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:
- Housing starts dropped to a seasonally adjusted annual rate of 1.559 million units in June, down 2%, reaching the lowest level in nine months. Spurred by rising apartment rents, multifamily starts climbed 15% and gained 16.4% from 2021.?This is happening at the same time that housing affordability is set to worsen to levels last seen in 2007 as rising mortgage rates compound high prices, according to S&P Global Ratings.
- As expected, working-from-home phenomena is bringing changes to home designs. Apartment landlords are adding common workspaces to meet demand, with examples including AvalonBay Communities' Second Space Work Suites and the Hub, a workspace at a Camden Property Trust development in Long Beach, Calif. "It's something you have to do today; it's an amenity, like a pool".
- The US housing market is about to enter a "deep freeze," as surging borrowing rates and stubbornly high prices lock out a growing number of buyers. Data on Wednesday showed a drop in existing home sales to a two-year low in June. The National Association of Realtors reported seasonally adjusted sales hit a rate of 5.12 million last month, the lowest since June 2020, and below expectations for 5.38 million.
- The strong demand-driven U.S. apartment and condominium construction is expected to slow through the rest of the the year. The Commerce Department reported Tuesday that multifamily construction starts rose 15% in June from May, when they had declined from the previous month, and were up 16.4% from a year earlier.
- Single-family housing starts came in at a two-year low in June, down nearly 8% for the month and about 16% lower ear over year. Things didn't look any better in terms of single-family permits, which were off by similar percentages. That sentiment is being displayed in the markets as a guidance cut from D.R. Horton (DHI), the nation's largest homebuilder, that kicked off the big builder earnings reports.
- Higher mortgage rates mean that renting residential space is now more affordable than buying a starter home in about three-fourths of US markets. That is up significantly from the beginning of the year, when renting was more affordable in slightly more than half of US markets.?
- Listen to Leading Voices interview with Doug Bibby, President of National Multifamily Housing Council and Ed Walter, Global CEO of Urban Land Institute discussing that ?real estate development has become more scaled and institutional, responsible long-term thinking and stability are becoming more important industry behaviors than maximizing profits. It is a smart business practice that protects both individual companies as well as the reputation of the overall industry.?
- D.R. Horton has also begun to focus more on growing its rental platform as rising interest rates and inflation shift its housing sales projections. "We began to see a moderation in demand and an increase in cancellations due to the rapid rise in mortgage rate and continued inflationary pressures across most of the economy".
- Foreign buyers purchased 98,600 homes in the year ended in March, lower than the prior period, although the value of these acquisitions rose to $59 billion, according to the National Association of Realtors.
- Watch Marcus & Millichap short video on implication of 9.1% inflation rate on real estate and transaction market and how it is reshaping the lending climate and if it does spark a recession.
- Rising cost of capital is affecting the valuation of certain commercial properties, and prices could move lower as interest-rate hikes continue. "The higher cost of capital is resulting in a repricing of risk across the broader economy, and real estate assets are squarely in the middle of that".
- There were $375.8 billion worth of commercial real estate transactions in the first half of the year, but the pace could slow as higher interest rates bring some deals to a halt. Signs of a potential slowdown include declining prices and an expected 18% contraction in lending.
- Real estate is the most popular investment option for long-term wealth building, with 29% of respondents to a Bankrate survey citing it as their favored way to invest assets that won't be needed for at least 10 years. Millennials are particularly enthusiastic about real estate, which has claimed the top spot in the survey in three out of four years.
- The CPI 9.1% inflation reading year-over-year in June was predominantly driven by higher energy and food prices. Excluding those two categories, core CPI inflation was 5.9% last month, a slowdown from the March high of 6.5%. While demand for commercial space continues to improve from pandemic troughs, this could moderate the pace of growth going forward and shift the composition of demand. Some Class A renters may look to Class B+ options or units in less costly areas.?
