Real Estate Updates // December 27

Greetings,

I would like to share a few headlines and brief analysis in Real Estate and [Housing] Development industry from the last few days. I hope you find them insightful:

• Many Americans are opting to live in single-family rental homes as inflation and higher mortgage rates make it more difficult to afford homeownership. Rents for these properties are up from last year, but September data from John Burns Real Estate Consulting shows that buying a single-family home would cost $888 more per month than renting. Major players in the market for rental homes include Invitation Homes, American Homes 4 Rent and Tricon Residential.?
• “With skyrocketing rents, landlords aren’t just taking more of your cash, they’re spending more of your time. The typical full-time employee in the United States worked nearly 63 hours in October to pay an average rent of $2,040, almost six hours more than in October 2019, before the pandemic, according to data from the listing company Zillow. In other words, about 36 percent of the average renter’s gross income is spent on housing.”
• Effective asking rents for new apartment leases declined nationally for the third straight month in November. "This year, we saw abnormally weak leasing throughout the summer and so occupancy rates were already coming down, and then we saw even more of a slowdown in the last few months," noted RealPage's Jay Parsons.
• November rents gained just 3.4% compared with the same month the prior year, marking the smallest increase in 19 months, according to Realtor.com. The median asking rent in 50 of the largest US metro areas dropped by $22 from October to reach $1,712.
• Residential rents might rise at a slower pace than they have recently, but they are likely to continue climbing, especially given the challenges that rising interest rates are creating for prospective homebuyers, according to Patrick Carroll of Carroll Management Group. One lasting impact of the pandemic has been an increased appreciation of the opportunities available in the Sun Belt.
• The Federal Reserve Bank of Cleveland and the Bureau of Labor Statistics have developed a new index of rental pricing that is based on leases for people who have recently moved in, thus eliminating some of the usual lag in inflation data. The new-tenant index shows a sharp cooldown in the market that could be reflected in other inflation data next year. The index "might be the single most important new inflation indicator," according to Joseph Politano of Apricitas Economics.

• Housing Inventory Decreased in November. According to the NAR, inventory decreased to 1.14 million in November from 1.22 million in October.

• Elevated mortgage rates weighed on the market in November, with single-family housing starts falling to a seasonally adjusted annual rate of 828,000, down 4.1%. Overall starts sank only 0.5% as a result of strength in the multifamily sector.
• Sales of existing homes fell to a seasonally adjusted annual rate of 4.09 million units in November, down 7.7%, according to the National Association of Realtors. November was the 10th consecutive month of decline, and sales fell to the lowest point since May 2020.
• An index measuring the sentiment of single-family home builders fell again in December, marking the 12th consecutive month of decline. The NAHB/Wells Fargo Housing Market Index was down to a reading of 31, below the forecast of economists in a Reuters poll.
• The Fed’s interest rate hikes this year are “not sustainable,” Starwood Capital CEO Barry Sternlicht told CNBC this week, saying the series of increases are “self-inflicted suicide.
• Temporary mortgage buydowns, which offer short-term reductions on mortgage rates, are coming back into favor as prospective homeowners grapple with rates that have risen sharply this year. According to John Burns Real Estate Consulting, about three-quarters of home builders were paying to cut the mortgage rates paid by buyers as of early December.
• Housing services inflation measures the rise in the price of all rents and the rise in the rental-equivalent cost of owner-occupied housing. Unlike goods inflation, housing services inflation has continued to rise and now stands at 7.1 percent over the past 12 months. Housing inflation tends to lag other prices around inflation turning points, however, because of the slow rate at which the stock of rental leases turns over. The market rate on new leases is a timelier indicator of where overall housing inflation will go over the next year or so. Measures of 12-month inflation in new leases rose to nearly 20 percent during the pandemic but have been falling sharply since about midyear.

• “Where this trend has been particularly true and might represent an actual potential opening for first-time home buyers is in pandemic boomtowns where price growth was not driven by just overall market conditions but also by an influx of remote workers exiting higher-priced metropolitan areas, and investors following at their heels sensing a smart money play.”
• The S&P CoreLogic Case-Shiller National Home Price Index dropped 1% in September, marking the third consecutive month-over-month decrease. The index, which tracks home prices in major metropolitan areas, was up 10.6% on a year-over-year basis, compared with 12.9% in August.?
• ead Grubb Properties report about the state of today’s Young American Renter; the extremely supply-strapped housing market, combined with today’s economic challenges, make renting significantly more difficult for young American.

10.2% Year-over-year increase through September on rents for single-family homes, according to the CoreLogic Single-Family Rent Index.

• Data from the Census Bureau’s latest Survey of Market Absorptions of New Multifamily Units (SOMA) indicates that the multifamily market remained strong during the second quarter of 2022 due to high demand. With low single-family housing supply and increased unaffordability of for-sale housing, many would-be buyers have turned to or remained in the multifamily rental market.
• Private residential construction spending declined 0.3% in October, as spending on single-family construction dropped 2.6%. Private residential construction spending fell for the fifth consecutive month, standing at an annual pace of $887.2 billion. This was about 8.6% higher compared to a year ago. The monthly decline is largely attributed to lower spending on single-family construction.
• Fannie Mae and Freddie Mac may not lend all of the capital allocated to them by the Federal Housing Finance Agency, with a slowdown in multifamily transactions serving as one key factor. Through October, Freddie Mac had originated $51.2 billion in loans and Fannie Mae $54.7 billion.
• The Federal Reserve's Beige Book report cites "greater uncertainty or increased pessimism" on the part of many businesses, even though the economy has grown recently. The report, which also offers a peek at real estate conditions in several different parts of the country, notes that the real estate sector is among those that have experienced "scattered layoffs."?
• “Calls to raise the tax rate on fees derived from profits made on private equity investments are imbedded in the myopic view that private equity managers make too much money, and that tax revenue is needed to balance the federal government’s budget. These slapdash conclusions are reflective of a socialist mindset on income distribution and the assumption that government spending must always increase year-after-year instead of considering the better alternative, reducing expenditures.”