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Today’s top stories…
Home prices are still climbing, but inventory is slowly improving
Cubicles for condos? Vacant offices could be the next big opportunity for residential investors
Scammers are using AI deepfakes to steal millions, including in real estate.
💰 Deal of the Day!: 4 bd | 3 ba | Tobyhanna, PA
Today’s mortgage rate (30 Yr. Fixed): 7.05% - Back over 7% 😅
Home Prices Keep Rising, But Inventory Shows Signs of Life
Let's dive into the latest S&P CoreLogic Case-Shiller Index and see what's cooking in the housing market.
Home prices continue to climb, with national, 10-city, and 20-city composites showing annual gains of 6.0% to 7.4% in January 2024. That's a step up from December's 5.5% to 7.0% gains. During this period, mortgage rates dipped, then settled in the mid-to-high 6% range.
January saw a 7.9% annual increase in homes for sale, marking the third consecutive month of growth. Existing-home sales rose as buyers jumped on December's lower rates. However, new-home sales inched up only 1.5%, and pending sales dropped 4.9%. Despite more inventory, there were 40% fewer homes than pre-COVID levels.
Regionally, Midwest and Northeast markets stayed hot in January. Some large Western markets, like San Diego and LA, saw prices rebound after a tough 2023. San Diego (+11.2%), Los Angeles (+8.6%), and Detroit (+8.2%) had the biggest annual gains, while Portland was the slowest at 0.9%. Still, all markets grew year-over-year.
What does this mean for you? Buyers face high prices and rates, but inventory is improving. Sellers, spring is the best time to sell, and fresh, well-priced listings will attract eager buyers.
From Offices to Apartments: The Next Big Investment Opportunity?
Let's talk about the elephant in the room: vacant office buildings. With the pandemic shaking up the traditional work model, these once-bustling spaces are now collecting dust. But where there's a challenge, there's also an opportunity, right?
The office space death spiral is in full swing, with commercial office space in major cities experiencing an "urban doom loop." Remote work and high interest rates have limited options for troubled building owners, leading to prices being slashed by 50% or more, reminiscent of the 2008 crisis. The national office market lost a staggering $664.1 billion in value from 2019 to 2022.
Converting vacant offices to housing is a potential solution to the urban housing shortage. A success story is 160 Water Street in NYC, now Pearl House, a 600-unit apartment building. However, only 10-15% of office buildings nationwide can be easily converted due to sustainability issues and high costs. Luxury apartments, rather than affordable housing, are more likely to cover conversion expenses.
Cities are evolving from business hubs to entertainment and socialization centers. Investors can snag office buildings at fire-sale prices, but demand for downtown living is key. Creating a work/life culture with walkable neighborhoods could be a feasible new model, while hybrid work models offer a middle ground between remote work and traditional office settings.
Conversion trends are picking up steam. In the last 20 years, nearly 80 NYC office buildings have been converted to residences. From 2010 to 2021, 222 office buildings were converted nationwide, with Philadelphia and Chicago leading the pack. More conversions are planned in NYC, Philadelphia, Cleveland, Los Angeles, and Washington, D.C.
Investment opportunities abound, though luxury condos can be challenging for cash flow. Short-term and mid-term rental models (like Airbnb) can generate passive income. Developers may offer deals on office-to-condo conversions to spark early sales, and savvy investors can negotiate with developers to secure favorable terms and maximize rental potential.
The pandemic has accelerated the shift in how we use office space, and while it presents challenges, it also opens doors for innovative investors. As cities encourage developers to transform empty offices into housing, there could be a wealth of opportunities for those ready to adapt and seize the moment.
AI Deepfakes: The New Face of Real Estate Fraud
The world of fraud just got a whole lot more sophisticated. Scammers are now wielding the power of AI deepfakes to impersonate professionals and steal millions, leaving even the savviest among us vulnerable.
Imagine this: a group of scammers in Hong Kong used deepfake technology to impersonate a company's CFO on a video call, tricking an employee into transferring over $25 million. As these AI-generated audio and video files become more realistic, experts fear fraudsters will use them to intercept payments or collect sensitive information in real estate transactions.
In the past, investors could protect themselves by looking out for red flags like misspelled email addresses or verifying transactions over the phone. But now, those warning signs are harder to spot. Scammers can spoof phone numbers and use deepfake audio to impersonate voices, making it increasingly difficult to distinguish real from fake.
The National Association of Realtors emphasizes the importance of in-person communication at some point in the transaction to combat fraud. Long-distance investors will need face-to-face contact with a local agent to obtain an authentic phone number for verification.
Investment fraud is on the rise, with a record of more than $4 billion in stolen funds in 2023. AI scams were among the top five most common types of investment fraud, and while software that detects AI content can be helpful, it's not foolproof. Policymakers are attempting to catch up with the rapidly advancing technology, but there's still a long way to go.
In the meantime, media literacy is crucial. Investors should be skeptical of anything that seems too good to be true, double-check the authenticity of documents and payment instructions, and stay informed about new technology and current scams. The National Cybersecurity Alliance recommends being mindful of what you share online, following AI news, being wary of phishing attempts, and reporting deepfakes if you encounter them.
Despite the risks, generative AI continues to provide valuable resources for real estate professionals. Chatbots streamline communications, and advanced AI tools can analyze data to prioritize listings and help investors make smarter decisions. The added value to the real estate industry from generative AI could be between $110 billion and $180 billion.
The bottom line? AI technology will undoubtedly disrupt the real estate industry, creating new vulnerabilities while also enabling investors to act with precision and communicate with ease. By staying informed and taking steps to prevent fraud, you can harness the power of AI to positively impact your business.
💰 Deal of the Day!
Price: $459,000
This spacious, fully furnished 4-bedroom, 3-bathroom mountain escape in the Poconos offers a perfect blend of relaxation and adventure, with its prime location on a golf course, luxurious amenities like a sauna and game room, and access to a wide range of community activities, making it an ideal choice for a memorable vacation rental experience.
Airdna data:
Estimated monthly payment: $3,264/month (if financed)
Estimated monthly revenue: $3,408/month
Cashflow excludes additional operating expenses. Always confirm local regulations, HOAs and permits before purchasing a property.
Thanks and see you tomorrow!
✍️ Brett