April 2023 Savannah Market Update
We’re very excited to roll out an improved monthly market update format after a months long hiatus from publishing regular updates! The old format was a bit awkward, difficult to research, and frankly presented much more information than was necessary. In the new format we will present highlights of the Savannah market, a few quick blurbs on proposed new developments in the Savannah area and other local news items that we feel are important for you to know, some thoughts on the commercial real estate market, and a section dedicated to interest rates and debt markets.
Our goal is to provide you, our clients and friends, with up to date and useful information that will help you navigate the decisions you must make as a buyer, seller, or owner of real estate. We welcome any comments, questions, or feedback you may have to improve this monthly newsletter, please reach out to Pat Wilver at email@example.com if you have anything you would like to share.
- The median home price in the Savannah metropolitan area is up over 9% year over year, significantly outperforming most other markets in the nation. Inventory remains low as the number of new listings is below historic trends. Starter homes remain in especially short supply.
- High interest rates, along with the recent turbulence in the regional banking sector, are expected to have a significant impact on the commercial real estate market. There is expected to be minimal impact on the residential real estate market in terms of pricing, but transaction volume is reduced for two reasons:
- Buyers aren’t able to afford as much with rising rates, so there are less buyers in the market, and
- Sellers are strongly incentivized to not sell their homes, as the majority of homeowners nationwide have fixed rate mortgages at 4% or below.
- Anecdotally, our experience is that transaction volume picks up quickly once buyers are able to lock in rates in the mid-5% range. Any time rates are above 6% the market begins to slow, and the few times that rates briefly touched 7% buyer activity seemed to all but cease.
- Many experts and participants in debt markets believe that rates will begin to come down later this year and continue to come down through 2024, though there will continue to be volatility in debt markets.
Savannah Market Data
- Number of new listings are ticking up as the spring market begins to heat up, but new listings are still below historic trends.
- Months of inventory is down even though the number of new listings is up, which indicates that more buyers have entered the market over the last month than sellers.
- Median sale price hit an all time high of $305,795 and is up year over year 9.2%. For reference, the median home price in the entire U.S. is $363,000, up 1.11% year over year. We believe this indicates two things: first, Savannah’s relative affordability compared to the rest of the nation. Second, this incredible appreciation despite the rapid rise in interest rates demonstrates the strength of the local economy and migration to our area from other parts of the country, which we expect to continue over the next few years.
Savannah Real Estate News
- Patrick Mallory Communities, and Atlanta based developer who has been constructing residential units at the Eastern Wharf site on the far eastern end of River Street, is planning to start construction on 24 homes on Hutchinson Island targeted at the 55 and older community. Construction is expected to being early next year with homes starting in the $650k range. (https://savannahagenda.com/atlanta-developer-planning-residential-development-on-hutchinson-island/)
- The Pinyan/Procida Development Group has applied for affordable housing tax credits to develop 42 affordable housing units at a site located at 33rd and Drayton. They have previously been denied the credits twice and have stated that the only way they can make the math work on an affordable housing project is to receive credits.
- Colorado-based M/A Capital Ventures’ plans for a hotel redevelopment at the former City of Savannah property at 132 E Broughton St was approved in February of this year, although it is not clear if and when construction may begin.
- Equus Development Partners’ long-delayed mixed use development project at Bull and 38th is finally approved an likely to begin construction in Summer of 2023. The plan calls for 119 total apartment units. Plans for the former church building at that site are yet to be decided.
In The News: SVB And The Regional Banking Crisis
The Silicon Valley Bank and mid-size bank liquidity problems are absolutely at the forefront of our minds currently. The impacts of this problem in the banking sector will be felt most acutely in the commercial real estate space, but there will still be impacts on the residential market.
For commercial real estate the effects are likely to be serious. Regional banks make up roughly 70% of the credit in the commercial real estate market and they are pulling back their lending significantly as deposits drop. Other players like debt funds and insurance companies will step up to fill some of the gap but credit will be more expensive and lenders will not be willing to lend as high of a loan to value. Increased rates and decreased credit availability will have a large impact on the CRE market. Ronald Dickerman, President & Founder of Madison International Realty stated at the 2023 Harvard Real Estate Symposium “There’s no such thing as a 4% cap rate anymore – cap rates are up 100-150 basis points and we’re not done yet.”
For the average home buyer or seller the impacts should be minimal but may be felt in a few ways. The most serious risk is that the problem in the banking sector is larger than we currently believe it to be. The vast majority of experts do not believe this to be the case, but if it were and more banks were to fail it could place pressure on employers, reduce credit availability, and overall lead to a recession. A recent article published by the Wharton Business School states:
“[Susan] Watcher (Wharton Professor of Real Estate and Finance) expected that crisis to be contained within the commercial real estate sector, barring unforeseen shocks in the future. The housing sector has had its own slowdown with the interest rate increases hurting the ability of households to refinance their mortgages and qualify for home purchase loans, although that is changing with lower rates, she said. Gomes agreed with Wachter and said he did not expect a replay of the 2008 housing crisis. “There is plenty of vulnerability — housing prices are down, and mortgage rates are high,” but the crisis “will be contained” within commercial real estate and not spill over to the housing sector, he added.” Source: https://knowledge.wharton.upenn.edu/article/fallout-from-the-banking-crisis-whats-ahead/?_gl=1*92fnpn*_ga*MjExOTkwNzg0OS4xNjgwNjk3Njky*_ga_2QNGY0KQFG*MTY4MDY5Nzc1OS4xLjAuMTY4MDY5Nzc1OS42MC4wLjA.*_ga_B5B4E387GY*MTY4MDY5Nzc1OS4xLjAuMTY4MDY5Nzc1OS42MC4wLjA
Notes From The 2023 Harvard Real Estate Symposium:
Trophy Point Realty co-owner Pat Wilver was fortunate to secure an invitation to the Harvard Real Estate Symposium held on April 1st. The symposium featured a range of speakers including billionaire Barry Sternlicht, chairman & CEO of Starwood Capital Group, Ronald Dickerman, President & Founder of Madison International Realty, and several other industry professionals including managing directors at firms such as Moelis & Co. and GreyStar. Pat drew a few main conclusions from the discussions, including:
- The market correction in the commercial real estate space is likely to be painful as cap rates are expected to rise 150 basis points or more. Certain asset classes like office are likely to lose 50% of value or more.
- Deals just aren’t getting done right now and there is hundreds of billions of capital on the sidelines as buyers are in a bit of a wait-and-see posture.
- The housing shortage is likely to be made worse because of how high interest rates have gone – it isn’t easy for builders and developers to finance construction when rates are high and lenders are reluctant to lend. This could lead to even more inflation in housing prices over the long term.
- It is possible that the regional banking crisis is worse than the government is letting on and multiple panelists compared the current situation to the Savings and Loan crisis of the late 80s/early 90s. For more information on the S&L crisis check out this wikipedia page: https://en.wikipedia.org/wiki/Savings_and_loan_crisis
- Multiple panelests stated that their favorite asset class is the single family rental – portfolios of single family homes are in the most favorable position to weather the current storm occurring in commercial real estate.
For more detailed information on lessons learned from this conference, reach out to Pat at firstname.lastname@example.org
- Current average rates as of April 4th:
- 30 year fixed conventional: 6.37%
- 30 year fixed VA: 5.88%
- 10 year U.S. Treasury: 3.309%
- 1 year U.S. Treasury: 4.449%
- Effective Fed Funds Rate: 4.83%
- SOFR: 4.83%
- Prime: 8%
- Sources: Mortgage News Daily and Chatham Financial
- Fed Funds Rate Projections: the key takeaway of the chart below is that debt markets seem to expect the federal reserve to begin cutting rates later this year. While the Fed Funds rate does not have a direct impact on mortgage interest rates, there usually is a correlation and we believe it is fair to expect mortgage rates to begin to drop later this year and continue through 2024