Category: Housing Market

Thomvest Housing Report: What’s Next in the Housing Market & How Will Startups Respond?



It’s been a dizzying two years in the U.S. housing market — 2021 was arguably the hottest year on record for residential real estate, driven by pandemic-related fiscal stimulus and historically low interest rates. In 2022, the Federal Reserve reversed course and began aggressively hiking interest rates in an effort to cool inflation. This has led to a sharp rise in mortgage rates — from about 2.5% in 2020, to nearly 7% as of October 2022. As a result, housing affordability has deteriorated faster than at any point in the last 30+ years. Many prognosticators expect a housing market correction in 2023.

To help make sense of market conditions, we are releasing an update to the Thomvest Housing Report which includes data through Q3 2022. The full report is accessible here, and I’ve included several highlights below.

What effect will rising mortgage rates have on home prices?

After record mortgage origination volume in 2021, rising interest rates have effectively wiped out the refinance market in the U.S. (refinancings are expected to decline 74% year-over-year) and impaired the purchase origination market (expected to decline 14% year-over-year). Prospective home buyers are grappling with mortgage costs that are at a record-high relative to income — according to the NAHB/Wells Fargo Housing Opportunity Index (HOI), just 42.2% of new and existing homes sold between the beginning of July and end of September were affordable to families earning the U.S. median income of $90,000.

Despite rising rates, home price appreciation has yet to decline meaningfully — in fact, many markets (like Nashville, Raleigh, Dallas and Phoenix) experienced double digit home price growth in 2022. Why have home prices remained stubbornly high? A few factors…

First, there are several persistent demand tailwinds — most notably, demographic data suggests that the universe of first-time homebuyers (median age of 33) over the next 24 months will be the largest it has been in 30+ years. Additionally, a growing number of institutional buyers of real estate have entered the single-family home category — more than $45 billion was committed to the single-family rental (SFR) space by institutional investors in 2021. In some ways these institutions create a pricing floor in markets like Atlanta, Phoenix and Dallas where rentals common.

Second, the supply of homes for sale remains very low by historical standards. In a rising interest rate environment, existing homeowners with sub-3% interest rate mortgages may not be motivated to sell their homes in order to purchase a new home with a higher-rate loan. This has driven down transaction volume meaningfully — Fannie Mae forecasts 3.9M existing home sales in 2023, a 23% year-over-year decline. Additionally, lack of new housing construction is a major contributor to home price appreciation — housing completions have trailed household growth in every year since following the Great Recession. 12.3 million U.S. households were formed from January 2012 to June 2021, but just 7 million new single-family homes were built during that time.

And finally, foreclosures remain low, driven by strong employment and wage growth remain. We have not yet seen a meaningful spike in delinquency rates in the mortgage space — as of Q3 2022, only 0.5% of mortgage balances are 90+ days past due, which is up slightly vs. 2021 but still very low by historical standards. Whereas the pre-recession origination boom (2003–2006) was spurred by a relaxed credit standards and private (non-GSE) securitizations of mortgages, origination volume during the COVID-period is a byproduct of low interest rates, refinance volume, and demand for single-family housing. Credit standards have remained high throughout the pandemic, despite the spike in origination volume

So while we have yet to experience a meaningful decline in home values, we are experiencing what many analysts describe as a frozen market, leading to a rapid decline in transaction volume across most markets. For instance, mortgage origination volume in Q3 2022 declined 47% from the third quarter of 2021 — the biggest annual drop in 21 years. Institutional investors in the single-family rental space have largely stayed on the sidelines with the expectation that pricing would become more attractive over the next few quarters.

Many participants in the real estate ecosystem are waiting for clarity from the Fed on how the interest rate environment may change in 2023 and where mortgage rates may ultimately settle. Housing is an important component of CPI, and the Fed has a stated goal of driving down housing demand and pricing:

After a housing boom partly driven by pandemic-era FOMO beliefs, cooling market participants’ expectations is key to shifting house prices toward a more sustainable path and avoiding the peril of a disorderly market correction.

We will be watching closely as the Fed attempts to navigate a bit of a tightrope: steering towards a gradual slow down of home prices and rents (a “soft landing”) without triggering a more widespread housing recession.

How will the real estate technology sector respond?

This period of volatility and uncertainty has impacted every consituency in real estate — agents, lenders, investors, service providers and technology companies. Many real estate companies generate revenue on a transactional basis, meaning a softening or frozen housing market has a direct impact on revenue growth expectations. I’ve written previously about the worsening valuation environment for public real estate technology companies such as Opendoor, Zillow and Redfin, which have traded down meaningfully in 2022.

This is certainly a period in which CEOs must make difficult decisions around strategy, team and managing cash flow in order to survive. Ben Horowitz describes this moment well:

In wartime, a company is fending off an imminent existential threat. Such a threat can come from a wide range of sources including competition, dramatic macro economic change, market change, supply chain change, and so forth.
A classic wartime mission was Andy Grove’s drive to get out of the memory business in the mid 1980s due to an irrepressible threat from the Japanese semiconductor companies. In this mission, the competitive threat — which could have bankrupted the company — was so great that Intel had to exit its core business, which employed 80% of its staff.

In real estate tech, startups are quickly adapting to today’s market conditions—for example, implementing austerity measures as a means of extending runway, or refocusing businesses around products that have strong demand in this market environment. A few tactics we’ve observed:

  • Companies are adjusting burn in order to extend runway and defer an external fundraise to 2024, in hopes that market conditions improve over the next 12 months.
  • Startups in the real estate lending space are tightening their credit standards, lowering loan amounts to manage risk, and diversifying sources of capital.
  • In some cases, startups are opting to raise PropCo capital in order to build a more permanent capital base as compared to credit providers who may be pulling out of real estate lending. In this “balance sheet light” model, assets are owned by the PropCo and management fees flow into the OpCo.
  • Management teams must embrace agility in order to develop counter-cyclical products (i.e. HELOC) that appeal to customers even in a high interest rate environment.

The next several months will be quite interesting for these companies: investors will certainly monitor the macroeconomic environment (CPI, rate hikes, geopolitical risk, etc.) and its impact on real estate. More importantly, however, they will track whether leadership teams can successfully steer their companies towards positive cash flow despite choppy market conditions. Over the long term, startups that survive this period will ultimately evolve into more agile organizations that can thrive despite the inherent cyclicality of the real estate sector.


Thomvest Housing Report: What’s Next in the Housing Market & How Will Startups Respond? was originally published in Thomvest Ventures on Medium, where people are continuing the conversation by highlighting and responding to this story.

These Global Cities Show the Highest Real Estate Bubble Risk


This post is by Nick Routley from Visual Capitalist


World map showing which cities show the greatest real estate bubble risk

These Global Cities Show the Highest Real Estate Bubble Risk

Housing bubbles are a tricky phenomenon. As a market gathers steam and prices increase, it remains a matter of debate whether that market is overvalued and flooded with speculation, or it’s simply experiencing robust demand.

Of course, once a bubble bursts, it’s all obvious in hindsight.

One common red flag is when prices decouple from local incomes and rents. As well, imbalances in the real economy, such as excessive construction activity and lending can signal a bubble in the making.

The map above, based on data from the Real Estate Bubble Index by UBS, examines 25 global cities, scoring them based on their bubble risk.

Overinflated Markets

In the 2022 edition of the Real Estate Bubble Index, nine of the cities covered were classified as having extreme bubble risk (1.5 or higher score).

RankRisk CategoryCityBubble Index Score
#1🔴🇨🇦 Toronto2.24
#2🔴🇩🇪 Frankfurt2.21
#3🔴🇨🇭 Zurich1.81
#4🔴🇩🇪 Munich1.80
#5🔴🇭🇰 Hong Kong1.71
#6🔴🇨🇦 Vancouver1.70
#7🔴🇳🇱 Amsterdam1.62
#8🔴🇮🇱 Tel Aviv1.59
#9🔴🇯🇵 Tokyo1.56
#10🟠🇺🇸 Miami1.39
#11🟠🇺🇸 Los Angeles1.31
#12🟠🇸🇪 Stockholm1.22
#13🟠🇫🇷 Paris1.21
#14🟠🇦🇺 Sydney1.19
#15🟠🇨🇭 Geneva1.14
#16🟠🇬🇧 London1.08
#17🟠🇺🇸 San Francisco0.78
#18🟠🇺🇸 Boston0.75
#19🟠🇪🇸 Madrid0.59
#20🟠🇺🇸 New York0.57
#21🟠🇸🇬 Singapore0.50
#22🟢🇮🇹 Milan0.34
#23🟢🇧🇷 Sao Paulo0.20
#24🟢🇦🇪 Dubai1.16
#25🟢🇵🇱 Warsaw0.15

Canada’s largest city finds itself at the top of a ranking no city wants to end up on. Toronto’s (Read more...)

Mapped: The Salary You Need to Buy a Home in 50 U.S. Cities


This post is by Avery Koop from Visual Capitalist


Mapped: The Salary You Need to Buy a Home in 50 U.S. Cities

This is the Salary You Need to Buy a Home in 50 U.S. Cities

Depending on where you live, owning a home may seem like a far off dream or it could be fairly realistic. In New York City, for example, a person needs to be making at least six figures to buy a home, but in Cleveland you could do it with just over $45,000 a year.

This visual, using data from Home Sweet Home, maps out the annual salary you’d need for home ownership in 50 different U.S. cities.

Note: The map above refers to entire metro areas and uses Q1 2022 data on median home prices. The necessary salary was calculated by the source, looking at the base cost of principal, interest, property tax, and homeowner’s insurance.

Home Ownership Across the U.S.

San Jose is by far the most expensive city when it comes to purchasing a home. A person would need to earn over $330,000 annually to pay off the mortgage at a monthly rate of $7,718.

Here’s a closer look at the numbers:

RankMetro AreaMedian Home PriceSalary Needed
#1San Jose$1,875,000$330,758
#2San Francisco$1,380,000$249,685
#3San Diego$905,000$166,828
#4Los Angeles$792,500$149,127
#5Seattle$746,200$140,768
#6Boston$639,000$130,203
#7New York City$578,100$129,459
#8Denver$662,200$121,888
#9Austin$540,700$114,679
#10Washington, D.C.$553,000$110,327
#11Portland$570,500$109,267
#12Riverside/San Bernardino$560,000$106,192
#13Sacramento$545,000$105,934
#14Miami$530,000$103,744
(Read more...)

Is $1 Million Enough for Retirement in America?


This post is by Carmen Ang from Visual Capitalist


Retirement Savings in America

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Is $1 Million Enough for Retirement in America?

The average American needs their retirement savings to last them 14 to 17 years. With this in mind, is $1 million in savings enough for the average retiree?

Ultimately, it depends on where you live, since the average cost of living varies across the country. This graphic, using data compiled by GOBankingRates.com shows how many years $1 million in retirement savings lasts in the top 50 most populated U.S. cities.

How Long $1 Million Would Last in 50 Cities

To compile this data, GOBankingRates calculated the average expenditures of people aged 65 or older in each city, using data from the Bureau of Labor Statistics and cost-of-living indices from Sperling’s Best Places.

That figure was then reduced to account for average Social Security income. Then, GOBankingRates divided the one million by each city’s final figure to calculate how many years $1 million would last in each place.

Perhaps unsurprisingly, San Francisco, California came in as the most expensive city on the list. $1 million in retirement savings lasts (Read more...)

White Hot North: Residential Real Estate Investment in Canada


This post is by Avery Koop from Visual Capitalist


residential real estate investment

The Briefing

  • Residential investment made up 9.3% of Canada’s GDP as of Q4’2020
  • For context, U.S. residential real estate investment peaked in 2006 at 6.7% of the country’s GDP (just before the infamous housing crash) and it currently sits at 4.3%

White Hot North: Residential Real Estate Investment in Canada

Residential real estate is breaking records in Canada. As of Q4’2020, it accounted for 9.3% of the country’s GDP.

The purchase, sale, and construction of new homes in Canada currently makes up more of the country’s economy than it does in any other developed country.

There’s No Place Like Home

So why is there so much investment going into building residential structures? Here’s a look at just a few reasons:

  • Increased immigration to Canada
  • Falling mortgage rates
  • Increased saving rates

The steady flow of immigration into Canada is a significant factor behind increased residential real estate investment. Prior to the pandemic, the country welcomed around 300,000 newcomers per year—increasing the demand for housing, particularly in urban hubs like Toronto and Vancouver.

Mortgage rates have also been steadily falling, making it easier to purchase a home. As of the latest 2020 data Canadian 5-year uninsured mortgage rates sat at 2.1%, compared to a steep peak in the beginning of 2019 at 3.7%.

Additionally, some individuals may have become more capable of affording a new home as increased saving rates have become a widespread trend during the pandemic, potentially adding to demand. This combined with increasingly flexible remote work options are increasing (Read more...)

Visualizing the Recent Explosion in Lumber Prices


This post is by Marcus Lu from Visual Capitalist


Lumber Prices Explosion

Visualizing the Recent Explosion in Lumber Prices

Lumber is an important commodity used in construction, and refers to wood that has been processed into beams or planks.

Fluctuations in its price, which is typically quoted in USD/1,000 board feet (bd ft), can significantly affect the housing industry and in turn, influence the broader U.S. economy.

To understand the impact that lumber prices can have, we’ve visualized the number of homes that can be built with $50,000 worth of lumber, one year apart.

A Story of Supply and Demand

Before discussing the infographic above, it’s important to understand the market’s current environment.

In just one year, the price of lumber has increased 377%—reaching a record high of $1,635 per 1,000 bd ft. For context, lumber has historically fluctuated between $200 to $400.

To understand what’s driving lumber prices to new heights, let’s look at two economic elements: supply and demand.

Shortened Supply

U.S. lumber supplies came under pressure in April 2017, when the Trump administration raised tariffs on Canadian lumber. Since then, lumber imports have fallen and prices have experienced significant volatility.

After a brief stint above $600 in April 2018, lumber quickly tumbled down to sub $250 levels, causing a number of sawmills to shut down. The resulting decreases in production capacity (supply) were estimated to be around 3 billion board feet.

Once COVID-19 emerged, labor shortages cut production even further, making the lumber market incredibly sensitive to demand shocks. The U.S. government has since reduced its tariffs on (Read more...)

Ranked: The World’s Least Affordable Cities to Buy a Home


This post is by Carmen Ang from Visual Capitalist


Least Affordable Housing Markets

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Yes. Visualizations are free to share and post in their original form across the web—even for publishers. Please link back to this page and attribute Visual Capitalist.
When do I need a license?
Licenses are required for some commercial uses, translations, or layout modifications. You can even whitelabel our visualizations. Explore your options.
Interested in this piece?
Click here to license this visualization.

The Briefing

  • For the 10th year in a row, Hong Kong is the world’s least affordable housing market
  • The U.S. is home to a mixture of the most and least affordable housing markets

Ranked: The World’s Least Affordable Cities to Buy a Home

In certain parts of the world, housing prices have risen much faster than household incomes, making home ownership increasingly more difficult for the average Joe.

Using data from Demographia published in 2020, this graphic looks at some of the world’s most expensive housing markets.

The Least Affordable Housing Markets

It’s worth noting that this data looks at housing affordability specifically for middle-income earners. While it’s far from globally exhaustive, it measures affordability in 309 major metropolitan areas across Australia, Canada, Hong Kong, Ireland, New Zealand, Singapore, the U.S., and the UK.

In this study, a city’s affordability is calculated by taking its median housing price and dividing it by the median household income.

  • Moderately Unaffordable: 3.1 to 4.0
  • Seriously Unaffordable: 4.1 to 5.0
  • Severely Unaffordable: 5.1+

All the cities on this graphic classify (Read more...)