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20 dividend stocks with high yields that have become more attractive right now

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Income-seeking investors are looking at an opportunity to scoop up shares of real estate investment trusts. Stocks in that asset class have become more attractive as prices have fallen and cash flow is improving.

Below is a broad screen of REITs that have high dividend yields and are also expected to generate enough excess cash in 2023 to enable increases in dividend payouts.

REIT prices may turn a corner in 2023

REITs distribute most of their income to shareholders to maintain their tax-advantaged status. But the group is cyclical, with pressure on share prices when interest rates rise, as they have this year at an unprecedented scale. A slowing growth rate for the group may have also placed a drag on the stocks.

And now, with talk that the Federal Reserve may begin to temper its cycle of interest-rate increases, we may be nearing the time when REIT prices rise in anticipation of an eventual decline in interest rates. The market always looks ahead, which means long-term investors who have been waiting on the sidelines to buy higher-yielding income-oriented investments may have to make a move soon.

During an interview on Nov 28, James Bullard, president of the Federal Reserve Bank of St. Louis and a member of the Federal Open Market Committee, discussed the central bank’s cycle of interest-rate increases meant to reduce inflation.

When asked about the potential timing of the Fed’s “terminal rate” (the peak federal funds rate for this cycle), Bullard said: “Generally speaking, I have advocated that sooner is better, that you do want to get to the right level of the policy rate for the current data and the current situation.”

Fed’s Bullard says in MarketWatch interview that markets are underpricing the chance of still-higher rates

In August we published this guide to investing in REITs for income. Since the data for that article was pulled on Aug. 24, the S&P 500
SPX,
-0.50%
has declined 4% (despite a 10% rally from its 2022 closing low on Oct. 12), but the benchmark index’s real estate sector has declined 13%.

REITs can be placed broadly into two categories. Mortgage REITs lend money to commercial or residential borrowers and/or invest in mortgage-backed securities, while equity REITs own property and lease it out.

The pressure on share prices can be greater for mortgage REITs, because the mortgage-lending business slows as interest rates rise. In this article we are focusing on equity REITs.

Industry numbers

The National Association of Real Estate Investment Trusts (Nareit) reported that third-quarter funds from operations (FFO) for U.S.-listed equity REITs were up 14% from a year earlier. To put that number in context, the year-over-year growth rate of quarterly FFO has been slowing — it was 35% a year ago. And the third-quarter FFO increase compares to a 23% increase in earnings per share for the S&P 500 from a year earlier, according to FactSet.

The NAREIT report breaks out numbers for 12 categories of equity REITs, and there is great variance in the growth numbers, as you can see here.

FFO is a non-GAAP measure that is commonly used to gauge REITs’ capacity for paying dividends. It adds amortization and depreciation (noncash items) back to earnings, while excluding gains on the sale of property. Adjusted funds from operations (AFFO) goes further, netting out expected capital expenditures to maintain the quality of property investments.

The slowing FFO growth numbers point to the importance of looking at REITs individually, to see if expected cash flow is sufficient to cover dividend payments.

Screen of high-yielding equity REITs

For 2022 through Nov. 28, the S&P 500 has declined 17%, while the real estate sector has fallen 27%, excluding dividends.

Over the very long term, through interest-rate cycles and the liquidity-driven bull market that ended this year, equity REITs have fared well, with an average annual return of 9.3% for 20 years, compared to an average return of 9.6% for the S&P 500, both with dividends reinvested, according to FactSet.

This performance might surprise some investors, when considering the REITs’ income focus and the S&P 500’s heavy weighting for rapidly growing technology companies.

For a broad screen of equity REITs, we began with the Russell 3000 Index
RUA,
-0.18%,
which represents 98% of U.S. companies by market capitalization.

We then narrowed the list to 119 equity REITs that are followed by at least five analysts covered by FactSet for which AFFO estimates are available.

If we divide the expected 2023 AFFO by the current share price, we have an estimated AFFO yield, which can be compared with the current dividend yield to see if there is expected “headroom” for dividend increases.

For example, if we look at Vornado Realty Trust
VNO,
+1.01%,
the current dividend yield is 8.56%. Based on the consensus 2023 AFFO estimate among analysts polled by FactSet, the expected AFFO yield is only 7.25%. This doesn’t mean that Vornado will cut its dividend and it doesn’t even mean the company won’t raise its payout next year. But it might make it less likely to do so.

Among the 119 equity REITs, 104 have expected 2023 AFFO headroom of at least 1.00%.

Here are the 20 equity REITs from our screen with the highest current dividend yields that have at least 1% expected AFFO headroom:

Company Ticker Dividend yield Estimated 2023 AFFO yield Estimated “headroom” Market cap. ($mil) Main concentration
Brandywine Realty Trust BDN,
+1.82% 		11.52% 12.82% 1.30% $1,132 Offices
Sabra Health Care REIT Inc. SBRA,
+2.02% 		9.70% 12.04% 2.34% $2,857 Health care
Medical Properties Trust Inc. MPW,
+1.90% 		9.18% 11.46% 2.29% $7,559 Health care
SL Green Realty Corp. SLG,
+2.18% 		9.16% 10.43% 1.28% $2,619 Offices
Hudson Pacific Properties Inc. HPP,
+1.55% 		9.12% 12.69% 3.57% $1,546 Offices
Omega Healthcare Investors Inc. OHI,
+1.30% 		9.05% 10.13% 1.08% $6,936 Health care
Global Medical REIT Inc. GMRE,
+2.03% 		8.75% 10.59% 1.84% $629 Health care
Uniti Group Inc. UNIT,
+0.28% 		8.30% 25.00% 16.70% $1,715 Communications infrastructure
EPR Properties EPR,
+0.62% 		8.19% 12.24% 4.05% $3,023 Leisure properties
CTO Realty Growth Inc. CTO,
+1.58% 		7.51% 9.34% 1.83% $381 Retail
Highwoods Properties Inc. HIW,
+0.76% 		6.95% 8.82% 1.86% $3,025 Offices
National Health Investors Inc. NHI,
+1.90% 		6.75% 8.32% 1.57% $2,313 Senior housing
Douglas Emmett Inc. DEI,
+0.33% 		6.74% 10.30% 3.55% $2,920 Offices
Outfront Media Inc. OUT,
+0.70% 		6.68% 11.74% 5.06% $2,950 Billboards
Spirit Realty Capital Inc. SRC,
+0.72% 		6.62% 9.07% 2.45% $5,595 Retail
Broadstone Net Lease Inc. BNL,
-0.93% 		6.61% 8.70% 2.08% $2,879 Industial
Armada Hoffler Properties Inc. AHH,
-0.08% 		6.38% 7.78% 1.41% $807 Offices
Innovative Industrial Properties Inc. IIPR,
+1.09% 		6.24% 7.53% 1.29% $3,226 Health care
Simon Property Group Inc. SPG,
+0.95% 		6.22% 9.55% 3.33% $37,847 Retail
LTC Properties Inc. LTC,
+1.09% 		5.99% 7.60% 1.60% $1,541 Senior housing
Source: FactSet

Click on the tickers for more about each company. You should read Tomi Kilgore’s detailed guide to the wealth of information for free on the MarketWatch quote page.

The list includes each REIT’s main property investment type. However, many REITs are highly diversified. The simplified categories on the table may not cover all of their investment properties.

Knowing what a REIT invests in is part of the research you should do on your own before buying any individual stock. For arbitrary examples, some investors may wish to steer clear of exposure to certain areas of retail or hotels, or they may favor health-care properties.

Largest REITs

Several of the REITs that passed the screen have relatively small market capitalizations. You might be curious to see how the most widely held REITs fared in the screen. So here’s another list of the 20 largest U.S. REITs among the 119 that passed the first cut, sorted by market cap as of Nov. 28:

Company Ticker Dividend yield Estimated 2023 AFFO yield Estimated “headroom” Market cap. ($mil) Main concentration
Prologis Inc. PLD,
+1.29% 		2.84% 4.36% 1.52% $102,886 Warehouses and logistics
American Tower Corp. AMT,
+0.68% 		2.66% 4.82% 2.16% $99,593 Communications infrastructure
Equinix Inc. EQIX,
+0.62% 		1.87% 4.79% 2.91% $61,317 Data centers
Crown Castle Inc. CCI,
+1.03% 		4.55% 5.42% 0.86% $59,553 Wireless Infrastructure
Public Storage PSA,
+0.11% 		2.77% 5.35% 2.57% $50,680 Self-storage
Realty Income Corp. O,
+0.26% 		4.82% 6.46% 1.64% $38,720 Retail
Simon Property Group Inc. SPG,
+0.95% 		6.22% 9.55% 3.33% $37,847 Retail
VICI Properties Inc. VICI,
+0.41% 		4.69% 6.21% 1.52% $32,013 Leisure properties
SBA Communications Corp. Class A SBAC,
+0.59% 		0.97% 4.33% 3.36% $31,662 Communications infrastructure
Welltower Inc. WELL,
+2.37% 		3.66% 4.76% 1.10% $31,489 Health care
Digital Realty Trust Inc. DLR,
+0.69% 		4.54% 6.18% 1.64% $30,903 Data centers
Alexandria Real Estate Equities Inc. ARE,
+1.38% 		3.17% 4.87% 1.70% $24,451 Offices
AvalonBay Communities Inc. AVB,
+0.89% 		3.78% 5.69% 1.90% $23,513 Multifamily residential
Equity Residential EQR,
+1.10% 		4.02% 5.36% 1.34% $23,503 Multifamily residential
Extra Space Storage Inc. EXR,
+0.29% 		3.93% 5.83% 1.90% $20,430 Self-storage
Invitation Homes Inc. INVH,
+1.58% 		2.84% 5.12% 2.28% $18,948 Single-family residental
Mid-America Apartment Communities Inc. MAA,
+1.46% 		3.16% 5.18% 2.02% $18,260 Multifamily residential
Ventas Inc. VTR,
+1.63% 		4.07% 5.95% 1.88% $17,660 Senior housing
Sun Communities Inc. SUI,
+2.09% 		2.51% 4.81% 2.30% $17,346 Multifamily residential
Source: FactSet

Simon Property Group Inc.
SPG,
+0.95%
is the only REIT to make both lists.

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Business

‘We’re seeing buyers backing out’: This dramatic chart reveals U-turn in the housing market as sellers slash home prices

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Here’s a chart that speaks a thousand words about the state of the real-estate market right now.

The chart above, part of a new report by real-estate brokerage Redfin
RDFN,
-7.03%
on the property market, reveals how home sellers are adjusting to the new normal of 7% mortgage rates.

The chart says that 7.9% of homes for sale on the market each week had their prices slashed — and that’s a record high.

That’s compared to just 4% of homes having their prices reduced each week over the same period a year ago.

Redfin’s data goes back to 2015. The company averaged out the share of listings which saw a price cut over four weeks, to smoothen out any outliers.

Taylor Marr, deputy chief economist at Redfin, added that looking over a bigger time period, i.e. a month, the company’s data shows that a quarter of homes right now are dropping prices.

“We have never been this high,” Marr told MarketWatch in an interview.

Unlike buyers, who are much more sensitive to rising mortgage rates, “sellers are just slow to react to the changes in demand… they set prices based on where they think the market is [and] are often reluctant to set their prices too low,” Marr said.

So for sellers, prices are a little stickier, he added, and slower to come down.

But even if it took a while, it’s finally happening.

After all, mortgage rates are at multi-decade highs, with the 30-year trending steadily above 7% as of Friday afternoon, according to Mortgage News Daily. And that’s likely to go up even more, as the 10-year Treasury note
TMUBMUSD10Y,
4.023%,
is trending above 4%.

Meanwhile, Redfin said that the median home on the market was listed at over $367,000, up 7% over last year.

The monthly mortgage for that home at the current interest rate of 6.92%, according to Freddie Mac, is $2,559.

A year ago, when rates were at 3.05%, that monthly payment would’ve been just $1,698.

Two tips for home buyers struggling with high mortgage rates

Sellers are dropping their prices by 4 to 5% on average, Marr said.

“You would almost expect it to be a lot worse,” he added, given how quickly rates rose and eroded buying power.

But buyers and sellers are also using two different tactics to get some relief on mortgage rates, Marr said.

One, sellers are reaching out to buyers and offering concessions to buy mortgage rates down.

In other words, sellers are asking buyers to pay the full asking price, but proposing to use part of that as a concession to get buyers a lower interest rate on their mortgage.

“Which is essentially a price drop,” Marr said, “it’s the same thing … but it doesn’t necessarily show up in the data.” And it’s hard to get a sense of the magnitude of how this is playing out, he added.

How it works is as such, Marr explained: If a buyer is putting down $100,000 for a 20% downpayment on their home at a 6.5% interest rate, they can instead allocate 10% for the downpayment, and spend the rest of the $50,000 buying down the mortgage rate to 5%.

“5% isn’t very bad, and it might seem like a lot of money, but … chances are you’re going to be incentivized to refinance [in the future] and you’ll have to pay the closing cost on that loan to refinance, which could be upwards of 15 grand,” Marr added.

Buyers are also switching to adjustable-rate mortgages, which offer lower interest rates at the start of the term. ARMs are nearly 12% of overall mortgage applications, the Mortgage Bankers Association noted on Wednesday, which is high.

Where prices are falling

As to where prices are falling, a couple of places stood out to Redfin.

They said that home prices fell 3% year-over-year in Oakland, Calif., and 2% in San Francisco. New Orleans also saw a 2% drop.

“Even in Atlanta, or Orlando, we’re seeing buyers backing out,” Marr observed.

So with the backdrop of sellers finally dropping listing prices, if you’re a buyer right now, don’t be spooked by rising rates and stop looking, he advised.

“There have been opportunities when rates really came down and gave buyers the moment to jump back in and get some good deals on homes that did drop their prices,” he said.

Plus, “it doesn’t hurt to make a low ball offer,” Marr added. “Some sellers are desperate, and that can be a good strategy … we’ve heard from some of our own agents that some buyers are getting incredible deals right now.”

But if you need to rent for a year and wait for things to calm down, then do that, Marr said, and bulk up those savings for that dream home.

Got thoughts on the housing market? Write to MarketWatch reporter Aarthi Swaminathan at aarthi@marketwatch.com

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U.S. will turn into a buyers’ housing marke in 2023, most experts say. Here’s where you’ll see the biggest declines.

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Frustrated by the housing market? Housing experts say they’re expecting the market to tip back into buyers’ court by 2023, according to a new report.

Mortgage rates are approaching 7%, but home prices are only slowly coming back down and inventory is still tight compared to pre-pandemic levels.

Still, the U.S. housing market will shift in favor of home buyers by the end of 2023, 44% of 107 economists and housing experts polled by real-estate company Zillow for its Home Price Expectations Survey said. 

And 12% of these experts believed that shift will happen sooner — that is, this year.

Yet roughly 45% of experts surveyed by Zillow say buyers will have to wait, and expect the market to shift in buyers’ favor in 2024, and beyond.

All survey respondents said to expect home-price deceleration in 2023.

“The U.S. housing market will shift in favor of home buyers by the end of 2023. That’s according to 44% of the 107 economists and housing experts surveyed by real-estate company Zillow.”

And we’ve already seen some signs of price pressures manifesting: The median price of an existing home in the U.S. was $389,500 in August, down from $403,800 the previous month, the National Association of Realtors said.

Most of the housing experts surveyed by Zillow noted that the markets most likely to see home prices decline over the next year include pandemic boomtowns like Boise, Austin, and Raleigh; 77% of the experts surveyed expect declines in those cities. They saw a huge jump in sales amid the earliest days of the coronavirus pandemic.

Redfin, another real-estate brokerage company, also noted that Sun Belt home buyers are cancelling their home-purchase agreements at the highest rate as compared to the rest of the nation.

“Most of the housing experts surveyed by Zillow noted that the markets most likely to see home prices decline over the next year include pandemic boomtowns like Boise, Austin, and Raleigh.”

The markets least likely to see home prices decline over the next year include Midwestern cities like Columbus, Indianapolis, and Minneapolis, Zillow said. Only 36% of respondents expected home prices to decline in these areas over the next 12 months.

Some markets in the south are also expected to see demand hold strong, including Atlanta, Nashville, and Charlotte, the respondents added. Only 44% said declines in home prices were likely.

But for all potential buyers stuck renting as either mortgage rates or home prices makes buying a home unaffordable right now, expect rent growth to continue, Zillow said.

Zillow also expects rent growth to outpace inflation, stocks, and home values, over the next 12 months.

The typical home buyer’s monthly mortgage payment for a home priced at the median asking price has climbed $337 to $2,547 in the past six weeks alone, Redfin noted — a 15% jump.

That’s also up 50% from a year ago, when rates were at 3.01%.

Got thoughts on the housing market? Write to MarketWatch reporter Aarthi Swaminathan at aarthi@marketwatch.com

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Business

U.S. Home Sales and Prices Fell in August as Mortgage Rates Rose

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The U.S. housing market slowed for a seventh straight month in August, the longest stretch of declining sales since 2007, as higher mortgage rates continued to undercut buyer demand.

Home sales look poised to decline further in the coming months, economists say, as mortgage rates recently topped 6% for the first time since 2008, when the U.S. was in a recession. Many first-time buyers have been priced out of the market, and existing homeowners are opting to stay put rather than give up their current low rates.

“As long as mortgage rates remain elevated, sales will remain depressed,” said

Daryl Fairweather,

chief economist at real-estate brokerage

Redfin Corp.

The decrease in home sales is rippling through the economy. Consumers are spending less on housing-related items such as furniture and appliances, while construction of new single-family homes has also slowed.

Sales of previously owned homes dropped 0.4% in August from July to a seasonally adjusted annual rate of 4.8 million, the weakest rate since May 2020, the National Association of Realtors said Wednesday. August sales fell 19.9% from a year earlier.

The housing market has softened in recent months as the Federal Reserve aggressively raises interest rates to cool the economy and bring down high inflation. The Fed approved raising its benchmark federal-funds rate by 0.75 percentage point Wednesday.

The Fed’s interest-rate moves have led to higher mortgage-interest rates and increased borrowing costs for home buyers by hundreds of dollars a month, pushing many out of the market. The average rate on a 30-year fixed-rate mortgage was 6.02% in the week ended Sept. 15, up from 2.86% a year earlier, according to housing-finance agency

Freddie Mac.

The pandemic-fueled housing market activity in mid-2020 when many Americans moved to larger houses with more outdoor space while spending greater time at home. Bidding wars were widespread, and homes were often snapped up in a matter of days.

The recent increase in mortgage rates is expected to further weigh on home sales this month and next. Homes typically go under contract a month or two before the contract closes, so the August data largely reflect purchase decisions made earlier in the summer. Mortgage rates rose to 5.81% in June, then pulled back for much of the summer.

Economists have long said that renting and investing in the stock market is a better investment than owning a house, and in 2022 that could be especially true. WSJ’s Dion Rabouin explains. Photo illustration: Elizabeth Smelov

The drop in demand is reducing buyer competition, and home-price growth has slowed from last year’s rapid pace. But prices remain above where they stood a year ago, because the number of homes for sale is still below normal levels.

The median existing-home price rose 7.7% in August from a year earlier to $389,500, NAR said. Prices fell month-over-month for the second straight month after reaching a record high of $413,800 in June. While prices typically decrease in the late summer, the monthly declines have been bigger than normal, said

Lawrence Yun,

NAR’s chief economist.

The combination of high prices and rising interest rates has pushed home-buying affordability near its lowest level in decades. General economic uncertainty is also keeping buyers on the sidelines, said Odeta Kushi, deputy chief economist at

First American Financial Corp.

“To make the biggest financial decision of your life, you need to have some confidence in the economy, in your job, in the labor market,” she said.

Consumer sentiment toward the housing market fell in August to the lowest level since 2011, according to

Fannie Mae.

Many buyers rushed to purchase in the first few months of the year, because they expected mortgage rates to rise, reducing the number of buyers left in the market today, said Redfin’s Ms. Fairweather. “We’re experiencing an especially cold fall and winter, because the spring was so hot,” she said.

Philip Natale went under contract to buy a new home in Henderson, Nev., in December. By the time he locked in an interest rate this spring, rates had climbed from around 3% to above 5%, pushing up his monthly payment by several hundred dollars.

Philip Natale, with his mom, Michelle, in hat, says rising interest rates pushed up his monthly payment on a new Henderson, Nev., home. Charlie and Ashley Richards bought their first home in Charleston, S.C., in September. Philip Natale; Sandra Dawson

“It’s horrible,” he said, but he hopes to refinance the loan at a lower rate within the next year or two. “The first 12 to 18 payments are probably going to be a big bummer,” he added.

To save on costs, Mr. Natale is eating out less and has decided to delay buying a car. “I just don’t want to feel the stress of adding a car at the same time as I’m buying a home,” he said.

In the four weeks ended Sept. 11, 7.2% of homes on the market each week had a price drop, up from 3.8% a year earlier, according to Redfin. Homes on average sold for 0.5% below their final list price, compared with 1.1% above list price a year earlier.

Nationally, there were 1.28 million homes for sale or under contract at the end of August, down 1.5% from July and unchanged from August 2021, NAR said.

“Home-price growth is likely to continue to decelerate,” Oxford Economics—which forecasts that existing-home sales will fall further through the end of the year—said in a note to clients. “But the limited supply of homes for sale will likely prevent too steep a decline.”

Charlie and Ashley Richards, who are both 29, started shopping for the first home in Charleston, S.C., in June after they found out their rent was going up by $800 a month. 

“We got into the market at the right time. Stuff was starting to slow down a bit,” Mr. Richards said. “There were a handful of houses that we looked at that had been on the market for 30 to 60 to even 90 days.”

They bought a house this month for about 3% below the asking price. “I’m very excited,” Mr. Richards said.

Write to Nicole Friedman at nicole.friedman@wsj.com

The new home market, which accounts for about 10% of home sales, has also shown signs of weakness. A measure of U.S. home-builder confidence fell for the ninth straight month in September to the lowest level since May 2020, the National Association of Home Builders said this week. About one-fourth of builders surveyed said they had reduced prices in the past month, NAHB said.

Residential permits, which can be a bellwether for future home construction, also fell 10%, though housing starts rose 12.2% in August from July, the Commerce Department said this week.

News Corp,

owner of The Wall Street Journal, also operates Realtor.com under license from NAR.

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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‘An increasing squeeze on list prices.’ 3 top economists and real estate pros on the housing markets where home prices will drop the most this year

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Some markets may be more vulnerable to home price cuts than others, pros say.


Getty Images

Buyers in some markets are already getting — or may soon get — some relief in the form of lower home prices, pros say. Already, in the last 4 – 8 weeks, experts have noticed downward price pressure in higher priced markets that were previously robust. (See the lowest mortgage rates you may get now here.) “These were markets where the median sale-to-list price ratio was running well in excess of 5% above list price, and examples include San Francisco, San Jose, Austin, Denver and Seattle,” says Chris Stroud, co-founder and chief of research at HouseCanary, a technology-powered national brokerage that provides residential real estate analytics.

All of the cities listed above experienced a pretty quick decline in their respective median closing prices during July and August as buyers no longer had to get into bidding wars or make offers above asking to be competitive. “Median closing prices have largely stabilized in these markets for the most part over the last few weeks now that excesses have been worked out of the system,” says Stroud. 

The markets with the highest share of price cuts in Realtor.com’s July data are mostly clustered in the Sun Belt and include Las Vegas, Phoenix, Austin, Sacramento, Denver, Portland, Dallas-Fort Worth, Nashville, Tampa and San Diego.

See the lowest mortgage rates you may get now here.

Where will we see home price cuts in the future?

Those same markets may see more declines, says Realtor.com’s senior economist George Ratiu. “As we look toward the next few months of rebalancing, we can expect these markets to feel an increasing squeeze on list prices, as seasonal trends take deeper root and buyer traffic waves from summer’s peak.”

For their part, a team of Goldman Sachs strategists said that metro areas in the west are more likely to see a price correction, and that’s “especially true for markets with low levels of housing affordability, such as Seattle, San Diego and Los Angeles.”

Longer term, price decreases will depend, in part, on where inventory increases quickly and excessively in conjunction with suppressed demand due to interest rates, experts say. “Going into the rate increase period, the majority of markets were experiencing record low inventory. This environment has so far prevented large price declines in many areas across the country,” explains Stroud, who notes that that may change.

See the lowest mortgage rates you may get now here.

Markets that saw an especially large influx of out-of-staters — places like Boise, Denver and Salt Lake City — may be more vulnerable to price drops as the shift to remote work is largely complete, says Kate Wood, home expert at NerdWallet. “It’s a double whammy for home sellers as the influx of deep-pocketed out-of-staters dries up and many local residents are now priced out. With home prices remaining high, these markets are still far from buyer-friendly, but sellers probably shouldn’t expect the bidding wars and zero-contingency offers that proliferated over the last two years,” says Wood. 

As housing markets are pulling back in the wake of higher mortgage rates, prices and inflation, some of these markets are finding they have a growing volume of lingering inventory and not enough buyers, says Ratiu. “For homeowners who are motivated to sell, the answer is increasingly an old-fashioned one – price cuts. Even as median list prices continue to advance—the result of homeowners pricing properties based on market data from months ago—growing inventory and shrinking buyer traffic are starting to put downward pressure on prices,” says Ratiu.

The advice, recommendations or rankings expressed in this article are those of MarketWatch Picks, and have not been reviewed or endorsed by our commercial partners.

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Business

Everyone’s a Landlord—Small-Time Investors Snap Up Out-of-State Properties

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Jack Cronin found San Francisco-area homes too expensive or too far from the city center to buy when he lived there in 2020. The tech worker still wanted a piece of the hottest housing market of his lifetime, so he started looking farther afield.

Last year, the 28-year-old used a website called Roofstock, which provides listings and data for investors interested in rental properties, to buy a three-bedroom home outside Jackson, Miss., for $265,000. Mr. Cronin, who now lives in New York City, has never visited Jackson nor met the tenants in his home, lightly landscaped with bushes and crepe myrtle trees. It’s enough to know that a management company collects $2,300 a month in rent for him.

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‘It’s nuts’: Real estate agents describe chaos in New York City’s hot rental market

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Renting an apartment in New York City this summer? Say hello to sky-high prices and a fight to the finish.

Amid the heat and the occasional rain, there’s a mad scramble to rent affordable apartments in Gotham, which has been undersupplied for many years. Real estate agents describe the mayhem when it comes to prices.

“It’s nuts,” Jessica Peters, a real estate agent with Douglas Elliman, told MarketWatch. “We can’t even keep up anymore. We’re, like, let’s just put up this crazy number, and we’re getting it.”

Offices in the city are trying to woo more employees back: The city is not near full capacity yet — foot traffic to office buildings in NYC is still down 40.6% compared to pre-pandemic levels. But some workers are coming back, restaurants, movie theaters and Broadway are back, and college students are preparing to start school. 

Consequently, the median monthly rent is up $725 in June on the year and $59 on the previous month, according to Zillow. The median monthly rent in NYC is $3,300, 53% higher than the national median of $2,155. 

“‘A lot of renters will be in for a rude awakening.’”


— Jessica Peters, a real estate agent with Douglas Elliman

Peters said that the reality was far worse on the ground. “I just rented something … in Williamsburg. It’s a great two-bedroom ground floor unit, with a big backyard,” she said. “We were asking $6,500. We got $7,000.”

Peters, who specializes in the Brooklyn area, said that while rental prices may be fluctuating a little, the reality is clear for someone looking to be in the city.

“If you’re coming back after not renting in either Brooklyn or Manhattan in the last ten years, a lot of renters will be in for a rude awakening,” Peters added.

(Reminder: Realtors and real estate agent make money on a commission basis, meaning the hotter the market, the higher their earnings.)

That said, the rental market in New York is reflecting a broader intensification of the inventory pressures, which is leading to bidding wars among renters across the country.

But in New York, one of the most expensive cities in the U.S., even some tenants in rent-stabilized apartments cannot catch a break. The city’s Rent Guidelines Board has signed off on hikes as high as 3.25% for new one-year leases, and 5% for two-year leases.

One of Gartenberg’s open housing listings in the Two Bridges area of Lower Manhattan.


Screenshot from Streeteasy.com

Mihal Gartenberg, a real estate agent with Coldwell Banker Warburg, said the market’s wrath was normal; it was just operating on a demand-and-supply basis.

There are people who are simply willing to pay more, he said. “It’s getting to the point where we’re not the ones deciding what these are going for,” Gartenberg added. “This is a true market enterprise.”

Technology was aiding some renters in their search for a home.

A two-bedroom luxury apartment she put on the market for rent two months ago in the Lincoln Square area attracted people streaming in during a two-hour open house in ten-minute increments, on top of prospective renters who joined on FaceTime
AAPL,
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“We priced it in my opinion… quite high,” Gartenberg said, at $7,800, “but we ended up taking even more. The person who ended up taking the apartment offered $400 more… we had an offer of $8,200, and they also offered to pay the broker fee, which is an additional month.” 

“‘I feel very uncomfortable with this idea that the first person to see a listing is the first one to get it.’”

Over this past weekend, she had open houses for two apartments in the Two Bridges area in lower Manhattan.

“I’m only going to be showing it at the open house. I like to have a level playing field,” Gartenberg said ahead of the event. “I feel very uncomfortable with this idea that the first person to see a listing is the first one to get it.”

Buying a home was worth considering, the real estate agents said, given how intense the rental market has become.

Peters said many renters are attempting to become homeowners because rents have risen so dramatically. “People are starting to reevaluate whether or not they should just purchase at this point,” she said.

“Why would I want to spend $10,000 a month on a rental if I qualify for a purchase? It might not be exactly what they wanted, it might be slightly smaller, but it’s still going to be better than spending $120,000 a year in rent,” she added.

“Do not go see things at your price point,” Gartenberg said. “Because where the market is today, is going above your price point.”


(PHOTO: Getty Images)

But be prepared for bidding wars when buying for a home, Gartenberg warned. She put a newly renovated apartment in Hudson Heights on the market, which is selling “well above ask,” she said, so much that “it made me scared.” The sale on the apartment is not closed yet so she said she was not able to discuss how far above asking the bidder went.

Gartenberg priced her Two Bridges apartments at $3,550 for a two-bedroom unit on the top floor, and at $3,050 for a one-bedroom unit.

On Saturday, her open houses were full. Everything went above the ask. “We had so much interest, we were able to divert offers to a not-yet-listed apartment and rent that, too,” Gartenberg said in a follow-up email. 

Half of the offers that came in were from people who had seen the apartment via FaceTime, or from a video she had sent them.

Gartenberg offered rental tips for the summer.

Get your paperwork in order, such as your proof of income, photo ID, 1040 tax form, bank statements, and other financial documents. Also, get your job to write a letter to say you’re in good standing, Gartenberg said.

Given the number of rentals going for above asking, be prepared to look below your price point, she added. If you know which building you want to live in, get in touch with the landlord’s agent, she said, and find out what’s coming to market. 

Hunting for a rental in New York and want to share your thoughts? Write to:  aarthi@marketwatch.com

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Business

Zillow Quits Its Homebuying Business as Losses Mount. The Stock Is Plunging.

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Zillow Group stock fell 12% in after-hours trading Tuesday.


Tiffany Hagler-Geard/Bloomberg


Zillow Group

said it would shut down its homebuying and selling business, citing the company’s inability to accurately predict future home prices.

“We’ve determined the unpredictability in forecasting home prices far exceeds what we anticipated and continuing to scale Zillow Offers would result in too much earnings and balance-sheet volatility,” CEO Rich Barton said Tuesday.

“We have been willing to take a really big swing on this, but not a bet the company swing,” the CEO said on an investor call following the announcement in the company’s third-quarter earnings.

Barton also said labor and supply shortages backed up the company’s home-processing pipeline. “We’ve been able to convert only about 10% of the serious sellers who ask for a Zillow Offer, and we have tended to disappoint the roughly 90% who didn’t sell to us,” Barton said.

Zillow still has thousands of homes in its inventory. The company said in its shareholder letter released Tuesday that it purchased 9,680 homes in the latest quarter and sold 3,032 homes. It ended the quarter with 9,790 homes in its inventory and an additional 8,172 homes under contract. That’s a significant increase from the 3,142 homes Zillow had in its inventory at the end of the second quarter.

Zillow plans to shut down the program over several quarters, a spokesperson told Barron’s, noting that the company will process, prepare, and sell homes the way it has historically. The company expects to sell most of its homes by the end of the second quarter of 2022.

The program’s end will result in a 25% reduction in its workforce over the next several quarters, Zillow said. The company said it currently employs around 8,000 people.

For the third quarter, the real estate firm reported revenue of $1.7 billion and an adjusted Ebitda loss of $169 million in the quarter. Analysts had expected sales of about $2 billion and Ebitda of $114 million.

Homes comprised the bulk of Zillow’s sales in the third quarter. The segment contributed $1.2 billion of the company’s total revenue in the quarter, or about 71%.

After closing down 10.2% Tuesday, shares fell another 19% in premarket trading Wednesday.

The Internet, Media, and Technology segment reported adjusted Ebitda of $207 million, while the Mortgages segment reported adjusted Ebitda of $5 million. Its Homes segment, which includes Zillow Offers, reported an Ebitda loss of $381 million. That includes a $304 million write-down of homes bought at a higher price than Zillow expects to sell them, the company said. Analyst estimates had called for a loss of $56 million for the segment.

For the fourth quarter, Zillow expects sales of $2.8 billion at the middle of its outlook and an adjusted Ebidta loss between $136 million and $186 million, according to its shareholder letter.

The company expects a loss of $240 million to $265 million on homes it expects to purchase in the fourth quarter. Zillow also said it would recognize costs associated with the wind-down of Zillow Offers in the fourth quarter that could total between $175 million to $230 million and extend into 2022.

On the call with investors, Zillow CFO Allen Parker said the company ended the quarter with $3.2 billion in cash and investments—“more than sufficient liquidity to weather the impact of home purchases in Zillow Offers in Q4.” He added that ending Zillow Offers allows the company to “invest in more scalable customer solutions that are less capital-intensive.”

The company began testing its homebuying program, Zillow Offers, in 2017. It operated the business in 25 markets, according to listings on Zillow’s website.

Write to Shaina Mishkin at shaina.mishkin@dowjones.com

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Business

China Evergrande Makes Overdue Interest Payment on Dollar Bonds, State Media Says

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China Evergrande Group

EGRNF -8.05%

made an overdue interest payment to international bondholders, the state-owned Securities Times reported Friday, an unexpected move that allows the property company to stave off a default.

The Chinese real-estate developer on Thursday sent $83.5 million to the trustee for the dollar bonds, and that financial institution will in turn pay bondholders, the Securities Times reported. The financial paper is run by the Communist Party’s flagship People’s Daily newspaper.

Evergrande was nearing the end of a 30-day grace period before bondholders could send a notice of default to the company after it failed to make the interest payment on about $2.03 billion of dollar bonds on Sept. 23.

A default on those bonds would likely have spiraled into the biggest corporate default in Asia, by enabling creditors to declare defaults on some of Evergrande’s other debts. The company is one of China’s biggest developers, and its most indebted. It had the equivalent of more than $300 billion in total liabilities, including some $89 billion in interest-bearing debt, as of the end of June.

Many international bondholders had expected Evergrande to fail to make its dollar bond payments before the end of the grace period. The company has also skipped other coupon payments in the past few weeks, and has outstanding dollar debt with a total face value of about $20 billion. Advisers to international bondholders said this month they had made little progress in their efforts to engage with Evergrande.

On Wednesday, however, the Shenzhen-based group said in a regulatory filing that it will “use its best effort to negotiate for the renewal or extension of its borrowings or other alternative arrangements with its creditors.”

Evergrande has been trying to raise funds by disposing of assets such as stakes in subsidiaries and a Hong Kong office building that it owns. Last month, it agreed to sell most of its ownership in a Chinese commercial bank to a state-owned enterprise for the equivalent of $1.55 billion. The company had also planned to sell a majority holding in its property-management unit for the equivalent of about $2.6 billion to a smaller rival, but said this week that it had terminated that deal.

Evergrande’s Hong Kong-listed stock has crashed more than 80% this year and its dollar bonds are trading far below face value, indicating skepticism among investors that they will be repaid in full. On Friday, the shares rose 5% in early trading, while its bonds were still at deeply distressed levels that indicate investors still expect the company to ultimately default.

A $4.7 billion, 8.75% Evergrande bond due 2025 was quoted at just 21.75 cents on the dollar Friday morning in Hong Kong, according to Tradeweb, up from 20.5 cents late Thursday.

The developer is the highest-profile casualty of a campaign by Chinese authorities to tame the housing market, in part by tamping down on excessive corporate borrowing through limits on bank lending and restrictions on developers’ leverage known as the “three red lines.”

But the sector as a whole has run up huge debts—more than $5 trillion, including cash raised from home buyers through presales of still-uncompleted apartments, according to economists at Nomura—and is smarting under the new regime.

Contracted sales, which reflect new contracts signed with home buyers, at many developers fell more than 20% or 30% year-over-year in September, and official government statistics show nationwide new-home prices fell slightly last month for the first time since 2015.

Evergrande’s own contracted sales have plunged even more; the developer said this week that its contracted sales “for the month of September 2021 and up till now” totaled the equivalent of just $572 million, far below the $28.5 billion worth of contracted sales it reported in the full two months of September and October 2020.

Several smaller developers, such as Fantasia Holdings Group Co., have recently either defaulted on their debts or demanded investors wait longer for repayment, and prices for the bonds of many developers are trading at deeply distressed levels.

—Frances Yoon contributed to this article.

China Evergrande Group: Stalled Construction, Massive Debts

Write to Elaine Yu at elaine.yu@wsj.com and Quentin Webb at quentin.webb@wsj.com

Copyright ©2021 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

Appeared in the October 22, 2021, print edition as ‘Evergrande Averts Bond Default.’

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Business

Zillow Gets Outplayed at Its Own Game

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Zillow, it seems, has over-flipped.

The company that has prided itself on its technology to outsource a lot of human work is suddenly referring the work right back to humans. Zillow Group’s automated home-flipping business has stopped pursuing new home acquisitions temporarily, Bloomberg reported on Sunday. In a statement for this article, a Zillow spokesperson said in an email it is “beyond operational capacity in [its] Zillow Offers business.” Zillow said it is now connecting homeowners looking to sell their home to its local Premier Agent partners.

The pause seems to be a case of poor planning—a surprising lapse for a company that has been in the online real-estate business for nearly 17 years. Rather than a cash issue, Zillow is saying it experienced supply constraints having to do with on-the-ground workers and vendors. Leave it to a technology company to develop an algorithm to predict home values, but mismanage the human aspect of its business.

To add insult to injury, Zillow’s biggest competitor seems to be handling high volumes just fine.

Opendoor Technologies

OPEN 3.20%

said it is “open for business and continues to scale and grow,” noting it has worked hard over the past seven years to ensure it can continue to deliver as it expands. While Zillow long predates Opendoor as a company, it mainly offered an online marketing platform for agents before adding iBuying in 2018.

Zillow said it purchased a record number of homes in the second quarter at 3,805, but that still paled in comparison to the 8,494 homes Opendoor purchased in the same period. It doesn’t seem as though the near-term business has completely flopped: The company says it is continuing to process the purchases of homes from sellers who are already under contract as quickly as possible. That means home purchases could still continue to grow sequentially in the fourth quarter, even with the pause. Zillow hasn’t publicly commented on its fourth-quarter buying forecast, but has said its third-quarter outlook implies a “step up” in purchase activity.

Rather than flip out, iBuying investors may want to look at Zillow’s news as an opportunity for its competitors. Opendoor is now active in 44 markets, including all but two of Zillow’s 25 markets. Zillow’s pause therefore spells a golden opportunity for Opendoor. Zillow hasn’t yet said when it will resume new home purchases, but an email from a Zillow Offers Advisor to an agent seen by the Journal suggests the pause will last through the end of 2021 at the least.

Zillow’s mismanagement also highlights a key strength for smaller competitor

Offerpad Solutions.

OPAD -0.24%

Led by a former real-estate agent, that company has long touted its ground game. Offerpad, which is now a publicly traded company after closing its merger with a special-purpose acquisition company in September, seems to have been ahead of the curve in terms of understanding how many workers to employ and where, which repairs need to get done and how to execute them efficiently. An analysis by BTIG Research shows Offerpad’s contribution profit per home sold was over 4.7 times that of Zillow’s last year.

Opendoor is now active in 44 markets, including all but two of Zillow’s 25 markets.



Photo:

Conor Ralph for The Wall Street Journal

But the news is also a signal that investors may want to start to tread more lightly around what has thus far been a banner year for the sector. The reality is that iBuyers have incredible amounts of market data, can plan acquisitions and inventory months in advance and have a number of levers to pull to slow or accelerate the business, according to Mike DelPrete, a real estate tech strategist and scholar-in-residence at the University of Colorado Boulder. Given that, it is unusual that Zillow’s pause happened so suddenly and across all its markets.

The U.S. real-estate market has finally started to cool a bit. On Friday, Redfin reported the median home sale price rose 14% year-over-year in September—the lowest growth rate since December 2020. Meanwhile, closed home sales and new listings of homes for sale both fell from a year earlier, by 5% and 9% respectively.

Thus far, no other major iBuyer has said it was pausing new acquisitions this year. As Mr. DelPrete notes, it is possible Opendoor and Offerpad began to slow their own buying commitments as the market started to change, while Zillow missed the signs. More likely, Zillow, which has consistently prophesied what it calls the “Great Reshuffling” amid a permanence in remote work, just neglected to do its own reshuffling on the ground.

The U.S. mortgage market involves some key players that play important roles in the process. Here’s what investors should understand and what risks they take when investing in the industry. WSJ’s Telis Demos explains. Photo: Getty Images/Martin Barraud

Write to Laura Forman at laura.forman@wsj.com

Copyright ©2021 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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