Real estate in central Arkansas’ retail and office markets seems to be positioned for a revival in the coming months after almost two years of struggling through the pandemic.

Workers left their office desks in spring of 2020, and the retail sector was walloped by shutdowns and wary shoppers who stayed away in favor of going online for goods and clothing. Both real estate sectors were decimated as the pandemic lingered, and the office market remains cloudy, with work from home a popular option that many employers are supporting today.

Real estate activity in central Arkansas in the second quarter “saw more office and retail transactions come through than in previous quarters, signaling a potential comeback,” Colliers of Arkansas reports in its quarterly analysis of market trends.

Some interesting trends are developing in Little Rock’s office market in the first wave of post-Covid lease renewals, with some companies maintaining a hybrid work environment while small companies are expanding into more space.

Owner-occupied offices were picking up in the quarter with the sale of two buildings at Westlake Corporate Park, located between Kanis and Bowman Roads and Interstate-430, and the sale of downtown high-rises, the Bank of America tower and Regions Center, both on Capitol Avenue.

Colliers reports the “retail industry (is) getting stronger – particularly restaurants – with no signs of slowing down anytime soon.” As evidence, the report points to the sale of the Riverdale Center on Cantrell Road and Breckenridge Village on Rodney Parham Road, both transactions in May. Arkansas investors purchased the shopping centers and have plans for significant investments to revitalize the properties, which were developed in the 1980s.

“Re-developments such as these signal a renewed interest in retail and should help with the higher vacancy rates at both shopping centers,” Colliers said.

Another shopping center from that same era, Pavilion in the Park, was sold last week to longtime commercial real estate developer John Flake.

Though Colliers indicates trends point to more growth, vacancy rates in office and retail both increased in the quarter. Retail jumped up a full percentage point from 13.2% in the first quarter to 14.2% last quarter. Office vacancies were up just a bit, moving up from 14.1% in the first three months of the year to 14.3% last quarter.

The industrial real estate sector, which has registered strong results for several quarters, remains the highlight of the market. Colliers notes all the most significant leases finalized in the second quarter were in the industrial sector.

“Industrial space continues to fill up and is now beginning to be hard to find,” the report said. “As a result, several speculative buildings are in play, with most of these in the east Little Rock and North Little Rock submarkets.”

SMALL BUSINESS SUPPORT

The Arkansas Small Business Technology and Development Center is holding in-person and virtual events throughout August to support and promote the development of small businesses across Arkansas.

In-person events begin Tuesday in Arkadelphia with a session for small businesses to meet key lenders in the area. A workshop on small businesses loans will be held Wednesday in Russellville, followed by a session providing marketing tips on Thursday in Piggott. Other sessions highlighting services available to small businesses will be conducted in Jonesboro, Fort Smith, Russellville and Ozark later in the month.

Virtual events also begin Tuesday with a session on how businesses can gain visibility by using Google search and maps. Other sessions will offer tips and information on gaining research grants, starting a business and the key building blocks for successful businesses.

A calendar of events is available at: http://asbtdc.org/asbtdc-events

STARTUP WEEKENDS

The Little Rock Venture Center and Startup Junkie of Fayetteville are partnering to host Startup Weekends beginning Aug. 26. The sessions provide 54 hours of training and tools to help entrepreneurs learn how to work and build a startup business.

The weekends will be creative and collaborative sessions that include mentors, investors, business co-founders and sponsors to show entrepreneurs how to get more done faster. Sessions will offer tips and insight on pitching, creating a business model and marketing initiatives among other topics.

The first weekend will be Aug. 26-28 in Fayetteville at 1 E. Center St., beginning that Friday at 6:30 p.m. and ending at 9 p.m. Sunday. A similar session will be held for central Arkansas entrepreneurs Nov. 11-13 at 417 Main St. in Little Rock.

More information is available at venturecenter.co or startupjunkie.org.

BACKING WOMEN BUSINESSES

Ten businesses owned by Black women have been selected to participate in the Women’s Foundation of Arkansas’ next economic mobility hub cohort. This third cohort increases the foundation’s grants to $150,000 devoted to businesses owned by Black women since the program began in 2020.

The hub is a statewide initiative that supports Black entrepreneurs from across the state through a six-month program that provides support services, training and resources, including $5,000 in unrestricted grant funds.

“With the launch of our third cohort, the WFA will continue our commitment to provide resources and technical assistance to women business owners in an effort to promote economic mobility and shrink the wealth gap,” said Kara Wilkins, who coordinates hub activities.

Participants in the third hub include: Kanesha Adams of Bearapy in Pine Bluff; Melanie Battles with Scholars for the Soul: An Educational Solutions Firm in Bryant; Akissi Brooks of Ambitious Girls Inc. in Sherwood; Janette Cross of JValenciaACTS and Whitney Dobbins of Girly Girls Mobile Spa and More, both in North Little Rock; LaTasha Moore of Tasha Teaches Spanish, Quinyatta Mumford with Mumford and Associates, Brittany Roy of Sweet Stuffed and Whitney Spencer of CROWN Salon Studio, all in Little Rock; and Ashia Shelton with Ari’s Glow Candle Co. in Brinkley.

Column ideas or recommendations? Thoughts or musings that need pursuing? Contact me at [email protected] or at (501) 378-3567.

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If the record breaking temperatures across the Garden State the past few weeks have made you long for a pool, we hear you.

Pools have become an attractive selling point to home buyers ever since the coronavirus pandemic focused people more on staying home — and having ways to entertain the family.

“Since everybody feels the pandemic is here to stay, outdoor entertainment is a huge plus and attraction for buyers,” said Jena Demarco of Crossroads Realty in Toms River. “A pool, a jacuzzi or an upscale patio is sometimes the highlight of the home.”

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Florida Realtors economist: Today’s homebuyers stress over inflation and rising mortgage rates, which are pushing buyers to lower expectations and find something quickly.

ORLANDO, Fla. – We know that the process from offer to close is one of the most stressful for even a seasoned Realtor®. A hiccup on a credit report, an unexpected issue in the inspection – it seems nearly anything can potentially scuttle a deal before everyone gets to the closing table.

Financial issues are among the top issues for homebuyers, particularly among the 87% of buyers who finance their home purchase, according to the National Association of Realtors’ 2020 Profile of Home Buyers and Sellers. Those who obtain loans finance approximately 88% of their purchase.

For buyers who managed to save a down payment in the last few years, several obstacles stand in their way. Housing inventory plummeted when many people stopped putting their homes on the market, even as demand skyrocketed from people moving out of city centers to sunbelt markets during the pandemic. As a result, out-of-state buyers continually outbid local buyers thanks to large cash-outs after selling a home in a higher cost area.

But this is old news.

The new challenge facing today’s buyer is the rapid pace of economic challenges pushing against them, namely inflation and increasing interest rates.

Their nest egg of a down payment is worth less today than it was a year ago since yesterday’s dollar only stretches to about 92 cents today (accounting for approximately 8% inflation). Inflation also hampers their ability to keep saving, as the same basket of goods today costs more than it did a year ago.

While inflation has always been at play, the current inflation rate is at a 40-year high, and wage growth hasn’t risen enough to overcome the impact of pricier goods and services. Instead of putting $500 per month in their savings account, for example, people increasingly dip into money usually set aside for savings just to cover their increased cost of living.

But more astonishing is the pace of interest rate increases on a mortgage.

The Fed increased the Federal Funds Effective Rate significantly over the past few months in an effort to address the impact of inflation. On July 27, the Fed raised the interest rates on the Federal Funds Effective Rate by another 0.75% to 2.33%, the second large increase in the same number of months. The real estate industry is particularly impacted by fluctuations in this rate, as mortgage rates typically track alongside.

While everyone foresaw interest rate increases, the speed of those increases was relatively unexpected. Buyers who started looking for a home in January 2022 with a certain budget in mind have likely changed that budget considerably in just the last six months.

Since the Fed increases were expected, many argue that the market already priced those increases into the 30-year fixed rate mortgage, and that interest rates on loans may be at their peak. Still others see more pain to come since the Fed indicated there will be more increases this year and possibly into 2023.

Either way, mortgage rates, while historically still in the low end, are well above the 5-year average of 3.78% and have increased over 2 percentage points just since January 2022.

Rate increases have certainly been seen before, but never at this pace. These increases are enough to completely knock a buyer out of the market if they were already on the edge of affordability to begin with.

Fortunately, market forces that could dampen the rapid pace of price growth are falling into place. With inventory also increasing lately, there is some hope among buyers that prices will begin to soften as more supply helps absorb a still-strong wave of buyer demand.

Still, prices are over 20% what they were a year ago today. That, coupled with higher interest rates, ultimately depresses the purchasing power of buyers, particularly among first-time buyers who can’t benefit from cash-out equity to fuel their down payment.

So, what’s a Realtor to do?

Understand these factors are changing more rapidly than in a typical market and have those conversations early and often with your buyer. Know how close to the margins they are, and if another rate swing comes down soon, can they absorb it or will it knock them out of the game? Get honest about their monthly expenses now before you get too far – are they able to keep fully contributing to their savings during this time of high costs, or are they starting to flatline?

Finally, have them revisit their expectations. Perhaps it’s time to consider a different zip code or property type.

Use SunStats to show them the trends in their area for the different property types they are considering.

The step to homeownership may look a little different now than it did a year ago – but there are still steps out there to take. It just may take a little more creativity to overcome obstacles and get your clients into a home.

Jennifer Warner is an economist and Director of Economic Development

© 2022 Florida Realtors®

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Originally Appeared Here

Brittney Levinson joined The Canberra Times in 2021 as part of ACM’s national property team. As the region’s dedicated property journalist, Brittney covers everything from real estate trends and new developments through to the stories behind the record-breaking sales. Got a news tip? Get in touch: brittney.levinson@canberratimes.com.au

Brittney Levinson joined The Canberra Times in 2021 as part of ACM’s national property team. As the region’s dedicated property journalist, Brittney covers everything from real estate trends and new developments through to the stories behind the record-breaking sales. Got a news tip? Get in touch: brittney.levinson@canberratimes.com.au

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Boston, Massachusetts–(Newsfile Corp. – August 1, 2022) – Boston Realty Advisors, the largest Boston-based independent real estate brokerage, is exclusively representing the owners of 95 Sam Fonzo Dr. in Beverly, MA.

To view the full announcement, including downloadable images, bios, and more, click here.

Key Takeaways:

• With the Northern Boston Industrial Market having a significantly smaller industrial footprint than the West and South Markets, there is continued demand from tenants.

• The building has 70 parking spaces and is well suited for cold storage, storage, distribution, or other uses.

Click image above to view full announcement.

ABOUT BOSTON REALTY ADVISORS

Founded in 2001, Boston Realty Advisors is a Boston-based, privately held, locally operated real estate firm. BRA is data-driven, with real-time insight on real estate trends ranging from commercial and residential development to debt and equity markets. BRA applies industry experience to inform decisions, manage risk, and maximize profitability for its clients. For more information on BRA, please go to www.bradvisors.com.

Contacts:

Tom Palmer
617.755.7250
tom@tompalmercommunication.com

Source: The Broadway Company

To view the source version of this press release, please visit https://www.newsfilecorp.com/release/132466

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While overall new home construction slowed during the first six months of 2022, closing of homes $1 million and higher rose 16 percent over 2021. But even in that price segment, builders are seeing buyers more cautious about purchasing.

Las Vegas-based Home Builders Research reported 235 closings of new homes of $1 million and higher during the first six months of 2022, 16 percent higher than the 203 in the first six months of 2021.

That rise, partially attributed to increasing costs to build homes that push the sales prices higher, is a part of a continuing trend since the pandemic for luxury homes, especially for those relocating from California.

There were 52 such luxury new-home sales during the first six month of 2017; 87 in 2018; 123 in 2019 and 115 in 2020, when the housing market briefly paused at the start of the COVID-19 pandemic.

The number of luxury new-home sales even picked up during the second quarter of April through June, even when interest rates started to rise and fear of a potential recession increased. There were 134 closings in the second quarter, up from 101 between January and March. In 2021, there were 112 luxury closings in the second quarter after 91 in the first quarter.

The strength in the luxury new-home sector mirrors that of the existing home market of $1 million and higher, which is also doing better than the overall market.

Net new-home sales overall fell 20 percent for the first six months of 2022 while closings fell 0.3 percent during the same period, according to Home Builders Research.

There was an 11 percent increase in luxury closings during the first quarter, surpassing the new-home market overall that declined 2 percent in closings, Home Builders Research reported.

Blue Heron CEO and founder Tyler Jones, a luxury builder that continues to expand its footprint in Las Vegas, said the dynamics with the slowing economy, high inflation and rising interest rates has caused people to “hesitate on decisions and people dragging their feet a little bit before deciding when they’re ready to pull the trigger.” He called that, however, a “mild shift.”

Jones said he remains positive about luxury home sales in Las Vegas given the momentum the market has had and hopes the national economy has a soft landing without a major recession.

“When it comes to the real estate side, we haven’t changed our strategy at all,” Jones said. “We think there will continue to be a very high demand for luxury homes in the market. We’re still looking at new projects and are very busy in our sales offices. I think the big factor for Las Vegas luxury real estate is the California exodus, and that’s the most certain. There will continue to be people trying to leave California for tax and political reasons. There’s a lot of demand and not much supply for those people. Vegas is well-situated to be a place that will continue to realize that in-migration.”

Jones said the interest rate increases correlate to a decline in home sales in the overall market in Las Vegas at lower price points but not in luxury.

“These are people that aren’t as affected by interest rate changes,” Jones said. “If you’re going to buy a multimillion-dollar home, and interest rates go up a point, that’s not going to stop you from buying the home.”

Erika Geiser, the vice president of marketing for Christopher Homes, said it’s not surprising that there has been a slowdown in people buying luxury homes, but that it won’t last. Part of the matter, she said, is that it’s summer and July and August are historically slow.

In previous years when people weren’t traveling, summer sales in luxury were stronger.

“Our buyer is on vacation and they’re not coming to Vegas when it’s 114 degrees,” Geiser said.

Earlier this year, Christopher Homes started converting 17 reservations into contracts for its SkyVu project in MacDonald Highlands during the second quarter. It has 102 home sites built on the mountainside with views of the valley.

“We’ve had some fall out,” Geiser said. “We only had a couple of sales in June, when it started to slow. It was slow in July and we anticipate it will be the same in August, but that’s the way it is, historically.”

The SkyVu detached homes range from 2,800 square feet to more than 6,200 square feet and are one or two stories. The average sales price including the lot and base price of the home sold so far is $3 million.

Geiser said their buyers aren’t worried about interest rates and that’s not driving their behavior.

“They are certainly worried about their stock portfolio dropping 25 percent,” Geiser said. “When they are purchasing a second home or third home, and it’s a discretionary decision, it does cause pause if their portfolio dropped.” Geiser already expects buyers to return in September and October.

“They will schedule appointments,” Geiser said. “A lot of them will be back from Europe.”

Overall, for the entire new-home market, sales have slowed and prices have leveled off, and that’s good, Geiser said.

“That’s not a bad thing, but I still see the luxury market being viable starting back up in September and October after the 115-degree temperatures have subsided a little bit.”

Tri Pointe Homes Division President Klif Andrews, said sales remain strong in its Overlook community in Redpoint in Summerlin where the builder’s homes start at $1 million. Tri Pointe started selling Overlook with its 90 home sites in October and has had 55 sales so far.

“The luxury segment is doing well,” Andrews said. “We’re seeing cash buyers in Overlook at a time when the stock market is a little wobbly. The high end of the market is actually stronger and gets a lot of support from out-of-state buyers, primarily from California. The (lower end of the market) is slower right now. Those interested in making a lifestyle change — that part of the market feels solid.”

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Donald Trump endorsed Republican gubernatorial candidate Tudor Dixon days before the August election, ending months of speculation whether the former president would get involved in the race at all.

Calling Dixon a “conservative warrior” in a statement, Trump said Dixon “will stand up to the radical left as they try to indoctrinate our children and is ready to take on one of the worst governors in the nation, Gretchen Whitmer, who is trying to destroy Michigan and our country.”

Dixon, in a statement, said the endorsement was proof she had consolidated Republican support across Michigan.

“It is a great honor to receive President Trump’s endorsement and have the strength of our campaign to defeat Gretchen Whitmer further affirmed by his support,” Dixon said in a statement. “Our vision for a family-friendly Michigan clearly resonates with voters. It is the reason our broad coalition is growing.”

Trump took his endorsement down to the wire in this five-way primary, but teased the move Friday morning with a post on his social media website Truth Social by saying he was giving Republican gubernatorial candidate Tudor Dixon a “good, hard look.”

In the endorsement he also took a fair bit of credit for Dixon’s political success, noting “when I met Tudor Dixon, she was not well known, but I could tell she had something very special.”

“After recognizing her during my rally speech in April, her campaign took off like a rocket ship,” Trump said in the statement. “The great people of Michigan got it — just like I did.”

But with so little time before the Aug. 2 primary, it might make the long-awaited endorsement less than the seismic shift in the race it could’ve otherwise been, political consultant John Sellek said.

“Normal people who are voting in the primary … they’re out enjoying the summer, they’re on vacation, they’re at the lake, they’re barbecuing, they’re exercising,” Sellek said. “They’re not just sitting around waiting to find out what Trump did.”

Dave Forsmark, a Republican political consultant, said Trump’s endorsement “might give her a 10% bump.”

“I’m sure it probably sows it up for her in the primary and then gives the Democrats something to talk about in general,” he said, a sentiment Sellek shared.

Dixon is facing Mattawan chiropractor Garrett Soldano, Bloomfield Hills businessman Kevin Rinke, Farmington Hills pastor Ralph Rebandt and Allendale real estate broker Ryan Kelley for the nomination. The winner will face Gov. Gretchen Whitmer in the November general election.

A slew of polling in the final month of the race has affirmed that the race is still largely undecided, but the most recent survey from Trafalgar Group released Friday had Dixon in the 28% support. With about 20% of likely Republican primary voters still undecided, Soldano, Rinke and Kelley were in a statistical tie with between 13% and 19% of voters supporting them.

While campaigns had speaking months wheedling Trump aides and making pilgrimages to his Florida resort Mar-a-Lago, Trump may have seen Dixon most recently. She appeared Thursday night on a Fox News Channel show hosted by pundit Laura Ingraham.

Trump is said to be a devoted watcher of the channel and has previously called into Ingraham’s show unannounced. Ingraham was effusive and said Whitmer was “terrified” of Dixon.

“Tudor, we need a conservative, female governor in one of our battlegrounds states and you would be it,” Ingraham said before imploring viewers to vote.

Dixon used the appearance to respond to a $2 million ad purchase from the Democratic Governors Association. Using a PAC called Put Michigan First, the DGA ad claimed Dixon’s plan to remove Michigan’s income tax would also slash funding for law enforcement.

Trump’s apparent indecision had Dixon’s more grassroots-focused counterparts taking to social media with direct pleas to the former president. The crux of their argument has dogged Dixon, the establishment favorite, in some MAGA circles: her endorsement by the billionaire DeVos family means she’s disloyal to the former president.

It’s because Betsy DeVos, Trump’s former education secretary, considered invoking the 25th Amendment of the U.S. Constitution to remove Trump from office in the wake of the attack on the U.S. Capitol Jan. 6, 2021. But on Friday MIRS News reported Betsy DeVos had sent her former boss a hand-written appeal to back Dixon.

“To make sure we beat Gretchen Whitmer – America’s worst governor – in November, the best thing we can do is work together to elect Tudor Dixon,” she reportedly wrote in the letter obtained by MIRS. MLive could not independently verify the letter’s legitimacy.

The DeVos family looms large in Michigan Republican politics and their backing has brought millions of dollars to Dixon’s aid — including more than $1 million of their own wealth through donations Michigan Families United.

Mattawan chiropractor Garrett Soldano, who is relying on grassroots support to bring him victory in the primary, uploaded a video to YouTube last week pleading with Trump to stay out of the race.

“You have some great candidates that are duking it out right now the grassroots will be extremely, extremely upset if you back the establishment candidate,” Soldano said in the video.

Soldano later said he believed an endorsement had been on Trump’s desk — but not with his name on it. Allendale real estate broker Ryan Kelley posted a Facebook video Friday urging Trump to endorse him.

Kevin Rinke was perhaps the only candidate in the race who hadn’t appear to be openly courting Trump’s favor at the onset of his campaign. Still, recognizing the enduring influence of Trump within the primary, Rinke has spent huge sums in the final weeks of the primary attacking Dixon and claiming she was a RINO, a Republican in name only, comparing her to others who had “betrayed” Trump. Rinke also ran ads boasting “President Trump doesn’t back down — neither will conservative businessman Kevin Rinke.”

Dixon has now retorted back with ads of their own, calling Rinke “losing and desperate.”

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Despite the sweltering heat, real estate’s red-hot tear is, at long last, slowing down and chilling out.

In our series “How’s the Housing Market This Week?” we look at the four crucial indicators: home prices, new listings, days on the market, and mortgage rates. For the week ending July 23 (the most recent research available), all four are showing noteworthy shifts that suggest that the raging seller’s market of the past two years might be balancing out.

This is potentially good news for homebuyers but not so much for sellers, who are on edge and worried they’ve missed the peak to cash in. Given things are changing fast, here’s the information you need right now to navigate today’s treacherous market prepared.

Weekly Housing Trends.

(Realtor.com)

1. Asking prices are still up, but getting cut left and right

The latest June data from Realtor.com® places the median home price nationwide at a record-setting $450,000. And, for the week ending July 23, the median listing price continued its 32nd straight week of double-digit growth, shooting up by 16.6% over last year.

However, these sky-high asking prices are just that: an ask. And buyers just aren’t biting like they used to. As a result, the portion of home sellers who resorted to cutting their price in June doubled to 14.9% from 7.6% last year.

“Although home prices have not retreated, homeowners seem to be aware of the shifting market dynamic,” Realtor.com Chief Economist Danielle Hale points out in her analysis. “And it may already be affecting their willingness to sell.” (More on that next.)

2. Fewer homes are going up for sale

The number of new listings on the market dropped by 6% year over year for the week ending July 23—that’s the third straight week of decline.

This means homebuyers have fewer properties to check out, although inventory overall (including new listings as well as oldies still up for grabs) is up by 30% over a year ago.

“The improvement for buyers essentially means they have four choices today for every three they had one year ago,” Hale explains.

Nonetheless, to put this in a larger context, active listings for the entire month of June remain less than half their level a year earlier.

“Today’s shoppers have more options,” Hale says. “But the market needs even more before the selection is on par with the pre-pandemic or even the early-pandemic housing market.”

3. The pace of home sales has hit a turning point

For the week ending July 23, homes lingered on the market for the same amount of time as last year. While the latest monthly figures show homes getting snapped up within 32 days, this breakneck pace seems to be finally bottoming out.

“For the first time in two years, weekly data show that homes aren’t selling faster than in the prior year,” Hale explains. “They’re not yet taking longer to sell, but if recent trends continue, an increase in the time a home sits for sale is on the horizon. That should eventually help alleviate buyers’ sense that they need to rush to make an offer.”

4. Mortgage rates dipped

According to Freddie Mac, for the week ending July 28, the average 30-year fixed mortgage rate dropped to 5.3%—down from the previous week’s average of 5.54%.

Yet whether this momentary reprieve for homebuyers will last is anyone’s guess. Adding to the turmoil, the Federal Reserve approved yet another interest rate hike on Wednesday of three-quarters of a percentage point—the fourth increase in five months—in its ongoing fight to curb inflation by dampening Americans’ desire to spend (or borrow, as most do for housing).

And so far at least, the Fed’s efforts appear to be having the desired effect on homebuyers, many of whom are thinking twice about whether to forge ahead.

“As inflation continues to exceed expectations, data show that the Fed’s policy adjustment is cooling housing demand,” Hale says. Plus, “the forward-looking pending home sales data suggests further cooling on the horizon.”

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Inflation has become public enemy No. 1, and the U.S. Federal Reserve has put a big, broad target on its back.

The Fed is desperately attempting to battle fast-rising prices on everything by raising its short-term interest rates yet again on Wednesday—this time by 0.75 basis points, or three-quarters of a percentage point. But what impact will these continued salvos have on America’s already stressed housing market? And how closely are housing and inflation tied together, anyway?

Inflation, it has become exceedingly clear, is one of those things that everyone knows, most people fear, but few people truly understand. Even fewer are aware of the outsize role that the housing market plays in driving it up. And how, in order to tame it, the Fed will first have to get the runaway prices in the housing market under control—even if it means making things a whole lot worse before they get better.

Confused? You’re not alone. But here’s a simple fact: The Fed’s attempts to wrangle inflation are expected to make the cost of buying or renting a home more expensive for now. That’s expected to push the inflation the Fed is fighting even higher.

“Is it the chicken or the egg? The rising rates are causing housing prices to rise,” says Kelly Mangold, principal of RCLCO Real Estate Consulting. “The Fed is seeing that rise, and the Fed is raising its rates more to temper this.”

Inflation makes it difficult for consumers and businesses to accurately budget for the future. It also discourages saving as money is worth less in the future. Many folks won’t want to wait on buying something if the cost is expected to increase if they wait.

The Fed’s goal in raising its rates is to make it cost more for consumers and businesses to borrow money, such as putting a purchase on a credit card, so that demand falls. That should help stabilize prices.

But it’s a delicate dance as every increase pushes the nation’s economy even closer to another recession. And while the Fed can influence demand, it can’t control the supply chain problems and the war in Ukraine, which have made many coveted items more scarce.

So what exactly is inflation? And what sort of role does housing play in it?

How does the Fed measure inflation?

The Fed measures inflation mainly through the Consumer Price Index. The U.S. Bureau of Labor Statistics measures the prices over time of about 200 categories of goods and services like food, energy, cars, apparel, medical care, and housing.

Last month, inflation spiked 9.1% compared with a year earlier. A healthy annual inflation rate is only about 2%.

The Fed also looks at the Producer Price Index, which looks at the inflation experienced by producers and businesses. The prices of construction materials such lumber, drywall, and windows are included in this index.

Housing, which includes rents and the estimated costs of homeownership, makes up about a third of the goods and services that are measured for inflation. It rises to over 40% if furniture and utility bills are factored in. So when people spend more to renew their leases or the prices of homes for sale spike, it shows up in the inflation data that the Fed monitors closely.

“Housing leads the economy,” says Robert Dietz, chief economist of the National Association of Home Builders. “Housing is often the first sector to experience weakness during a recession, but it’s often the first sector to rebound as well.”

Why the Fed is making the housing market even more expensive as it attempts to cool it down

Ironically, the more the Fed raises its rates, the more expensive housing becomes. That heightens inflation even further. Since the Fed’s main tool to fight fast-rising prices is to raise its rates, it can become a bit of a spiral.

When the Fed raises its short-term rates, mortgage interest rates generally follow a similar trajectory. They tend to bump up each time the Fed announces another rate hike. As mortgage rates go up, it becomes more expensive to borrow money to buy a home. That prices many would-be buyers out of the market.

The Fed is betting this will temper the out-of-control price growth seen since the COVID-19 pandemic began. In one sense, it’s already working: The housing market has slowed down, sellers are slashing prices, and bidding wars are dissipating.

However, everyone still needs a roof over their heads. So many folks who can’t afford a home of their own are renting instead. And when there’s more demand for rentals, prices rise.

Since housing plays a pivotal role in the budgets of most Americans, when those prices rise, so does inflation.

Complicating matters is that rents typically rise only when tenants renew their leases, once a year or every two years. With inflation soaring, that means higher rent increases likely won’t show up in the inflation report for another quarter or two.

“For the Fed, that’s tough,” says Dietz. “Housing is going to be a lagging contributor to inflation in the future.”

The biggest driver of high housing costs is that there aren’t enough homes to go around for both buyers and renters—not even close. When there’s more demand than supply, prices go up. That’s not something the Fed can fix.

“They’ve got a tough challenge,” says Dietz. “We know if we truly want to tame inflation within the housing sector, that means additional homes [are needed] for people to rent and buy. The Federal Reserve can’t do that.”

Will the Fed continue to raise rates?

The big question is whether the Fed will continue to raise rates—increasing the likelihood of another recession.

“My guess is they’ll have to raise rates one or two more times,” says economics professor Lawrence J. White, of New York University.

Critics have accused the Fed of allowing inflation to get out of hand before taking steps to get it under control.

“They were too lenient for too long,” says White. “They took too long to realize that inflation was a problem. They don’t want to be caught on the other side, prematurely easing up and causing inflation to rekindle.”

In another twist, if the Fed fails in delivering a “soft landing” for the economy and it slips into a downturn, then it will likely start slashing rates once again.

“They’ll raise them until we get to the intended impact of tempering inflation,” says RCLCO’s Mangold. “But then they’ll probably level them off or begin cutting them depending on how the economy is responding.”

The Fed is also to blame for inflation

Supply chain snafus and shortages, the war in Ukraine, and stimulus payments that Americans received during the pandemic have been cast as the Big Bads when it comes to inflation. But some economic experts are blaming the Fed as well.

The Fed increased the amount of money in circulation during the pandemic as it purchased bonds. Interest rates dropped. This helped lead to rock-bottom mortgage rates, which then spurred a rush on the housing market and led to sky-high home prices as demand for homes soared. This pushed up rents when would-be homebuyers were priced out of the market and needed places to live.

“Prices go up when we have more money in circulation,” says economics professor Antonio Saravia, of Mercer University in Macon, GA. “If we have all of this money floating around in the economy, what do people do? They go shopping, chasing the same number of goods and services with more cash. As a result, prices go up—and that’s how you get inflation.”

The Fed raising interest rates and selling more U.S. Treasury bonds is expected to reduce inflation. If it costs more to borrow money or put something on a credit card, consumers and businesses are likely to spend less.

“Now that the loans are more expensive, people are going to buy fewer houses,” says Saravia.

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There’s no denying the challenges and unpredictability of today’s macro environment. Suddenly, the idea of owning a second home — which saw a surge in demand during the height of the pandemic — sounds a lot less feasible during these changing times. As the market shifts and inventory tightens, is there still value in the second-home market?

To help answer that question, Pacaso compiled its Second Home Market Analysis in July 2022. The analysis of Optimal Blue data measures second-home mortgage rate locks along with median purchase prices for the top 50 second-home markets across the U.S. to determine transaction volume.

Here are the biggest takeaways from the report.

1. Demand remains strong for the luxury second-home market

Sales of luxury second homes and investment properties — homes designated for seasonal and/or recreational use that are sold for $1 million or more — increased nearly 25 percent year-over-year during the second quarter of 2022. This is also an approximate 235 percent increase compared to the first quarter of 2020 just before the pandemic intensified in the U.S.

Home prices decelerated in May 2022 for the first time in five months, likely driven by rising interest rates, uncertain economic conditions and geopolitical unrest. The volatility of the stock market has impacted the overall net worth of many consumers. Despite these changes, affluent consumers are increasingly looking at more stable asset classes like real estate. Research shows that since 1980, real estate has remained more stable than typical stock market indexes during times of economic uncertainty. While consumers may be cutting down on budgets, this group of buyers is less likely to drop out of the market and will continue to drive demand for luxury real estate.

2. Luxury second homes are less impacted by rising interest rates

While interest rates are rising, demand for the housing market continues to be healthy, particularly in the luxury second-home segment. While the total share of mortgage rate locks for all second homes fell below pre-pandemic levels, this was in large part due to the median-to-lower end of the housing market. In addition, more than 50 percent of second-home buyers pay in all cash1. For this reason, looking simply at second-home mortgage rate lock data is not the best indicator of true U.S. second home sales. Luxury second homes overall make up about 12 percent of all second-home mortgage rate locks, and median prices remained relatively flat on a year-over-year basis.

3. Second-home buyers are flocking to local destinations

For the past two years, premier second-home destinations like Malibu, Aspen, and Lake Tahoe have seen accelerated prices. This has led buyers to increasingly look at more local destinations for their second home — in particular, destinations where buyers can get more of their money without compromising on their home or nearby attractions. Beachfront counties and areas with year-round outdoor activities saw impressive growth, including Coeur d’Alene, Idaho; Williamson County, Tennessee; Cape Cod, Massachusetts; and Sevier County, Tennessee, to name a few.

The stability (and opportunities) of the second-home market

Despite our current reality of rising interest rates and concerns of an impending recession, the numbers show that demand for luxury real estate — the second-home market in particular — remained strong during the second quarter of 2022. For clients still hoping to enter the second-home market, trends show that real estate remains a stable place to purchase, and even more so through responsible and accessible ownership models, like co-ownership. This can be a huge opportunity for both your clients and your business.

For the full analysis and methodology from Pacaso, click here.

About Pacaso
Pacaso is the modern, more responsible way to buy and own a second home. We bring together buyers to purchase and collectively own a second home, and provide a fully managed service. Agents earn a full 3% referral commission on each sold share of a home when referring clients in any of our second home destinations.

 1. National Association of REALTORS®, June 2021

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