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55 September 2024 J O U R N A L What Is Stunting Growth? "The decline in new home con- struction mirrors our latest builder surveys, which show that buyers remain concerned about challenging affordabil- ity conditions and builders are grappling with elevated rates for builder loans, a shortage of workers and lots, and supply chain concerns for some building mate- rials," said Carl Harris, Chairman of the National Association of Home Builders (NAHB) and custom home builder from Wichita, Kansas. NAHB reports that builder con- fidence in the market for newly built single-family homes was 39 in August, down two points from a downwardly revised reading of 41 in July, according to the NAHB/Wells Fargo Housing Market Index (HMI). This is the lowest reading since December 2023. Forecasting 2024 Despite the drop-off in construction, there may be a bright spot on the hori- zon. The Mortgage Bankers Association (MBA), in its Weekly Applications Survey for the week ending August 9, reported that mortgage loan application volume increased 16.8% week over week. Joel Kan, MBA's VP and Deputy Chief Economist, said, "Overall, applications increased almost 17% to the highest level since January 2023, driven by a 35% increase in refinance applications. The refinance index also saw its strongest week since May 2022 and was 117% higher than a year ago, driven by gains in conventional, FHA, and VA applica- tions. Additionally, purchase applications increased by 3%, with small gains seen across the various loan types, indicating that prospective homebuyers are slowly reentering the market." In another move that may help shift the market in a positive direction, Freddie Mac's latest Primary Mortgage Market Survey (PMMS) shows that the 30-year fixed-rate mortgage (FRM) averaged 6.49%, which is down from the near-8% level recorded at this time last year. "While rates increased slightly this week, they remain more than half a per- cent lower than the same time last year," Sam Khater, Freddie Mac's Chief Econo- mist, said, "In 2023, the 30-year fixed-rate mortgage nearly hit 8%, slamming the brakes on the housing market. Now, the 30-year fixed-rate hovers around 6.5% and will likely trend down in the coming months as inflation continues to slow. Lower rates are good news for potential buyers and sellers alike." Berner added, "As mortgage rates begin to fall, many potential homebuyers will come off the sidelines and begin to look for new homes. Builders are hoping to thread the needle with their price points on new homes in the coming months, attracting buyers whose budgets have recently expanded but competing against existing homes coming onto the market as sellers are more willing to move under newly favorable buying conditions. Price too low and they'll miss the opportunity to fully cash in on a hot- ter housing market; price too high and they'll lose out to new listings of existing homes." COMMERCIAL AND MULTIFAMILY BORROWING EXPERIENCING GAINS I n the second quarter of 2024, the Mortgage Bankers Association (MBA) reported a 3% increase in commercial and multifamily borrowing compared to the previous quarter. This growth highlights a sustained demand for multifamily loans and certain com- mercial properties, even as the market grapples with higher interest rates. The MBA credits favorable econom- ic conditions and a strong market for bolstering demand in these segments. Multifamily properties, in particular, continue to attract significant investment due to stable occupancy rates and the ongoing need for rental housing across various markets. Commercial properties also contrib- uted to the growth, with some sectors showing resilience despite the higher cost of capital. Office spaces and retail properties, though facing challenges from shifts in work patterns and consum- er behavior, are seeing selective invest- ment, especially in regions with robust economic activity. However, the MBA notes that the overall market environment remains mixed. Higher interest rates have tempered borrowing in some sectors, particularly in regions or property types that are more sensitive to financing costs. The ongoing balancing act between eco- nomic growth and interest rate pressures will likely continue to shape borrowing trends in the coming months. Looking ahead, the MBA remains cautiously optimistic about the commer- cial and multifamily lending landscape. While challenges persist, the funda- mental demand for housing and select commercial spaces is expected to sustain investment activity. Market participants are advised to stay informed and agile, adapting to shifting economic conditions and policy changes that could impact borrowing costs and investment returns. According to CommercialEdge blog, more than 1.2 billion square feet of office buildings (14.8% of total stock) are quality residential conversion candidates, accord- ing to a new tool that scores office build- ings based on feasibility for conversion to multi-family. While San Francisco and Los Angeles have over 20% of their existing stock as solid candidates for residential conversions, another six markets stand above the national average, including Chi- cago and Miami. Meanwhile, under-con- struction office space totaled 73.8 million square feet nationwide, representing 1.1% of existing stock. MORTGAGE CREDIT AVAILABILITY ON THE RISE T he Mortgage Credit Availability Index (MCAI), a survey from the Mortgage Bankers Asso- ciation (MBA) that examines informa- tion from ICE Mortgage Technology, indicates that mortgage credit availability rose in July.