The housing-price plunge has probably already arrived at a city near you

CEOs and CFOs are preparing for a recession in the U.S. in the next 12 to 18 months. The consumer price index rose 8.2% from a year ago in September, below June’s 40-year high of 9.1%, but significantly higher than the Federal Reserve’s 2% target rate. To get inflation under control, the Fed has indicated it will continue rate hikes.

Historically speaking, a housing recession is the first step to a Fed-induced recession, as Fortune has reported. The housing market has certainly taken a downturn. But who is feeling the most pain so far?

“Housing’s stunning downfall in one chart: Prices have plunged in 51 of these 60 cities, and there’s much further to fall,” a new report by Fortune’s Shawn Tully, answers that question. Ed Pinto, director of the American Enterprise Institute’s Housing Center, and one of the nation’s top experts on residential real estate, shared with Tully the price changes in America’s 60 largest metros, measured from their peaks through September. And 51 of the cities registered decreases, with the Western tier being hardest hit.

The top three cities that have seen the biggest declines: “San Jose suffered the biggest fall, tumbling 10.8% through September from its apex in April. The next top losers from their record highs are San Francisco (-8.5%) [and] Seattle (-8.2%),” Tully writes. “In Seattle, for example, median prices stood at roughly $710,000 in April of 2021, then jumped 18% to crest at $840,000 in April of this year.”

Real estate is tied to hiring, retention, and the costs of operating your business as employees are weighing how much house they can afford. Along with homeowners, the future of the real estate market has implications for CFOs as well. Finance chiefs are deciding where to keep or part with office space as workplace patterns change.

In fact, the current macro-environment has made commercial real estate CFOs see revenues coming under pressure. A recent Deloitte survey found that 48% expect revenues to decrease in 2023. And almost a third are planning to cut costs compared to last year, when only 6% planned to make cuts.

Pinto told Tully that the downshift that first affected Western markets will soon spread to states with a high proportion of lower-priced homes.

“The expensive parts of the market are the first to decline because they suffer most when the Fed takes away the punchbowl and rates rise,” Pinto said. “That’s because high-income buyers borrow in the private markets, and when rates increase, they have a harder time qualifying for home loans than lower and middle-income borrowers who get Fannie Mae, Freddie Mac and FHA loans.” Tully writes, “He notes that in the ‘high’ price quintile, the months required to sell all listings at the current rate of demand has already tripled from a record low of 1.5 months to 4.5 months, presaging more drops to come.”

You can see the full chart of cities here


See you tomorrow.

Sheryl Estrada
sheryl.estrada@fortune.com

Sign up here to receive CFO Daily weekday mornings in your inbox.

Big deal

For the first three quarters of 2022, private equity’s share of terminated M&A deals stands at 13%, which is larger than the entire previous year, according to a report by S&P Global Market Intelligence data. However, the third quarter saw just five terminated private equity or venture capital M&A deals, down 61.5% quarter over quarter.

Courtesy of S&P Global Market Intelligence

Going deeper

“How to gain a competitive advantage on customer insights,” a report in Harvard Business Review, explains why companies need to implement a system of “privileged insights,” or unique and relevant information about customers that competitors don’t have access to. The authors researched 12 companies to explore how organizations can gain their privileged insights, such as integrating customers into product and service development.

Leaderboard

Georges Elhedery was named CFO at HSBC Holdings PLC and an executive director of the board of directors, effective Jan. 1, 2023. Ewen Stevenson will be stepping down as CFO and executive director on Dec. 31., and will leave HSBC in April 2023. With a focus on long-term succession planning, the board positioned Elhedery as a potential candidate to eventually succeed Noel Quinn as CEO, according to HSBC. Elhedery, who just ended a sabbatical, most recently served as co-CEO of global banking and markets. Greg Guyett was appointed head of global banking and markets, effective immediately. Elhedery joined HSBC in 2005 as a senior global markets executive.

Sudhanshu Priyadarshi was named CFO at Keurig Dr Pepper Inc. (Nasdaq: KDP), effective Nov. 14. He will lead the company’s finance and information technology organizations. Priyadarshi was most recently CFO at Vista Outdoor Inc., overseeing all financial management and strategic planning. Priyadarshi started his career at PepsiCo, where he spent 14 years in roles, including as CFO of global R&D and PepsiCo Global Nutrition Platforms. Following PepsiCo, he became the global chief operating officer at Cipla, a pharmaceutical company. Priyadarshi then joined Walmart, serving as VP of finance and strategy for the General Merchandise and Softlines division, and then VP of finance for the U.S. e-commerce business. He left Walmart to become CFO of Flexport, a provider of logistics solutions.

Andrew Keegan was named the interim CFO at Vista Outdoor Inc. (NYSE: VSTO), a sporting and outdoor goods company, as Sudhanshu Priyadarshi, CFO for two-and-a-half years, will be leaving his role in November. Keegan currently serves a VP of finance and treasury. He brings over 10 years of experience at Vista Outdoor and over 15 years of experience in finance, accounting and treasury. He has held increasing roles of responsibility, including CFO of the company’s Sporting Products segment prior to his current role. Vista Outdoor has launched a formal search for a permanent successor.

Overheard

“Young companies that can’t afford a CFO can hire an interim person to oversee fundraising, a proper set of books, and the financial modeling investors require. When the work is done, this person gives way to a VP of finance more appropriate for the company’s size. Other firms may want to launch in a different part of the world. An interim can chart the way in an unfamiliar market until they’re up to speed.”

—David Kinley, CEO of Bluenose & Company, explains in a Fortune opinion piece why companies are increasingly turning to interim C-suite executives to tackle projects that can’t wait for better times or permanent hires.

This is the web version of CFO Daily, a newsletter on the trends and individuals shaping corporate finance. Sign up to get it delivered free to your inbox.

Source