Brock Smith is an advisor with SVN Vanguard | Industrial Group. He specializes in advising landlords and tenants in the sale and lease of industrial buildings and land throughout Southern California. Brock has a commercial construction background, specifically in Sales / Project Management for large Design Build projects across the country including hotels, apartments, hospitals, casinos. Prior to joining SVN, he was with Ashwill Associates.  Brock is a Loyola Marymount University alum and currently resides in Lake Forest with his wife, two daughters, and dog.

Specialties

Specialties

Sale Specialties
Industrial
Land
Corporate Sales
Corporate Lease Back

Lease Specialties
Industrial

Product Council
Corporate Real Estate
Industrial
Institutional Capital Markets

1. INTEREST RATE IMPACT ON BANK SECURITIES AND CAPITAL

• After recent distress in the banking sector, there is a risk that many of the small and mid-sized banks that hold the bulk of US commercial real estate loans may see a credit crunch, dampening liquidity in the sector.
• According to Goldman Sachs, roughly 80% of all bank loans for CRE come from regional banks, which are most likely to see a tightening of credit and lending standards following the collapse of Silicon Valley Bank.
• CRE fundamentals remain strong relative to the broader US economy. Still, any upcoming refinance activity must factor in higher interest rates and the shifting demand profiles of CRE sectors. This will be of particular concern for low-interest office loans coming due, which will have to contend with higher rates and lower long-term demand.

2. 2023 SCE HOUSING SURVEY

• Households are increasingly expecting home price growth and rents to decline over the near term, according to the New York Fed’s latest Survey of Consumer Expectations Housing Survey.
• Households expect home prices to grow by 2.6% over the next 12 months, down from 7.0% one year ago. Current forward-looking sentiment, which relies on survey data taken in February, is the lowest since the regional bank started conducting the survey in 2014.
• On the other hand, five-year forward expectations rose to 2.8% from 2.2% last year.
• Rents are expected to increase by 8.2% over the next 12 months, which is still a robust estimate, but is down from 11.5% last year. Meanwhile, renters place their probability of owning a home in the future at 44.4%, a tick up from the 43.3% registered one year ago.
• Respondents expect mortgage rates to rise to 8.4% one year from now and 8.8% in three years.

3. JOBLESS CLAIMS

• Initial jobless claims rose higher than expected during the week ending on March 25th, totaling 198,000, which is 7,000 claims above the previous week. Economists forecasted claims to grow to 195,000 during the week.
• While the four-week moving average for initial claims have been steadily rising, they remain relatively benign in the face of higher interest rates and slowing economic activity. Specifically, while forward looking unemployment rate projections continue to rise, employers have been slow to lay off workers, a potentially good sign for the labor market as recession fears grow.
• Continuing claims, which run on a one-week lag, rose by 4,000 during the week to 1.68 million, slightly below estimates.

4. Q4 GDP FINAL NUMBERS

• The Commerce Department slightly revised down its Q4 2022 GDP numbers in its third estimate, released on March 30th. The final metric was marked down to a 2.6% annualized rate, down from the 2.7% previously reported.
• According to the report’s analysis, the downward revision primarily reflects downward revisions to exports and consumer spending. Imports were also revised down, which had an upward effect on GDP.
• Overall, last quarter’s growth was driven by increases in private inventory investment, consumer spending, non-residential fixed investment, and government spending.
• Based on the Atlanta Fed’s GDPNow tracker, growth is estimated to have accelerated during the first three months of 2023. GDPNow currently projects a 3.2% annualized growth rate for the US economy in Q1.

5. MORTGAGE RATES FALL

• According to Freddie Mac, mortgage rates fell to their lowest levels in six weeks during the week ending on March 30th. The 30-year fixed rate fell to 6.32%, down ten basis points from one week prior.
• After reaching a high of 7% last September, mortgage rates declined to close 2022 and fell as low as 6% in January, prompting an 8% jump in pending home sales that month. Rates began to rise again in mid- February as the market priced some uncertainty around the Fed interest rate policy path. The downtrend follows a cautious 25 basis points rate hike by the Fed, which, combined with recent financial market distress, has many forecasting a pause or reduction in interest rates soon.
• Mortgage rates are also declining right as the spring homebuying season begins, which is likely to entice many who have been on the sidelines in recent months back into the market. However, low inventory will remain a challenge and will likely place some upward pressure on home prices if rates continue to trend lower.

6. INDEPENDENT LANDLORD RENTAL PERFORMANCE

• The on-time payment rate in independently operated rental units improved by 186 bps between February and March, coming in at 84.9% and reaching a new post-pandemic high, according to the latest Independent Landlord Rental Performance Report by Chandan Economics. March’s full payment rate is forecasted to land at 94.3% — which would also be a new high.
• National on-time payment rates have now held above 81% for six consecutive months — a first in the life of the Chandan Economics-RentRedi tracking.
• Washington holds the highest on-time payment rate of any state in the country, coming in at 92.8% in March.
• On-time payment rates picked up across all price points in March, with low-priced rentals seeing substantial month-over-month improvement. Meanwhile, 2–4-unit rental properties held the highest on-time payment rates of all sub-property types in March, coming in at 85.6%.

7. NEW & PENDING HOME SALES

• New single-family home sales rose to an annualized rate of 640,000 in February, up 1.1% from January but down by 19.0% year-over-year. It was the third consecutive month where new home sales rose, partly due to a moderation in mortgage rates that has fueled recent homebuying activity.
• Regionally, the South and West US saw transaction increase in the month while the Northeast underperformed.
• Pending home sales similarly grew for the third consecutive month during February, climbing by 0.8% month-over-month, according to the National Association of Realtors. Year-over-year pending transactions fell by 21.1%.
• NAR Chief Economist Lawrence Yun sees the concurring upticks as evidence that the “housing sector’s contraction is coming to an end,” as both sales indicators alongside construction activity have trended up in the past quarter.

8. HOME PRICES

• Home prices continued to decline through January 2023, according to the latest update to the S&P CoreLogic Case-Shiller US National Home Price Index. Compared to June 2022’s peak, average home prices are down 3.0%. Still, measured year-over-year, home prices remain up 3.8% through January.
• Miami (+13.8%), Tampa (+10.5%), and Atlanta (8.4%) reported the highest year-over-year increases within the 20 cities tracked by the index, with Charlotte (+8.1) following close behind. San Francisco, Seattle, San Diego, and Portland registered negative year-over-year growth.
• Before seasonal adjustment, 19 cities tracked reportedly registered a decline in home prices, while 15 cities tracked registered an increase. However, in both seasonally adjusted and non-seasonally adjusted figures, January’s performance was notably better than December’s.
• Regionally, the Southeast (+10.2%) remains the strongest region for growth, while the West (-1.5%) remains the weakest.

9. CONSUMER SENTIMENT

• According to preliminary estimates for March by the University of Michigan, consumer sentiment fell for the first time in four months to an index reading of 63.4. The first estimate for March sits roughly 5% below February’s mark but remains 7% above this time last year.
• All index sub-components worsened during the month, mainly due to persistently high prices of goods and services and financial uncertainty.
• Notably, roughly 85% of responses for the current estimate were made before the collapse of Silicon Valley Bank and other financial market stress, which may signal a downward revision in future updates.
• Year-ahead inflation expectations fell to 3.8% in March, the lowest reading since April 2021. Long-run inflation expectations also declined, falling to 2.8%, only the second time in the past 20 months that the metric dipped below 3.1%. Both expectations metrics remain elevated above their pre-pandemic normal ranges.

10. MAY RATE-HIKE PROBABILITIES

• According to the Chicago Mercantile Exchange’s Fed Watch Tool, futures markets are relatively split on forecasts for May’s policy meeting. The majority of markets (52.9%) are pricing in a pause in the Fed’s interest rate hikes, while a weighty minority (47.1%) expect a 25 basis points hike in May. The current federal funds rate sits at 475-500 basis points.
• Recent US bank failures swung what was initially a firmly hawkish forecast in early March into an increasingly dovish one leading up to the Fed’s March 22nd policy decision. Many investors are betting that the financial market distress, alongside slowing inflation, will encourage the Fed to pause rate increases to provide liquidity to the market. Futures markets now anticipate that the committee will hold rates steady until the September 2023 meeting, when markets expect the Fed to begin loosening again.

SUMMARY OF SOURCES

• (1) https://www.trepp.com/trepptalk/deep-dive-bank-capital-securitiesinterest-rates-fed?utm_campaign=trepploan&utm_medium=email&
  hsmi=251654661&_hsenc=p2ANqtz-_uVh7mjFt5IoVvTPpqOczEN4R8Lp9CIf2sh_OTwZkfsEz9jupbdabjVVKmv85Wn4G3bRyzMvyZMuK1IsLM9V7dWB5O3Q&utm_content=251654661&utm_source=hs_email
• (2) https://www.newyorkfed.org/microeconomics/sce/housing#/
• (3) https://www.dol.gov/ui/data.pdf
• (4) https://www.bea.gov/news/2023/gross-domestic-product-fourth-quarter-and-year-2022-thirdestimate-
  gdp-industry-and
• (5) https://freddiemac.gcs-web.com/news-releases/news-release-details/mortgage-rates-decreasethird-consecutive-week?_ga=2.192574442.139966936.1680208347-887801833.1680208347&_gac=1.258158200.1680208347.CjwKCAjw5pShBhB_EiwAvmnNV5Ved0ucPaeTCLE6YVjTluDbSfoN-HS6YypEPOi59J2h1C63DVBH7xoCiwIQAvD_BwE
• (6) https://www.chandan.com/independent-landlord-rental-performance-report
• (7) https://www.nar.realtor/newsroom/pending-home-sales-grew-for-third-straight-month-up-0-8-infebruary
• (8) https://www.spglobal.com/spdji/en/index-family/indicators/sp-corelogic-case-shiller/sp-corelogiccase-
  shiller-composite/#overview
• (9) http://www.sca.isr.umich.edu/
• (10) https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html

We are ready to assist investors with Santa Ana commercial properties. For questions about Commercial Property Management, contact your Orange County commercial real estate advisors at SVN Vanguard.

SVN | VANGUARD is pleased to announce and welcome new SENIOR VICE PRESIDENT CAMERON JONES who will be leading our Industrial Product Group in Southern California markets.  “We are pleased to have Cameron join the firm. Cameron brings nearly 17 years of commercial real estate experience and expertise in industrial real estate advisory to our team said Managing Director, Cameron Irons.

“Joining the innovative national platform of SVN enables me to seamlessly elevate the client experience on both local and national levels.  This strategic move empowers me to utilize my market knowledge, harness cutting-edge technology, value added services and tap into an extensive network of advisors enabling me to continue to create opportunities and solve problems for my clients.  I’m also excited to be reunited and work with Cameron Irons our Managing Director, for whom I owe my initiation into the CRE brokerage business some 17 years ago.”

Before joining SVN | VANGUARD, Cameron was a principal and partner at Ashwill Associates commercial real estate brokerage.  Cameron focused on industrial product and land redevelopment opportunities, advising owners, occupants, and investors in the acquisition, disposition and leasing of properties throughout Southern California and nationally.

For details about any industrial property needs, contact Cameron Jones at 714.240.7078 or cameron.jones@svn.com.

About SVN | Vanguard

SVN | Vanguard with offices in Orange County, San Diego, and South Los Angeles County is a full service commercial real estate brokerage. We provide Sales, Leasing, and Property Management to clients throughout Southern California. In association with SVN’s 200+ offices nationwide combine a comprehensive national footprint with local decision making, expertise and market-leading execution. All SVN® Offices are Independently Owned and Operated.

We are ready to assist investors with Santa Ana commercial properties. For questions about Commercial Property Management, contact your Orange County commercial real estate advisors at SVN Vanguard.

1. HOMEBUILDING SENTIMENT RISES

• According to the latest data from the National Association of Home Builders (NAHB), homebuilding confidence is on the rise. The NAHB/Wells Fargo Housing Market Index (HMI) rose seven index points to a level of 42, its highest reading since September and the most significant monthly increase in the index since June 2013.
• Homebuilder sentiment registered at 81 one year ago, but started to fall as mortgage rates and other borrowing costs slowed demand and hindered supply in 2022. While index levels below 50 are considered in ‘pessimistic’ territory, sentiment had fallen to a low of 31 in December.
• According to analysts at NAHB, the uptick in sentiment reflects recent incremental gains in housing affordability amid a persistent housing shortage.

2. FED MEETING MINUTES

• Despite reducing their pace of rate increases in January, leading to increased market optimism, recently released minutes from the FOMC’s January meeting show that most officials remain “highly” concerned about inflation.
• The resilience of labor market tightness has some FOMC members concerned about the upward pressure that wages may continue to place on broader prices. Officials note that while recent monthly data has warranted a slowing of their tightening efforts, they will need “substantially more” evidence of slowing inflation across the board before halting rate increases.
• Notably, a “few” members expressed a need to maintain a 50 basis point increase in January. FOMC members have converged in their economic projections over the past several months, so a crack in the consensus could be a significant signal about the uncertainty of our current economic picture.
• As of February 23rd, 73% of the market expects a 25 basis point increase at the FOMC’s March meeting, while 27% expect a 50 basis point hike. One week ago, before the minutes were released, expectations at these levels were 85% and 15%, respectively.

3. A BUSINESS TRAVEL REBOUND

• A recent report by Placer Labs studying foot traffic activity for the four major business travel sectors — airports, trains/buses, convention centers, and hotels—found that hotels and airports have climbed past pre-pandemic levels. In contrast, trains/buses and convention centers continue to recover.
• The report shows hotels have experienced the most robust post-pandemic recovery (using a 2019 baseline). As COVID shut down most travel activity in April 2020, hotel foot traffic dropped an unprecedented 97% from its January 2019 level. The sector recovered as high as 62% above pre-pandemic levels by July 2021.
• Airport traffic, which fell by 93% in April 2020, similarly recovered much of its activity by Summer of 2021 but climbed as high as 23% by July 2022.
• Foot traffic at train and bus stops as well as at convention centers, has yet to recover 2019 activity levels. In July 2022, train and bus stop traffic hit its post-pandemic peak at -6% below pre-pandemic levels, while convention centers peaked in April 2022, down -11%.
• All four major business travel sectors saw activity decline below pre-pandemic levels by the end of 2022, reflecting a broader reduction in business travel expenses amid heightened inflation and recession fears.

4. INDEPENDENT LANDLORD RENTAL PERFORMANCE

• The on-time payment rate in independently operated rental units improved by 197 bps between January and February, coming in at 83.4% and reaching a new post-pandemic high, according to the latest Independent Landlord Rental Performance Report by Chandan Economics. It was the fifth consecutive month that average on-time rent collections have held above 81%, the first in the history of the dataset.
• Of the states with at least 500 tracked units in the RentRedi-Chandan Economics sample, Colorado holds the highest payment rate in the country in February. 91.4% of independently operating units in Colorado have paid their rent on time this month. Washington (91.1%) and Massachusetts (89.5%) are close behind.
• Analyzing performance trends at different rental price points, units with monthly rents below $1,000 continue to register the lowest average on-time payment rate through February, coming in at 82.5%. Upper middle-priced rental units (charging between $2,000 and $2,499 per month) perform the strongest, with a February on-time payment rate of 86.5%. On-time payment rates for all prices rose or remained level from the previous month in February.
• 2–4-unit rental properties held the highest on-time payment rates of all sub-property types in February, coming in at 84.2% — level with January.

5. INDUSTRIAL ORIGINATIONS FALL

• According to an analysis by the Mortgage Bankers Association (MBA), originations fell by 54% in Q4 2022, led by a decline in financing for Industrial projects.
• Higher borrowing costs brought forward by the Fed’s monetary tightening have impacted demand levels across all Commercial Real Estate. Still, it has had an outsized impact on Industrial, which experienced the best pandemic-era performance across the major property types. According to MBA, the dollar volume of loans for Industrial properties fell 69% year-over-year through Q4 2022.
• In addition to the higher borrowing costs, uncertainty about the direction of consumer spending and retail markets also affects transaction demand.
• Office properties had the second steepest fall through Q4, with lending falling by 56%. Multifamily lending fell by 52%, Hotel fell by 46%, and Retail declined by 44%.

6. MSCI-RCA PROPERTY PRICE INDEX

•  Commercial real estate prices fell 4.8% year-over-year and 2.7% month-over-month through January, according to the latest national all-property index released by MSCI-RCA. It was the steepest annual fall in the all-property index since 2010.
• Higher borrowing costs remain the main culprit as deal activity slows, pushing pricing lower. Price growth slowed across all major property subtypes during January.
• Industrial registered the only monthly price increase in January, following December’s trend.
• Apartments posted the largest decline across property subtypes, falling 2.8% month-over-month and down 4.6% year-over-year.
• Retail prices fell 0.9% month-over-month in January and 0.1% year-over-year.
• Office prices are down 0.8% month-over-month and 0.7% year-over-year through January. Suburban offices were down 1.1% month-over-month and 0.5% year-over-year, while CBD Office held steady from December but fell 0.9% year-over-year.
• Prices in the six major gateway markets tracked by MSCI-RCA posted their sharpest annual decline since June 2010, falling by 6.9% year-over-year, and registered their eighth consecutive monthly decline. Meanwhile, non-major metros fell 2.0% year-over-year, with prices falling 1.8% from the month before.

7. CPI INFLATION

• The Consumer Price Index (CPI) rose 6.4% year-over-year and 0.5% month-over-month through January, according to the latest numbers from the Bureau of Labor Statistics. The annual inflation rate has fallen for seven consecutive months, though month-over-month inflation was slightly higher than in December.
• Core CPI, which removes food and energy prices from the calculation and is more closely tied to monetary policy decisions, rose 5.6% over the past 12 months and 0.4% between December and January.
• Used cars and trucks led all price declines on both a monthly and yearly basis, dropping -1.9% month-over-month and 11.6% year-over-year.
• Fuel oil and medical care services also saw noteworthy declines to start the year, falling 1.2% and 0.7% month-over-month, respectively. However, fuel oil remains a significant contributor to annual price pressures, rising 27.7% year-over-year, while gas as a utility is close behind at 26.7%.

8. PHILADELPHIA FED MANUFACTURING INDEX

• According to data from the latest Philadelphia Fed Manufacturing Index, manufacturing activity continues to fall. The barometer fell by 24.3% in February, almost triple its January decline of 8.9%. Markets had expected a 7.4% decline.
• February was the lowest index reading for the Philly Fed index since May 2020 and was the sixth consecutive monthly decline in manufacturing activity.
• There are three components of the index, one that measures overall activity, one that measures new orders, and one that measures shipments. The shipments subindex was the only one that registered a positive result in February, though at tepid levels.
• Forward-looking indicators were more positive, such as expectations for growth and prices over the six months — but remained modest from a historical perspective.

9. NEW RESIDENTIAL CONSTRUCTION

• Housing permits for privately-owned housing units experienced a slight rise in January from a month earlier, climbing 0.1% to a seasonally adjusted annual rate of 1.33 million, according to the latest data from the US Census Bureau and HUD. Permits remain 27.3% below their January 2022 level.
• Housing starts in January fell by 4.5% month-over-month to a seasonally adjusted annual rate of 1.30 million. Starts are down by 21.4% over the last 12 months.
• Housing completions rose 1.0% month-over-month in January to a seasonally adjusted annual rate of 1.40 million and are up 12.8% year-over-year.
• While slowing homebuying demand and falling prices have increased housing affordability lately, tepid
  permits and starts have held supply low, failing to alleviate the effect of the housing shortage.

10. US RETAIL SALES

• According to advance estimates from the US Census Bureau, US retail and food service sales climbed 3.0% month-over-month in January to a seasonally adjusted $697.0 billion. Sales are up by 6.4% year-over-year.
• January represented the largest monthly increase in sales since May 2021 and came after a 1.1% decline in December. The annual increase in sales is above levels seen in the previous two months but remains well below the gains seen over the past two years as activity rebounded from early-pandemic lows.
• Separating Retail trade sales from the total, sales were up 2.3% month-over-month and 3.9% year-over-year through January.
• Food services and drinking places are up by 25.0% over the past 12 months, while general merchandising stores have seen sales climb by 4.5% over the past 12 months.

SUMMARY OF SOURCES

• (1) https://www.nahb.org/blog
• (2) https://www.federalreserve.gov/monetarypolicy/fomcminutes20230201.htm
• (3) https://go.placer.ai/library/navigating-a-new-normal-in-business-travelcommutes?submissionGuid=11055299-e0be-4a53-8e59-6bcdd8534d47
• (4) https://www.chandan.com/independent-landlord-rental-performance-report
• (5) https://www.costar.com/article/1225048335/commercial-real-estate-lending-drop-steepens-ledlower-by-industrial-financing
• (6) https://www.msci.com/research-and-insights/market-insights
• (7) https://www.bls.gov/news.release/cpi.nr0.htm
• (8) https://www.philadelphiafed.org/surveys-and-data/regional-economic-analysis/manufacturingbusiness-outlook-survey
• (9) https://www.census.gov/construction/nrc/pdf/newresconst.pdf
• (10) https://www.census.gov/retail/marts/www/marts_current.pdf

People should take a step back from short-term changes and consider the big picture, according to one agent.

Due to the recent uptick in unpredictable mortgage rates, timing has become crucial in the housing market.

Rates that were approaching 6% are now approaching 7%, which has many buyers returning to the sidelines. On Friday, Mortgage News Daily reported the rate to be 6.78%. Recent inflation news is what caused the rate to increase.
In prepared remarks, Los Angeles Redfin realtor Justin Vold noted that while well-priced properties continue to receive many offers, he did observe that this week, as interest rates began to creep back up, buyers made fewer offers.
Since the beginning of the epidemic, buyers have been extremely sensitive to rates, according to Vold. I’m recommending folks pull back from daily rate changes and think about their long-term demands in today’s topsy-turvy market.
It is a perfectly good time to buy because there isn’t much competition if someone plans to live in a home for a long time and can pay today’s loan rates.

According to Vold, it might not be the best time for someone looking for a short-term residence and/or who can bear to pay their mortgage with a 6% or 7% interest rate.
Although interest rates will eventually decline, we don’t know when they will, so buyers must be prepared to maintain the original payment for the whole 30 years of their loan, he said. Reducing the monthly payment will be a plus when the opportunity to refinance does arise.
The housing market recovery will remain precarious until we see inflation and the general economy improve for a longer period of time, Redfin Economics Research Lead Chen Zhao said in prepared remarks.

According to Redfin, almost 85% of homeowners have interest rates far below 6%, and many are content to hold onto them.
The median list price of recently listed homes was $378,118, an increase of 1.2% over the previous year and the lowest since May 2020.

We are ready to assist investors with Santa Ana commercial properties. For questions about Commercial Property Management, contact your Orange County commercial real estate advisors at SVN Vanguard.