Real estate sector is alive and well as the death of the office is greatly exaggerated, BlackRock says

lipstick building
Cohen’s sprawling matrimonial law firm is housed in the Lipstick Building in midtown Manhattan.

  • The real estate sector is on track to gain from inflation and historically low rates, BlackRock says.
  • The analysts threw cold water on the notion that offices are on their way out, writing that new properties could see more demand.
  • Overall, BlackRock expects a small decline in real estate demand, rather than a real-estate bloodbath.
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The real estate sector is on track to gain from higher inflation and lower-than-expected interest rate hikes, though the effects will be far from uniform, BlackRock analysts wrote in a market commentary note.

The analysts threw cold water on the notion that offices are on their way out, writing that big, new, green properties could see more, not less, demand as the economy reopens. Employees’ desire for flexible, dynamic workplaces alongside investors’ growing calls for deeper ESG commitments could buoy the right properties, especially in cities.

Conversely, small, less sustainable properties – and the companies that own them – could see their fortunes diminish. Overall, BlackRock expects a small, heterogeneous decline in real estate demand, rather than a real-estate bloodbath.

Logistics firms, with extensive investments in properties like warehouses, could get caught between two opposing trends. On one hand, growing ecommerce demand will likely benefit the logistics sector, yet many parts of that market are “nearing peak valuation,” according to the BlackRock note.

BlackRock flagged a more dovish Fed as a key factor behind optimistic real estate valuations, writing that the central bank seems poised to raise rates less quickly than during previous bouts of inflation. They project inflation to drive up rental income and lower interest rates to support property valuations.

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Over half of young adults plan to use their pandemic savings on buying a home, which could worsen the housing crisis

house
Millennials and Gen Z are planning to use their pandemic savings on buying a house.

America may be running out of houses, but young adults are continuing to set their sights on homeownership.

More than half of them (59%) said they plan to use their pandemic savings on a down payment for a home, according to a recent Zillow survey that polled over 1,200 millennials and Gen Zers. It was the most common answer beyond using their savings for everyday living expenses.

“Even in an unprecedented global pandemic, homeownership still appears to be a priority and aspiration among the sometimes called ‘rent forever generation,'” the report reads.

The survey found that 83% of young adults reported saving money in at least one category during the pandemic. This cohort found themselves on the upside of the millennial wealth gap that the pandemic exacerbated.

Lower-income millennials who were already contending with an affordability crisis had little to fall back on as they experienced job loss and pay cuts. But a higher-earning group with stable income was able to save and invest money they would have otherwise spent in non-pandemic times.

Two financial advisers told Insider last June their high-net-worth millennial clients were tucking away excess cash, as much as $3,000 a month in some cases, which normally would’ve been spent on brunches or plane tickets.

Read more: Millennials are getting screwed again by their 2nd housing crisis in 12 years

The extra cushion helped them drive the 2020 housing boom – more millennials became homeowners than any other generation that year. Millennials are turning ages 25 to 40 in 2020, meaning many of them are entering prime homebuying years.

Interest rates hit a historical low in 2020, making it easier for those with enough money saved for a down payment to buy a home. But the combination with the year when many were working from home soon led to a cutthroat housing market, marked by a historic housing shortage and lumber scarcity which both propelled housing costs to several record highs. That has resulted in bidding wars nearly everywhere nationwide, with competing bidders throwing down all-cash bids and higher and higher down payments.

Many millennials able to snag a house did so by paying above market price, while others saw homeownership pushed further out of reach as housing prices skyrocketed and morphed into an inventory crisis.

As Insider’s Ben Winck reported, the lumber shortage has largely made it too expensive to for builders to construct more homes. Housing starts fell nearly 10% through April after surging the month prior, signaling supply won’t bounce back all that soon. Lumber has come down somewhat since from its super-expensive level, though.

Considering that millennials have just reached peaked homebuying age, and some Gen Zers are already househunting, young adults will be driving the housing market for years to come. This survey suggests that wealthier members of both generations will put their pandemic savings toward down payments, so the unequal housing boom may not abate any time soon.

Whether they will be able to find an available house is another question.

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Million-dollar luxury home sales are soaring even as many buyers struggle to find a house

luxury house
Even though wealthy Americans are snapping up luxury homes, there’s an abundance of them on the market.

Luxury home sales are soaring.

They increased by 41.6% in the first three months of 2021 over the first three of 2020, according to a recent Redfin report that defined luxury homes as those selling for an average of $975,000. It’s a sharp contrast from sales for what Redfin deems “affordable” homes (those selling for an average of $184,400), which only increased by 7% in the same time frame.

It’s emblematic of the wealth divide that has deepened in America since the pandemic began, with the wealthy doing just fine and lower-income earners struggling to the point of falling into poverty. This K-shaped recovery is manifest in the housing market.

The report stated that home sales growth is typically similar across price tiers, but the pandemic’s exacerbation of economic inequality has caused it to diverge. “Affluent Americans with the flexibility to work from anywhere are taking advantage of low mortgage rates and buying up high-end houses – particularly in popular vacation destinations -which is contributing to the surge in luxury-home sales,” it reads.

The luxury housing market hasn’t been riddled with the same problems plaguing the more affordable housing market. The latter has seen cutthroat competition rife with ubiquitous bidding wars, as desperate buyers have resorted to all-cash offers, waiving inspections, or forgoing appraisals to win them. It’s resulted in a shortage of homes, Insider’s Taylor Borden reported, with current homeowners afraid to sell their houses for fear of being unable to find another.

America is short 2.5 million homes, per a recent Jefferies note. The National Association of Realtors estimated in March that existing housing inventory could run out in two months.

But while multimillion-dollar luxury properties are also seeing heated competition with multiple offers and selling for more than the asking price, Redfin’s Chief Economist Daryl Fairweather told Housing Wire, there are enough of them to go around.

Miami saw the biggest increase in luxury home sales (101.1%), which could partially be explained by the number of Wall Streeters who have moved there during the pandemic. California gobbled up the next round of luxury home sales, with San Jose leading the way, followed by Oakland and Sacramento.

It seems that the wealthy are in search of sunshine and space, and they are once again exempt from the many pandemic-related economic problems afflicting many Americans.

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