Good Morning. In today’s edition:
- Pretium dominates the SFR (and MF) headlines
- Fed has a cautionary tone
- Multi-family construction starts take a dive
We love words here at The Beaker. We use about 1,000 of them monthly. And sometimes the perfect word surfaces and describes our moment in time to a T. The Fed used the perfect word in their?meeting minutes?released this month: Idiosyncratic (defined as?a peculiarity, a strange way of behaving).
Even with the significantly elevated interest rates, consumer spending has remained strong resulting in a strong labor market, and the Consumer Price Index came in higher than expected for its January reading indicating persistent inflation. On the downside, the Small Business Optimism Index was down this month and economists continue to predict housing affordability issues. On the upside Consumer Sentiment held steady, big institutional investors are raising funds, and the stock market continues to perform… so, which one is right? If only there were a perfect word to sum this all up…?
- Pretium Partners raises $1 billion for a new fund dedicated to acquiring build-to-rent (BTR) homes, after acquiring thousands of homes in a $1.5 billion deal with DR Horton in June 2023. This comes on the heels of major headlines in January including Blackstone’s acquisition of Tricon, and Sekisui Homes’ acquisition of MDC - a large U.S. homebuilder. Pretium followed up on this news with another big splash acquiring BH Management Services. BH Management currently manages approximately 114,000 homes across 370 housing communities in multi-family, student, and single family rentals, and was ranked No. 8 on the National Multifamily Housing Council’s 2023 top apartment managers list.
- Wall Street is pushing back rate cut hopes, after the Fed meeting minutes were published. Inflation data continues to show signs of strength with the higher than expected Consumer Price Index and the steady employment numbers in January. Some of the more optimistic Fed officials (Patrick Harker, Philadelphia) said he “wouldn’t take May off the table” for rate cuts, while Fed vice chair Philip Jefferson said “later this year”. Generally we are hearing a more cautious tone from Fed officials, and the market is starting to get the message.
- Freddie Mac economists share expectations for 2024, stating the “soft landing” is still on track despite the persistent headwinds we saw in 2023. They expect the strong consumer spending that we saw in 2023 to soften, which will moderately weaken the labor markets. Mortgage rates are expected to stay in the 6% range, even if the Fed is able to cut rates slightly before the end of the year. Inventory levels will remain low and demand will remain high, leading to continued strength in the new home sales market relative to overall sales (new home sales accounted for 14% of all sales in 2023, compared with 10% in 2018). Affordability will remain an issue for first-time homebuyers, leading to demand in the single family rental market. Multi-family will face regional supply-demand imbalance with some regions seeing downward price pressures due to the explosion of new supply over the last 3 years.?
- A local news station in Atlanta went undercover to follow a known rental scam in the area, and it was surprising just how open the scammer was about what they were doing. The scam was being operated through an Instagram account, and the instructions on the account would tell the victim, “The company’s owners will come out, so will the police. The police will tell you there’s nothing they can do about it because of squatters' rights.” The scammer would charge $1,400 for keys and a ‘lease’ to the victim. This was a rare inside look into the inner workings of a scam that is all too common in the SFR industry. Atlanta continues to be a hotbed of fraudulent activity, and thankfully in this case the account was finally taken down.?
- Zillow is now offering “Room” listings on its rental platform, offering more flexibility for renters and homeowners alike. Both renters and homeowners can create a “Room” listing to either help subsidize renting costs or for a homeowner to create an additional stream of income. This comes in the midst of a seemingly continuous rise in housing costs, and many renters have felt this burden over the last couple years. Fortune is calling this a “Craigslist Killer”, and many sources are saying this is welcome news in light of the affordability crisis in housing.
Proprietary insights into the SFR industry from our research and consulting team?
The PlanOlabs team dove into some market-level data this month to look at the supply-demand dynamic of available rentals (supply) compared with the rent growth trend (demand).
We found 6 markets with both an increase in available rentals and an increase in rent prices - a likely sign of a strong demand story for those markets. Read the whole report and check out more charts in our blog post here.
For more PlanOlabs insights, click here.?
All the relevant data releases from the past month
- Starts for buildings with 5+ units were down -35% MoM in January reaching its lowest level since May 2020, while single-family home starts were only down -4.7% MoM.
- January marks the sixth month of YoY rent decline in a row for 0-2 bedroom properties at -0.3%, after a -0.4% decline in December.
- Within the Consumer Price Index measure, the index for shelter increased 0.6% MoM and 6% YoY, contributing over two-thirds of the monthly all items increase.?
For the rest of the housing and economic indicators we track, check out the full blog post here.
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