Can You Truly Own Anything in the Metaverse?

In 2021, an investment firm bought 2,000 acres of real estate for about US$4 million. Normally this would not make headlines, but in this case the land was virtual. It existed only in a metaverse platform called The Sandbox. By buying 792 non-fungible tokens on the Ethereum blockchain, the firm then owned the equivalent of 1,200 city blocks.

But did it? It turns out that legal ownership in the metaverse is not that simple.

The prevailing but legally problematic narrative among crypto enthusiasts is that NFTs allow true ownership of digital items in the metaverse for two reasons: decentralization and interoperability. These two technological features have led some to claim that tokens provide indisputable proof of ownership, which can be used across various metaverse apps, environments and games. Because of this decentralization, some also claim that buying and selling virtual items can be done on the blockchain itself for whatever price you want, without any person or any company’s permission.

Despite these claims, the legal status of virtual “owners” is significantly more complicated. In fact, the current ownership of metaverse assets is not governed by property law at all, but rather by contract law. As a legal scholar who studies property law, tech policy and legal ownership, I believe that what many companies are calling “ownership” in the metaverse is not the same as ownership in the physical world, and consumers are at risk of being swindled.

Purchasing in the metaverse

When you buy an item in the metaverse, your purchase is recorded in a transaction on a blockchain, which is a digital ledger under nobody’s control and in which transaction records cannot be deleted or altered. Your purchase assigns you ownership of an NFT, which is simply a unique string of bits. You store the NFT in a crypto wallet that only you can open, and which you “carry” with you wherever you go in the metaverse. Each NFT is linked to a particular virtual item.

It is easy to think that because your NFT is in your crypto wallet, no one can take your NFT-backed virtual apartment, outfit or magic wand away from you without access to your wallet’s private key. Because of this, many people think that the NFT and the digital item are one and the same. Even experts conflate NFTs with their respective digital goods, noting that because NFTs are personal property, they allow you to own digital goods in a virtual world.

NFTs and the hype about the metaverse have sparked a virtual land rush.
However, when you join a metaverse platform you must first agree to the platform’s terms of service, terms of use or end user license agreement. These are legally binding documents that define the rights and duties of the users and the metaverse platform. Unfortunately and unsurprisingly, almost no one actually reads the terms of service. In one study, only 1.7% of users found and questioned a “child assignment clause” embedded in a terms of service document. Everyone else unwittingly gave away their first-born child to the fictional online service provider.

It is in these lengthy and sometimes incomprehensible documents where metaverse platforms spell out the legal nuances of virtual ownership. Unlike the blockchain itself, the terms of service for each metaverse platform are centralized and are under the complete control of a single company. This is extremely problematic for legal ownership.

Interoperability and portability are defining features of the metaverse, meaning you should be able to carry your non-real-estate virtual property – your avatar, your digital art, your magic wand – from one virtual world to another. But today’s virtual worlds are not connected to one another, and there is nothing in an NFT itself that labels it as, say, a magic wand. As it stands, each platform needs to link NFTs to their own proprietary digital assets.

Virtual fine print

Under the terms of service, the NFTs purchased and the digital goods received are almost never one and the same. NFTs exist on the blockchain. The land, goods and characters in the metaverse, on the other hand, exist on private servers running proprietary code with secured, inaccessible databases.

This means that all visual and functional aspects of digital assets – the very features that give them any value – are not on the blockchain at all. These features are completely controlled by the private metaverse platforms and are subject to their unilateral control.

Because of their terms of service, platforms can even legally delete or give your items away by delinking the digital assets from their original NFT identification codes. Ultimately, even though you may own the NFT that came with your digital purchase, you do not legally own or possess the digital assets themselves. Instead, the platforms merely grant you access to the digital assets and only for the length of time they want.

For example, on one day you might own a $200,000 digital painting for your apartment in the metaverse, and the next day you may find yourself banned from the metaverse platform, and your painting, which was originally stored in its proprietary databases, deleted. Strictly speaking, you would still own the NFT on the blockchain with its original identification code, but it is now functionally useless and financially worthless.

While admittedly jarring, this is not a far-fetched scenario. It might not be a wise business move for the platform company, but there’s nothing in the law to prevent it. Under the terms of use and premium NFT terms of use governing the $4 million’s worth of virtual real estate purchased on The Sandbox, the metaverse company – like many other NFT and metaverse platforms – reserves the right at its sole discretion to terminate your ability to use or even access your purchased digital assets.

If The Sandbox “reasonably believes” you engaged in any of the platform’s prohibited activities, which require subjective judgments about whether you interfered with others’ “enjoyment” of the platform, it may immediately suspend or terminate your user account and delete your NFT’s images and descriptions from its platform. It can do this without any notice or liability to you.

In fact, The Sandbox even claims the right in these cases to immediately confiscate any NFTs it deems you acquired as a result of the prohibited activities. How it would successfully confiscate blockchain-based NFTs is a technological mystery, but this raises further questions about the validity of what it calls virtual ownership.

The Conversation reached out to The Sandbox for comment but did not receive a response.

Legally binding

As if these clauses weren’t alarming enough, many metaverse platforms reserve the right to amend their terms of service at any time with little to no actual notice. This means that users would need to constantly refresh and reread the terms to ensure they do not engage in any recently banned behavior that could result in the deletion of their “purchased” assets or even their entire accounts.

Technology alone will not pave the way for true ownership of digital assets in the metaverse. NFTs cannot bypass the centralized control that metaverse platforms currently have and will continue to have under their contractual terms of service. Ultimately, legal reform alongside technological innovation is needed before the metaverse can mature into what it promises to become.

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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What Do Historical Mortgage Interest Rate Trends Tell Us About What’s Coming Next?

If you didn’t take advantage of the historical low mortgage interest rates over the past several years, you may think you missed the proverbial home buying boat and decide to wait in hopes the market will become more favorable again. Taking a look at trends over the past 50 years as well as understanding why rates fell so low in the first place may help in your decision-making process.

In 2019, average mortgage rates were already quite low compared to the historical average, just under 4%. When Covid hit and the pandemic era became the norm with quarantines, supply chain issues, businesses shutting down and the like, the Federal Reserve quickly implemented policies to keep money flowing through our economy which in turn lowered rates even further.

By July 2020, the 30-year fixed rate fell below 3% for the first time in our nation’s history and by January 2021 it had plummeted all the way down to 2.65%.

These Covid-era policies were only meant to be temporary and once the economy started regaining its footing as restrictions eased, the Federal Reserve had plans to slowly adjust interest rates upwards. However, add a surprisingly rapid 40 year high spike in inflation, rates moved faster than almost anyone anticipated.

According to Freddie Mac, the average 30-year rate jumped from 3.76% to 5.11% between March 3 and April 21 — an increase of 1.35% in just eight weeks.

Yet looking at the data (see chart) from Freddie Mac’s Mortgage Market Survey dating back to 1971, we are still below the five-decade average of just under 8%. Mortgage rates can fluctuate daily as well as yearly, and some years have fluctuated much higher than what we are currently experiencing.

In the late 1970’s, inflation was rampant and the Fed took drastic action in hopes of bringing the economy under control. By 1981, this translated to the highest 30-year fixed mortgage rate averaging a whopping 16.63%. (Proud daughter moment, my mother was an agent at this time with Harry Norman, Realtors and managed to persevere through this incredibly challenging period with her love of real estate intact.)

Will interest rates skyrocket back up to those early ‘80’s levels? Most experts say that is highly unlikely as there were multiple, decade long factors leading to this particular perfect storm back then, but also…never say never.

So, back to the decision you may be considering, should you wait for mortgage rates to go back down? Taking a look at the historical data as well as our nation’s current economic situation, all signs point towards higher mortgage rates in 2022. Although there may be small percentage point dips here and there, the trend appears to be heading upwards in the coming months. Combine that fact with predicted annual home value appreciations still clipping along at a robust pace (estimates for the Atlanta area hovering over 15%), waiting may be much more costly than moving forward, at least for the next 5-10 years.

If you have any questions or would like to take the next steps, reach out. We would love to help!

By Holly A. Morris, Realtor

The Meridian Real Estate Group

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How Serious is the Threat of Obsolescence in the Office Market?

To say there’s uncertainty in the office market is an enormous understatement. Companies and landlords are beginning to get more clarity as hybrid work models firm up and workers slowly trickle back to offices. But vacancy rates remain stubbornly high, and there’s been a vast difference in occupancy for newer and older buildings. The speculation about the future of work and the office market is endless. And one increasing question is whether or not a large swathe of office buildings faces obsolescence.

When something becomes “obsolete,” it has lost its function or desirability due to changing technologies, requirements, or market preferences. Eight-track tapes were the primary music delivery device from the mid-1960s to the mid-70s. Then, technological advances replaced the eight-track, giving way to cassette tapes, the compact disc, and eventually digital files like MP3s and streaming services like Spotify. Each tech shift made the previous era’s listening devices obsolete, tossing them into the dust bin of history.

The same thing can happen to buildings. Economical, functional, and physical factors can render buildings obsolete. The obsolescence can be curable or incurable, depending on the severity. Some factors like a traffic pattern shift or neighborhood zoning could be terminal because it’s outside the control of investors and building owners. They can lobby city officials for changes, but the decision is up to someone else. Other factors, like the physical aspects of a building, can sometimes be fixed as long as they can be resolved quickly and at a reasonable cost.

For the office market right now, the pandemic has accelerated the flight to quality and created conditions for possible obsolescence that may or may not be curable for some buildings. It may be hard to motivate employees to return to a 1970s-era office that’s not compelling and doesn’t have all the dazzling amenities that many corporate occupiers are investing in right now. Plus, there’s the sustainability aspect. More regulations from state and local jurisdictions on lowering carbon emissions, such as New York City’s Local Law 97, push expensive energy efficiency upgrades on office buildings, making inefficient older buildings much less attractive to corporate tenants.

Out with the old
The process of auditing building portfolios for obsolescence has already begun, according to Lonnie Hendry, Head of CRE & Advisory at Trepp, a provider of commercial real estate data and analytics. “Property owners are identifying buildings with red flags,” Hendry said. “We won’t see historical price drops in Class B and C offices tomorrow, but it’ll happen soon.” Hendry said an excellent example of the obsolescence trend is what happened at 1740 Broadway in NYC’s Midtown West. Blackstone lost two large tenants at the 600,000 square foot office and then handed the keys back to the special servicer on its $308 million commercial mortgage-backed security.

Blackstone has extensive Manhattan office holdings, and giving up on the 1740 Broadway property was a “one-off occurrence,” a source told Commercial Observer. The real estate firm said the building had a “unique set of challenges.” While Blackstone said it was a one-off occurrence, Hendry told me the loss was “indicative of what we’ll be seeing” in the office market. “When tenants move out, owners may start bailing on older properties,” Hendry said.

The challenging thing for investors and building owners is that with interest rates rising, they may not be able to refinance loans at favorable rates, putting more pressure on underperforming assets. Though, owners of Class B and C offices do have options besides foreclosure. Most of them can reinvest their capital in upgrades to make buildings into solid B-plus or A-minus offices and still develop a stronghold depending on pricing. But another challenge is how building owners will pass all these improvement costs to tenants. There’s still a lot of downward pressure on office rents, and tenants have leverage in today’s market, leading to situations where owners may be forced to sell due to insufficient cash flow.

Institutional owners will be better able to absorb a drop in prices and rents, but it may be more challenging for individual owners to hold on. Something similar happened with hotels throughout the pandemic, as big operators withstood the impact of high vacancy rates, but smaller owners were forced to sell at a loss. “Institutional office owners can probably survive and pivot,” Hendry said, “but smaller owners will see significant cap rate increases and could fare much worse.”

Re-pricing on the horizon?
A new report from Zisler Capital Associates, a commercial real estate consultancy, delved into office market obsolescence. They estimate that as much as 70 percent of existing office stock will suffer from accelerating obsolescence. The report says the re-pricing of space and assets will require office owners and investors to decide which to hold, renovate, or sell. The effects of COVID and sustainability standards have created an increasingly bifurcated office market. Energy-efficient and healthy offices are in high demand, while older buildings are becoming obsolete with aging systems, poor energy performance, and a failure to recognize changing tenant demands and government standards. “Regardless of the number of people returning to the office, many will demand updated, sustainable, healthy space, as demonstrated by large tech firms signing mega leases during the pandemic,” the report said.

The report estimates that of older and smaller office buildings, prices could decline on average by at least 20 percent over the next 3 to 5 years based, in part, on historical cap rates and building quality ratings. “If local governments don’t require changes for energy efficiency, firms and workers will discriminate in building selection, and that’ll manifest in pricing,” said Randall Zisler, Chairman of Zisler Capital Associates and a former Executive Director of Real Estate Research at Goldman Sachs. “There will be a big sorting in the market. There could be a lot of office buildings sold at a loss.” Zisler said his firm used CoStar data and looked at more than 220,000 square feet of office buildings for the study’s methodology.

The popularity of hybrid work is one of many factors contributing to office obsolescence. If hybrid is indeed the future of work, companies will likely need on a per-employee basis 9 percent less space, according to Stefan Weiss, Senior Economist at CBRE. This could easily lead to higher vacancy rates for lower-quality buildings. “Owners may have to severely drop rents or invest money back into the building,” Weiss said. “Or they could make a case for conversion.” Landlords and owners are also repositioning office buildings with an eye toward 2050 and reaching reduced carbon emissions targets. Higher-end offices will come with a so-called ‘green premium,’ while lower-end, energy-hog buildings could have a ‘brown discount.’

As for office conversions, Weiss thinks some landlords could make the case to adapt Class B and C properties. “If floor plates are conducive, office to multifamily conversions make sense,” Weiss said. Converting to lab space could work, too, given that life sciences is a hot market right now, even though it’s still a minimal share of U.S. office inventory.

Change isn’t easy
Not everyone agrees that office conversions will catch on. “We’re not scoffing at the idea of office to multifamily conversion, but we think it doesn’t pencil out most of the time,” said Kevin Fagan, Head of CRE Economic Analysis at Moody’s Analytics. Moody’s studied office to multifamily conversions in the New York City metro area and discovered that only about 3 percent (or 35 of the nearly 1,100 NYC office buildings they track) would meet what they consider characteristics of a potentially viable apartment conversion. Even in a down year for offices when multifamily has thrived, the report says not many office properties have transacted deep enough discounts to warrant profitable conversions.

There’s also the matter of the size and shape of typical office buildings, which limits potential conversions. Offices usually have deep floor plates and little natural light for interior offices and storage rooms. And natural light is essential for apartments. Much of an office building may be rendered unusable or very low value because of floor plates up to 120 feet wide. “The office-to-apartment conversion trend will likely be minor unless office values and rents see some major, permanent decline after the pandemic,” Moody’s report concludes. Outside of New York, a less economically diversified market may pose more conversion opportunities.Besides conversions, Fagan also doesn’t think the office market is in dire straits as some make it out to be. Commercial mortgage-backed securities (CMBS) loan defaults are about 2 to 3 percent for offices. That’s a far cry from the last down cycle during the Financial Crisis of 2008, when loan defaults were about 10 percent. There has been a national dip in many leading office market indicators, but there are indications of recovery. “People forecasting major declines for the office are speculating,” Fagan said.

Fagan said that the reality of reducing office footprints is complicated and plays out over a long period. Typically, only about 4 percent of most corporate occupiers’ revenue is spent on real estate, while the highest cost is 20 to 30 percent on people and the labor force. Companies are trying to figure out what’s best for their workforce right now. Some firms will shrink office footprints, but others will expand, as evidenced by Big Tech companies gobbling up office space recently. “It’s not an apocalypse for the office,” Fagan continued. “Real estate costs aren’t killing the average company.”

There’s a potential that lower office occupancy rates could remain, but Fagan thinks we could be back to the pre-pandemic normal about 3 to 5 years from now. There are anecdotes of good and bad in the office market, andd the data doesn’t support all doom and gloom. For instance, there has been much speculation about shorter lease terms, but Fagan said shorter leases signed during the pandemic mainly were isolated to smaller companies. Small firms were inclined sometimes to sign “bridge leases” of less than a year while they figured out the implications of the pandemic. But larger and mid-sized companies were still signing leases during the pandemic for 9 to 12 years.

Uncertain times for offices
The road ahead for the office market is still hazy for now. The office is maybe in last place among the 5 major commercial real estate asset classes, according to Huber Bongolan, Director of Capital Markets & Underwriting at StackSource. Hospitality and office took the biggest hits from the pandemic, but lenders are starting to see the light at the end of the tunnel for hotels. Bongolan explained that the same narrative isn’t there for the office yet, even though people are beginning to return to their desks. “Many investors really don’t like Class B and C suburban offices; they’re very tough to get financing for,” he said. “There’s less incentive to maintain a building unless it’s Class A.”

The claims that a vast swathe of buildings will face alarming re-pricing or worse may just be speculation. The study by Zisler Capital Associates estimates that about 30 percent of office buildings can be categorized as “endangered,” being all but obsolete and incurable. This is an alarmingly big number, so big that it is somewhat hard to believe. “That seems like an awfully broad number,” Bongolan said, adding “an old real estate professor of mine always used to say drill the number down as much as possible to get specific.”

The flight to quality is very real, leading to a bifurcated market with Class B and C properties having difficulty catching up. Tenant demands and improvements will likely increase, given regulations for carbon reduction and the push to get employees back in buildings. Tenants may leave older offices for newer properties, leaving owners with large vacancies and insufficient cash flow. Obsolescence audits can help property owners know if the worst comes to pass but no matter how much market analysis is done the uncertainty around the future of office buildings will remain, and so will the speculation about what will happen next.

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Battle for Parking Unites Developers and Affordable Housing Activists

Last November, Boston’s Zoning Board of Appeals made a decision that brought the city’s real estate developers and affordable housing advocates together in a somewhat rare moment of unity. It rejected a 31-unit, solar-powered, mixed-use project in the city’s Roslindale neighborhood simply because it did not include any on-site, off-street parking. The Zoning Board’s decision to deny the project came in direct opposition to Boston Planning and Development Agency (BPDA), the city’s authority on development review, which had already granted approval.

The project in question, referred to by the site’s address at 4198 Washington Street, is a good candidate for redevelopment for a number of reasons. The location is currently a signal-level retail space, home to two locally owned businesses, and is in the center of a walkable neighborhood, flanked by multiple bus routes and a transit line. Roslindale is one of the most expensive neighborhoods in the city with the lowest percentage of affordable housing units of any neighborhood (12 percent in Roslindale vs. 18 percent citywide). It is also a neighborhood with more single-family homes than a typical Boston neighborhood, spurring higher-than-average housing values and residents with higher median household incomes.

The decision to not include parking in the plans was not a win either. The developer’s vision for 4198 Washington was rooted in two years of community conversations, including a tight partnership with the site’s current tenants to give them each new, modern space at below-market rent. The plan would have added much-needed housing to Roslindale with 40 of the proposed units offered to those earning less than 60 percent of the area median income. That is well above the city’s 13 percent affordability minimum for new developments with ten or more housing units.

Through their conversations with the community, the developer responded to neighbors’ concerns, reducing the height of the project from seven stories to four in the front, and five in the back (as to be not visible from the street). They also promised to subsidize public transit passes for all future residents and provide 20 leased parking spaces just a half-mile away. The new building would have been 100 percent electric, powered by solar, setting a new standard for sustainability in the neighborhood.

But it still wasn’t enough to sway the zoning board to vote in favor of the project and grant the zoning relief regarding parking needed to build.

Benjie Moll, Principal at Arx Urban, the developer for the project, shared his frustrations and the bigger implications for real estate development in Boston. “There seems to be a disconnect between the city’s goals for greener projects with less parking and what the zoning board views as a reasonable development,” he explained. “One of the keys to solving our housing crisis is to ensure there is predictability in permitting, especially after a multi-year process.”

Many high-profile neighbors spoke out in opposition to the decision including City Councilor Richard Arroyo and housing advocates including Jesse Kanson-Benanav, Executive Director of Abundant Housing Massachusetts. Kanson-Benanav highlights the significance of the project, “The Arx Urban project checks off all the boxes in terms of what the city wants a development project to be. If 4198 Washington can’t get approved, then what will?”

A city built by variance

Unlike New York, Boston doesn’t operate under a by-right development model. Jonathan Berk, Vice President at Patronicity and an outspoken advocate for placing the importance of creating housing for people over parking for cars, explains, “Almost every development in Boston requires zoning variances to be built and that opens up the project to criticism and litigation. Fundamentally, the city’s zoning code doesn’t reflect a growing Boston because it was created in the 1960s when the city was shrinking.”

In fact, the zoning code is in direct opposition to the Imagine Boston 2030, the master plan that is supposed to be guiding development and planning decisions. Finalized in 2017, the plan puts a premium on sustainability and housing affordability, two driving forces that weren’t even considerations when the city’s zoning laws were inked nearly 60 years beforehand.

The process for getting zoning relief not only extends development timelines, but it also jeopardizes project financing. Real estate investors and financiers don’t want to fund projects that may never break ground. When there’s no predictability about what a developer can actually build, capital is harder to secure.

The price of parking

The total price tag of parking can make a project impossible to pencil out. In Boston, on-site parking can cost $75,000-$100,000 per space to build, particularly because it usually means digging for an underground garage.

Kanson-Benanav explains that parking requirements are directly contributing to housing shortages in Boston and other cities across the country. “We are pushing the city toward eliminating broader parking requirements because it will reduce the cost of producing new housing and trigger more production of the missing middle of housing.”

In December, Boston did eliminate the requirement for on-site parking in multifamily projects with 60 percent income-restricted units, but that represents an insignificant number of all proposed housing projects currently under review in the city. In the case of 4198 Washington Street, this rule would not have applied.

One reason why parking minimums are so frustrating for housing advocates is that most spaces go unoccupied. According to the Metropolitan Area Planning Council, the regional planning agency for Greater Boston, 30 percent of parking spaces at new apartment buildings in the city are unused.

Parking remains a hot topic for projects going before the zoning board. In March 2022, a proposed 26-unit development in Boston’s Dorchester neighborhood was rejected by the ZBA because it lacked on-site parking even though the site sits directly between two subway stations on Boston’s red line. It’s less than a five-minute walk to either stop.

“Developers are buying sites that they can’t build on because they can’t get the permits or what’s permitted is unbuildable because of construction costs. Unless something changes, there will be fewer and fewer units built in Boston,” said Moll.

The new school of thought when it comes to parking goes back to basic economics: whether or not parking is included in a new development should be determined by the market. If people are willing to live in a place with no dedicated parking then they should have the chance. The argument against reducing parking usually has to do with increased pressure on city services like on-street parking. These worries can be easily eliminated by taking steps like those used by the developers of 4198 Washington Street.

Other cities including Minneapolis and Buffalo have eliminated all parking requirements from their zoning laws in an effort to reduce the cost of housing production and promote a lower dependence on cars. However, It’s too early to tell if those changes have made a significant improvement in those cities. A better comparison is looking at European cities like Amsterdam which is taking a systematic approach to not only reducing car parking on its streets but also banning cars entirely from certain areas of the city. These changes to parking availability are met with less pushback because Amsterdam’s residents rely less on their cars, with only 19 percent of residents driving daily.

There is a growing sentiment in the U.S for less car-centric development. But this doesn’t usually translate to development conversations when the lack of parking combined with proposed added density is weaponized by NIMBYs that don’t want change in their neighborhoods, even in urban centers like Boston. No matter how much we push for sustainable, affordable development, when people who oppose development sit on zoning boards, what happened to 4198 Washington Street becomes the norm, rather than the exception.

With housing production, particularly the affordable and workforce kind, years behind where it needs to be to ease the housing crisis, our communities will continue to suffer. Low-income families and seniors sit on housing waiting lists that are 5-6 years long. The American dream of homeownership is transforming into a nightmare for wishful first-time homebuyers. The typical family of four often can’t find a place to live, buy or rent, that’s under 50 percent of their take-home pay. But still, parking cars often trumps new housing because we allow that to happen. For cities, the question becomes more basic. What matters more: creating housing or parking cars? Sadly, the answer to this question for most American cities still isn’t clear.

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Where Are All the Houses? Understanding Housing Inventory …

Anyone in the market for a new home can probably tell you options are limited right now. As of mid-April 2022, the number of active listings for homes was down 22% for the year, according to the National Association of Realtors. That’s on top of the housing inventory hitting the lowest level ever recorded last December.

“During the pandemic, people stopped selling their houses,” says Lisa Knee, chair of real estate services for advisory firm EisnerAmper in New York City.

While people now seem ready to put the pandemic behind them, housing inventory levels could take years to rebound. Experts say that’s thanks to factors ranging from the 2008 housing crisis to an influx of millennial homebuyers. The bottom line for buyers and sellers is that the housing market will continue to provide both challenges and opportunities for some time to come.

Fallout From the Housing Crisis
The current low housing inventory has some of its roots in an event that occurred nearly 15 years ago. “There really haven’t been enough homes built since the housing crisis,” Knee says.

After the housing market crashed in 2008, the number of new homes being built plummeted. There were 1.35 million new construction starts in 2007, but that number dropped to just 554,000 in 2009. New construction starts didn’t reach 1 million again until 2014 and have continued to lag below the 1.5 million number that was common in the 1980s and 1990s.

While there were 1.6 million new construction starts in 2021, Knee notes that nearly half a million of those were for apartments or multifamily dwellings rather than single family homes. And now, supply chain issues are causing delays in the completion of these properties.

With a shortage of new homes being built, that has pushed more buyers into the existing home market. However, that is not the only reason for low inventory levels.

Millennial Homebuyers Pushing Demand
A low supply of homes for sale is only half of the housing market’s current inventory woes. The other half is increased demand, particularly from a generation that previously opted out of homeownership.

“We have such a tight inventory because of that millennial group,” says Jeff Taylor, founder and managing director of Mphasis Digital Risk, which provides mortgage services solutions.

Millennials, who are defined as those age 23 to 41, are the largest living generation in the U.S. and have long been inclined to lower levels of homeownership than their predecessors. However, that seems to be changing. More than 4 in 10 homebuyers are now millennials, according to the 2022 Home Buyer and Seller Generational Trends report from NAR.

With the oldest members of Gen Z moving into their mid-20s, demand from first-time buyers for affordable homes could continue to swell and keep housing inventory tight.Remote Workers, Investors Driving Sales in Some Areas
While some people may have kept their homes off the market because of the COVID-19 pandemic, it has led others to relocate. As companies embrace remote work as a permanent option, employees who no longer have to commute are free to consider less costly geographic locations.

A March 2022 report from the freelance marketplace Upwork found 2.4% of people say they have moved since 2020 because of remote work. Another 9.3% – totaling 18.9 million Americans – say they are planning a future move because of remote work.

Many of these workers are leaving large cities, such as San Francisco and New York City, according to Upwork. The cities that are attracting them are often in states with lower tax rates or, for those moving during the height of the pandemic, had fewer living restrictions.

“Areas like Arizona and Nevada are starting to see an influx of people,” says Edward E. Fernandez, president and CEO of 1031 Crowdfunding, an online platform for real estate investors who want to conduct 1031 exchanges to defer the payment of taxes.

In addition to remote workers, many investors are also competing for homes in desirable areas. “Investors are willing to buy property unseen,” Fernandez says in explaining the demand for homes in these regions.

Inventory Rebound Could Be Years Away
With so many factors affecting the market, it’s not likely housing inventory levels will rebound anytime soon. Still, the situation is expected to improve for buyers.

“As interest rates start going up, we should see a slowdown in the real estate market,” Fernandez says. He notes there can be a four- to six-monthlong delay before interest rate hikes make a noticeable difference on sales though.

Rising interest rates should cool demand for new homes, but they won’t affect the supply issues.

“We need to get that supply chain moving,” Knee says. Once more new homes are on the market, the inventory of existing homes for sale could see a boost.

But don’t expect changes any time soon. It’ll be “about four years before we see things level off,” Taylor says.

Considerations for Sellers and Buyers
Current housing inventory numbers mean sellers could get top dollar for their homes. “This is obviously a great time to maximize your value,” Taylor says. On the other hand, unless a seller owns a second home, they will need to buy a new house.

“(Someone) who is selling high is also buying high,” Fernandez notes.

Sellers should do their homework before putting their property on the market. If buying a new home is unaffordable, it may be better to stay put. For anyone worried they will miss out on selling for top dollar, Taylor doesn’t believe housing prices will drop.

“I think price appreciation will level off, but I think house values are extremely sound,” he says.

For buyers, the good news is that the days of double-digit percentage price increases may be coming to end. The bad news is that there still may be limited housing choices on the market, and rising interest rates will make homeownership more expensive.

“The answer might be in the rental market,” Knee says. While rental prices are up and vacancies are down in some areas, it might be a more affordable option for those who feel priced out of homeownership.

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Mortgages and house prices in the US: which is better in 2022, buying or renting, according to experts?

The pandemic has brought about some very unique economic circumstances which could have huge ramifications for people considering moving house this year. The economic recovery has triggered a spell of high inflation which is hurting consumers’ buying power.

The United States’ housing market is currently in a state of flux, with house prices sky-rocketing, high interest rates and rental prices on the rise too.

The S&P CoreLogic Case-Shiller Index found that by January 2022 home prices had jumped by 19.2% year-on-year, while the average cost of a single-family rental property had also increased by 12.6%. Now is an expensive time for housing, whether you are renting or buying, so experts are advising people to think what is actually required to satisfy their personal requirements.

Lexie Holbert, housing and lifestyle expert for, recommends: “If you’re not sure whether or not you want to rent or buy right now … it’s better to make your decision based on your personal situation and your personal needs.”

Timing is key when considering whether to buy or rent
The pandemic recovery has sent the cost of everything from groceries to gasoline soaring and consumers are unlikely to find any real bargains until the markets begin to level out. However we don’t know how long that is likely to take and housing is often a very time-sensitive decision.

The key difference between mortgage and rental agreements is the duration, with rental contracts better suited for short-term moves. Holbert advises that buying a property does work out as cheaper in the long run, but that it can take between five and seven years for a homebuyer to recoup the purchase costs.

“If your home needs are going to be pretty consistent and pretty stable over the next few years, now may be a really good time to buy for you,” Holbert said.

“If they’re changing, you may want to consider renting so that you have the flexibility to move.”

However if you feel like this could be the right time to get on the housing ladder and you are willing to wait, there could be better value on the horizon. Mortgage rates are expected to remain high, likely above 4%, for much of the year, which could squeeze some prospective buyers out of the market.

Holden Lewis, home and mortgage expert at Nerdwallet, believes mortgage rates could be above 4.5% towards the end of the year. With this in mind, there could be less competition for homeowners.

Lewis says: “The combination of rising interest rates and rising house prices will push some would-be buyers out of the market, which may result in reduced competition after the summer buying season is over.”

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Where—and how—Atlantans want to live now

Welcome to the Age of Nesting. The London-based Future Laboratory coined that phrase, noting that we’ve just emerged from “the largest home-working case study in history,” which will profoundly impact where and how we live. The Economist reported that moving patterns could be in for the greatest shift since the suburbanization of the 1950s.

Nowhere are people giving this more thought than here in Atlanta, a city that offers an especially wide array of living choices. It’s one reason our metro area has grown so rapidly—behind only Dallas and Houston in the last decade. But the plethora of options makes tracking significant shifts complicated. Harry Norman’s Todd Emerson told Axios Atlanta that, in 2021, the two metro neighborhoods with the highest home value appreciation were Kirkwood and Norcross. People are moving both in and out of the city. Apartment List Chief Economist Igor Popov suggests our nation isn’t so much experiencing an urban exodus as an “urban shuffle.”

Not only are we considering different places to live, we’re looking for different types of living spaces. Before the pandemic, “we were really on a downward trajectory, with people trying to build smaller, more efficient homes and well-appointed homes,” says Nicholas Brown, an agent with Compass real estate in Atlanta. “Now, I’m starting to see square footage sizes move back up again. People are willing to spend more than I’ve ever seen before to get exactly what they want.”

Outdoor entertaining areas have become a priority at all price points, whether that’s a wide front porch or a basketball court. “And you cannot even get an appointment with a pool contractor,” Brown adds. He’s finding buyers want to walk directly outside from the main floor, so daylight basements have become less desirable.

Brown says families are demanding one or even two home offices, not to mention homework rooms for the kids—all outfitted with plenty of charging stations and wireless technology. People are adding security systems and outdoor reception areas to keep deliveries hidden, sometimes even equipped with refrigeration for perishable Instacart deliveries. Because people are spending more time at home, they now prefer laundry rooms on the main floor. Brown had one client devote a closet entirely to paper products.

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New-home sales fall again in March

U.S. new-home sales fell again in March as low inventory, rising interest rates and elevated home prices curbed the pace of transactions.

The rate of new single-family home sales fell 8.6% from January’s revised number to a seasonally adjusted, annual rate of 763,000, while the median sales price jumped to $436,700 from February’s revised median house price of $421,600, the U.S. Census Bureau and the U.S. Department of Housing and Urban Development reported.

On a year-over-year basis, the pace of new-home sales in March was down 12.6%.

The seasonally adjusted estimate of new homes for sale at the end of March was 407,000, representing a supply of 6.4 months at the current sales rate, according to a press release.

While rising mortgage rates and home prices have crimped homebuyer purchasing power, the housing market still stands to benefit from other factors at work, RCLCO Real Estate Consulting principal Kelly Mangold said.

“Demographics remain a strong driver of housing demand, and as the market adjusts to deliver product at price points and formats that align with this demand, sales are likely to be bolstered,” she said. “In particular, due to the shortage of construction labor, buyers may be more hesitant to purchase a fixer-upper, understanding that the cost and timeline of renovations may be extended, making a turn-key new construction home more appealing.”

By region, the number of new-construction homes sold was down across the board, led by the South with a 10.2% monthly drop and followed by the Midwest with an 8.7% drop, the West with a 6% decline and the Northeast with a 5.4% decrease.

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Record High Office Vacancies on the Horizon

A new report shows that we should expect 243 million square feet of U.S. office space to hit the market soon. A slew of U.S. office leases are set to expire thanks to the fact that many office tenants whose leases were set to end during the worst of the pandemic signed one-year or two-year renewals as they tried to figure out how much less space they would need under a hybrid strategy.

These expiring leases account for around 11 percent of all leased office space in the United States, according to data from JLL. If these spaces are not renewed or released it could result in a disastrous domino-effect of lost revenue and lower property values. Many expect a dip in office space demand, 15 percent by some estimates, can be attributed to the post-pandemic reality of a remote or partially remote workforce.

Loans to office building owners who are in default are also on the rise. According to a Barclays analysis, 21.2 percent of office loans packaged into commercial mortgage securities during the global financial crisis were either handled by special servicers or on watch lists in February, two closely watched categories that could lead to defaults. Since 2010, this is the highest level.

It’s the perfect storm of rising interest rates, lowered occupancy with remote or a partially remote workforce, and loans coming due that’s resulting in giving office landlords and economists grief. But despite the looming gap of office leasing ahead, big tech companies (like Meta, Google, and Microsoft) have been expanding their office footprint. That said, most office tenants aren’t expected to increase their leasing activity any time soon, so we will have to wait and see just how much of an economic threat this will be.

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Waiting on the Housing Market to Crash? Don’t, Experts Say. Here’s How Today’s Market Is Different From the Great Recession Housing Bubble

Home prices are higher than they’ve ever been, and they show no signs of stopping.

The median U.S. home listing price was $405,000 in March 2022, the first time it’s broken the $400,000 price threshold, according to data from That is an increase of 26.5% over two years.

Homebuyers might see similarities between what’s happening today and the 2006 housing market where home prices became increasingly unaffordable until the bubble burst, helping trigger the worldwide financial crisis we came to call the Great Recession.

Stressed-out buyers might be thinking these high prices are a bubble just waiting to pop again. In fact, 77% of homebuyers believe there’s a bubble where they live, according to a recent Redfin survey.

Today’s market differs significantly from what happened 15 years ago, when high home prices were instead driven by loose lending practices and rampant investor speculation in the market.

Waiting for the market to crash might not yield the results buyers hope for, experts say. “There’s not really any room for there to be a bubble right now. It’s not like people have borrowed too much and it’s not like homes are overvalued,” says Daryl Fairweather, chief economist at Redfin.

There are a lot of reasons why it seems like we are in a bubble, but at its heart, the issue is simple: supply and demand are driving up prices. “It’s just that there aren’t enough homes for everybody who wants one,” says Fairweather.

Here’s what is different about today’s market, what’s behind the record-high prices, and what buyers can do to navigate the process.

Things Have Changed Since 2006
The current market and that of the mid-2000s share some similarities. Namely, housing prices were up and often unaffordable for buyers. The causes are different, experts say.

The previous bubble came after a period in which lenders were more lax about writing loans and more people were in the housing market as an investment rather than to buy a home to live in. “Mortgage underwriting was considerably more loose back in 2006,” says Robert Dietz, chief economist at the National Association of Home Builders. “It was easier to get a mortgage to speculate in the housing market. That is not the case today.”

Different home loans, such as adjustable-rate mortgages with big “balloon payments” due at the end of the term, meant people got into homes thinking they could afford the payments, finding out later that their payments grew dramatically to unaffordable levels, Fairweather says. “There was a lot of financial engineering, there was a lot of predatory lending, there was a lot of bad borrowing on people not having a lot of equity, not having as much of a cushion, that led to the housing bubble,” she said.

Those types of loans are far less common today, and there is more oversight of home lending in the wake of the crisis of the late 2000s, experts say. Today, most borrowers get 30-year fixed-rate mortgages, which don’t come with the risk of payments suddenly rising dramatically as rates increase, Fairweather says. “If you own a home, you’re still paying what you paid when you got your fixed-rate mortgage.”

There Aren’t Enough Homes
There are two major ways homes enter the market: Somebody builds a new one or somebody sells an old one. Both of those pipelines are a bit out of whack. “Today it’s really just about lack of supply,” Dietz says.

Builders Are Struggling to Catch Up
The limited supply of new homes is due to factors both old and new, Dietz says. For the last decade, builders haven’t put up houses at the rate they needed to in order to handle today’s demand, which he says has probably created a deficit of at least a million homes. At the same time, costs have gone up since the pandemic. Deitz blames the constraints in the market to what he calls the “five Ls”:

Labor: Builders are having a hard time finding skilled workers, particularly in hot markets such as Texas.
Lots: There’s about a year’s supply of lots available, when the market needs two to three years.
Lending: Homebuilders, especially the smaller companies, face a tighter market for borrowing the money needed to build.
Lumber and building materials: Lumber prices were about $350 per thousand board feet in January 2020. That’s about $1,300 now, Dietz says. On top of lumber, there are shortages and delays in things like garage doors and microwaves.
Laws and regulations: Issues like zoning can limit how many homes can be built in a certain amount of space.
The tight housing market means new construction is even more important for buyers trying to get a home. While new homes typically account for less than one in 10 sales, that figure is now about one in three, Deitz says. Supply chain issues also mean new homes take longer to build – from a typical time of about six and a half months to now about eight months.

“When you add all those together, it’s just gotten a lot harder to build homes,” he says.

Fewer People Are Selling
Existing homes make up most of the market, but the supply of those is down also. Some of that has to do with the affordability issues affecting buyers. A survey by Discover Home Loans found 79% of homeowners would rather renovate their homes than move.

High home prices might seem to encourage people to sell their homes and cash in, but most of those people would have to buy another home, and pay those high costs. “If they try to buy again, they’ll be facing a really tough market as a buyer,” Fairweather says. “The only people who are really in a good position to sell and buy again are people who are downsizing or moving to a more affordable area.”

There Are More Buyers
The supply constraints mean there aren’t as many homes for people to compete for, but those open houses are also busier than ever. That’s because more people are deciding homeownership is right for them at the moment.

“There’s a lot of demand for homes right now,” Fairweather says. “A lot of people are looking.”

Part of that is that millennials are entering their prime homebuying years, experts said. Many members of this big generation are in their 30s, often married with children. “We are seeing a big push from millennials to buy a home,” Fairweather says. “That has been years in the making.”

The pandemic has also made remote and hybrid work a possibility for many. That means you don’t have to live close to an office and you might need more space than you can find in an apartment. Remote work means owning a home is a possibility for more people, Fairweather says, adding to demand.

When Will the Housing Market Calm Down?
It will likely take a while before the inventory of available homes matches up with demand. Experts surveyed by Zillow predicted it’ll be two years before monthly inventory returns to pre-pandemic norms. They estimated it could be 2024 or 2025 before the portion of first-time buyers again reaches the 45% seen in 2019.

Rising mortgage rates – they’ve gone from near 3.3% at the start of the year to near 5% in just three months – will likely take some buyers out of the market and slow the rise of home prices. “It should weaken demand, but there’s so much demand it’s hard to say how much it will really impact things like sales and home prices,” Fairweather says.

Higher mortgage rates might not directly lead to lower prices – supply and demand will still be the big factors – but it could make life a little bit easier for buyers, Dietz says. “The bidding wars are going to cool off.”

The factors driving up prices aren’t likely to subside anytime soon, Dietz says. “I don’t think buyers should be betting on any really significant price declines. If anything, as interest rates move higher, the cost of buying a home is going to go up.”

What Can Homebuyers Do In This Market
As Redfin’s survey found, many buyers think the market is in a bubble right now, and they might be tempted to wait for it to burst, some economic cataclysm that suddenly makes a house affordable. Experts caution against hoping for that.

“I think you want to be strategic and you want to be patient,” Dietz says. “Patient is different from waiting for a crash.”

Buyers will have to look harder and widen their search, he says. There are ways to get creative: If your work is hybrid and you only have to go to an office two or three times a week, reconsider your commute and think about it on a weekly basis rather than as a daily burden. That means you could look farther away from work where housing is sometimes cheaper.

You can also consider other options, Dietz says. One is to look at new construction if you haven’t already. Keep in mind there is a longer lag time than usual, but it could be easier than competing for scarce existing homes with the mob of other potential buyers (and investors and flippers with cash offers). There are also options other than the usual single-family home, such as townhouses.

Any slowdown caused by higher mortgage rates will make the market a little easier for buyers who are patient, Fairweather says. “By end of summer there should be more homes on the market as not as many buyers will be taking them off the market,” she says.

The market could be in for a shift this year as it copes with higher mortgage rates, Fairweather says. You may want to slow down and consider your options. “I don’t think it’s wise to try to rush the market now because right now the market is adjusting,” she says.

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How a Surge in Interest Rates May Actually Benefit You

With the national inflation rate climbing faster than we have seen in over 50 years, the Federal Reserve recently made efforts to curb the upward pace by raising interest rates for the first time in over 2 years. Where this is designed as a positive move to help inflation woes within the next year, it has immediately impacted those who wish to borrow money, namely prospective homebuyers, in a very negative way.

According to Freddie Mac, the rise in mortgage rates is the fastest three-month increase in over 20 years.

Interest rates rose from 2.67 percent to 5.08 percent in recent weeks. What this means essentially is the median average price of a home in the US has risen from $309,200 to $357,300 in just 14 months.

For homebuyers this nearly doubling of interest rates will make their monthly payments significantly higher. So should you wait to buy??

Taking a look at the real estate market in and around the Atlanta area over the past year according to FMLS (the primary database used by Realtors), median prices have risen from $280,000 in January 2021 to $368,000 in late March 2022.


Average days on market from January 2021 until late March 2022 went from 12 to 7.

Sales as reported to FMLS from the same periods went from 6,659 to 9,272.

Looking at this data, there has actually been a pretty significant increase in sales volume as more homes have been slowly coming on the market and new builds are starting to pop up here and there. Prices are expected to still rise, but with higher interest rates, mortgage applications have plummeted therefore there will be much less competition. This will theoretically keep home prices from skyrocketing into bubble territory and also dramatically extinguish the brutal bidding wars of the past, elevating your offer to the top because your rivalry just left the field.
And as someone who has held a real estate license for over 20 years, and whose mother and grandmother were also licensed Realtors, 5% is STILL an incredibly low interest rate for a


The answer to the question I posed above is yours alone to make, but hopefully you now have some beneficial information to assist you in the process.

By Holly A. Morris, Realtor

The Meridian Real Estate Group

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Converting a Bedroom into a Home Office

In today’s world, we all need a place to be able to work from home. Whether for the professional that gets away to Atlanta from another area or has decided to make this their main home. As the featured decorator for the home office at the 2022 Kips Bay Palm Beach Showhouse, Tish Mills offers her ideas in transforming a bedroom, or unused space into a home office.

What is a good point of reference when setting out to create your workspace?

Keep in mind that the boundaries of work and home have never been more blurred. It’s necessary to find refuge by creating an office where you can work from home and find that corner of your inner world to connect to the outer world. A home office is a place that is highly personal and just as much of a reflection of who you are as the other main living areas of your home. So, the emphasis needs to be on who you are, what makes you happy to look at, and of course, what’s that perfect Zoom background. Beyond that, great lighting!

What IS great lighting for an office?

I like to use a mix of natural light, ambient and task light almost like a kitchen or other work areas in the home.

Other than a good desk and chair, what are some other things to keep in mind?

You want to make sure that you have a good lounge area in your office. It can serve as the perfect spot to curl up or take that important call. I’d suggest a nice settee in a comfortable and inviting fabric that will lure you to it as it should serve as a great spot to read that important document away from the distractions of a computer on the desk.

2022 © Nickolas Sargent Photography

How important is art in an office?

Art is always important. It can elevate the space very easily. I like art in a home office that is inspiring and carries you into the story of the room. I personally find that I stare at my own artwork when I am searching for an answer or thinking through an issue that needs creative input. So, something inspirational or aspirational is important.

How to pick out the right palette to work with?

You want your office to be an inspirational workspace where you can create and relax. For example, in my Kips Bay Palm Beach Showhouse bedroom, I chose to work with a meditative palette of sand, surf and sunsets in soft whites, beiges, blues and a touch of lavender. Think of colors that you want to surround yourself with and how they make you feel. The purpose is to elevate the space for yourself. This is your room where you’ll be spending a good deal of your time so it should be a good reflection of you and what you like to surround yourself with.

2022 © Nickolas Sargent Photography

How to work around difficult areas like the closets?

If you don’t think you’ll be using the closet, you can repurpose it into another space. I took the closet from the former bedroom in the Showhouse and transformed it into a chic fireplace which helped create the comfortable, cozy mood perfect for contemplating, reading and relaxing. Think of what is missing in your office to make it your own special nook!

Tish Mills Kirk of Tish Mills Interiors, a preferred vendor of The Meridian Real Estate Group, is an award-winning interior designer who has been working with clients in their homes for more than two decades. She believes that it is essential to put together a cohesive plan for your home renovation before you get started that can be carried out by the team of experts you assemble.

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 Photos provided by Chris Little.

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