a closer look at what has been going on over the course of the past week, and how these developments might directly affect your financial well-being.

Federal Reserve Formally Raises Rates

Bounded by its “dual mandate”—to simultaneously minimize unemployment and also minimize inflation—the Federal Reserve decided to raise interest rates by half a percentage point.

While many economists and financial analysts have been expecting this decision for quite some time, the official announcement which was made last week was immediately reflected in other components of the economy.

Whenever the Federal Reserve, currently headed by Chairman Jerome Powell, decides to raise rates, the cost of borrowing will increase, which affects consumers, lenders, homebuyers, and pretty much every other participant in the broader economy. The decision was, as the Fed helped explain in its most recent meeting, fairly logical and unsurprising—unemployment is currently very low and inflation is currently very high, which is usually the prime moment for raising rates. Nevertheless, the economic fallout that results from this decision will likely be felt by nearly all Americans.

NASDAQ Experiences a Terrible Run

The NASDAQ 100—a composite index that includes some of the largest tech stocks in the United States—just completed its worst three-day run since 2020, losing more than $1.5 trillion in value in less than 72 hours.

The most dramatic drop of the tech-dominated index—which includes several multi-trillion dollar companies, like Apple, Microsoft, Amazon, Tesla, and Alphabet (Google)—occurred on Monday, which included a stunning value drop of more than 4 percent. During the most recent downturn, these stocks have collectively lost about 10 percent of their total value.

In total, the NASDAQ 100 Index has lost about 25 percent of its value since the beginning of the year, which has created a sort of snowballing effect as many high-cap investors begin looking for more stable investment options.

It wasn’t just the NASDAQ 100 that saw a sharp drop following the Fed’s announcement last week. The S&P 500 also experienced a 3.2 percent drop, pushing it below the elusive (though arbitrary) 4,000-point cut-off. Keep in mind, markets are typically overreactive to developments in the news, so it is quite possible that some of these losses will be reversed within the week.

United States Commits More Resources to Ukraine

The ongoing war in Ukraine has exhibited a few signs of a possible peace deal but, at least in most cases, continues to escalate. As part of its commitment to helping Ukraine defend itself from the Russian invasion, the United States has committed an additional round of funding to the war effort, with more support expected in the near future (pending congressional approval).

As the war rages on, the United States is contributing an estimated $100 million per day in aid, which consists of a mixture of humanitarian aid (including food) as well as military weapons. Currently, nearly $40 billion in aid is waiting to pass the House and Senate. Supporters of the aid package claim it is necessary in order for Ukraine to defend itself against a much larger force. Opponents claim the package is wasteful and might inadvertently escalate the war. Regardless, it is clear that these financing efforts will have an impact on the global economy.

Gas Prices Back on the Rise

After what appeared to be a brief period of relief, gas prices have once again jumped to record highs. As of Tuesday, May 10, gas prices across the nation are averaging $4.37 per gallon, just a little bit higher than the previous highwater mark of $4.33 which occurred on March 11.

High gas prices affect not only people who are driving but also the cost of most goods and services dependent on transportation. In addition to the ongoing conflict in Ukraine, the current high prices are also likely a result of inflation and supply restrictions introduced by OPEC.

Mortgage Rates Reach Post-Recession High

During a period when the costs of most goods and services have been on the rise, mortgage prices are no exception. According to the Federal Reserve, the average price for a 30-year fixed-rate mortgage is now sitting at 5.27 percent—the highest it has been since 2009. This also represents a significant jump from the market’s all-time low point, less than 3 percent, which occurred in the fall of last year.

Increased mortgage rates have made it significantly more expensive for prospective homeowners to purchase a home—a two percent increase for a $300,000 home can increase monthly mortgage payments by more than $500. However, due to the existence of a genuine housing shortage (and other factors), it appears that the current market is in a very different position compared to the 2007-09 housing crisis.

While none of these trends seem to be present much of a reason for optimism, there is still a lot of time for things to change before anyone should declare we are experiencing a recession. Still, be sure to follow up next week and stay tuned to the most important economic developments.

The post Market Update: May 11, 2022. Gas, Inflation & Rates On The Rise, Market Down. appeared first on CitySignal.

The housing market appreciated roughly 33% since the start of the pandemic, according to the St. Louis Fed. Overall, American homeowners gained a collective $6 trillion in wealth via homeownership in that timeframe, almost exclusively through home appreciation. The $6 trillion estimate from the Federal Reserve doesn’t add up all of the equity in rental properties, so their number almost certainly undercounts the true figure.

The rapid appreciation in home prices makes it tough for first-time buyers to enter the market, but a huge percentage of families and individuals already own a home. Around 65% of American households are homeowners, so the gold mine that is the housing market positively affected a huge swath of the country’s population. 

Even for homeowners, there are some downsides to rapidly inflating housing costs, such as higher property taxes or more expensive maintenance and repair costs. Real estate is also highly illiquid, meaning most homeowners haven’t cashed in yet. However, real estate turned out to be a lucrative investment for those who purchased a property before 2020, or in the early days of the pandemic. 

Since homeownership is the primary wealth builder in America, the rise in housing costs only works to expand the wealth gap in America. Individuals and families who didn’t own a home before 2020 increasingly can’t afford to do so, and they didn’t benefit from the rise in wealth from the latest surge in housing appreciation. 

Not surprisingly, the wealthiest households benefited from the largest gains in home appreciation since they own the most expensive properties. However, the gains in wealth greatly affected the entire 65% of Americans who own a home. In fact, the NY Times reports that the poorest fifth of households experienced billions of dollars in home equity appreciation since the start of the Pandemic and the steepest increases in wealth on a percentage basis. Since homeownership increases with age, older generations benefited from home appreciation the most, with Gen X and Baby Boomers far outpacing millennials. 

“For large swaths of U.S. households, this is great,” said Michael Lovenheim, an economist at Cornell. “And it’s not just for the super-rich, and it’s not just for those who live in the big superstar cities.

Black Knight, which provides data on the mortgage market, estimated that the typical homeowner with a mortgage gained roughly $67,000 in tappable equity over the last two years. Tapple equity represents the cash that homeowners can take out of their home’s equity, while maintaining at least 20 percent equity in their property. 

The average interest rate is now around 5.0%, but rates were much lower over the course of 2020 and 2021, allowing many homeowners to refinance their loans at lower rates. In November 2021, Black Knight reported that Americans saved a collective $14 billion by refinancing their mortgages since the beginning of the COVID-19 pandemic. Another 5.5 million Americans tapped into their home equity through cash-out refinances in the 18-month period, saving a combined $322 billion.

The post Home Appreciation Contributes To Generational Wealth appeared first on CitySignal.