The Small Balance Intersection Update - July 25, 2024

On Tuesday, the Dow Jones Industrial Average (DJIA) declined by 504.22 points, falling 1.25% to 39,853.87. The Nasdaq Composite dropped by 654.94 points, or 3.64%, to 17,342.41. The S&P 500 decreased by 128.61 points, dropping 2.31% to 5,427.13. The Russell 2000 decreased by 47.89 points, falling 2.13% to 2,195.37. The CBOE Volatility Index (VIX) increased by 3.32 points, rising 22.55% to 18.04. T

On Tuesday, in the U.S. Treasuries market, the 30-Year Bond's yield rose to 4.548%, while the 10-Year Note's yield slightly increased to 4.255%. The yields for the 7-Year, 5-Year, 3-Year, and 2-Year Notes also saw minor changes, with slight decreases observed across shorter-term bills.

Did You Know That 445 square feet were the average size of studio units in 2023, down 54 square feet since 2014, making them 10% smaller today than they were a decade ago, according to a new report from RentCafe? Meanwhile, pricier two- and three-bed apartments have grown by 7 square feet and 19 square feet respectively.

Stats Of The Day:

• Almost 56,000 home purchases were canceled in June, an amount equivalent to 15% of the homes that went under contract during the month, according to Redfin. It was the highest rate on record in data that stretches back to 2017
• 1 in 3: The share of American metros that saw some decline in apartment asking rent last quarter, Moody's said..

Stabilization Street

Freddie Mac - Market Trends 2024 Midyear Multifamily Outlook

The 2024 Midyear Multifamily Outlook by Freddie Mac highlights the multifamily market's challenges due to high supply, rising vacancy rates, and minimal rent growth. The baseline forecast for 2024 predicts a rent growth of 2.7%, slightly below the long-term average, with vacancy rates increasing to 6%. New-unit deliveries are concentrated in the Sun Belt and Mountain West regions, while less expensive secondary and tertiary markets are expected to perform better. Despite high interest rates and inflation, the long-term outlook remains positive due to the high cost of for-sale housing and demographic trends.

The origination volume for multifamily markets in 2024 is projected to rebound to $320 billion, contingent on rate stabilization. The high and volatile interest rates have led to a significant decline in transaction volumes compared to previous years. However, the multifamily market is anticipated to remain resilient, driven by sustained demand, economic strength, and demographic factors.

For a comprehensive analysis, you can access the full report here and view the article here.

Efficiency Way

America’s Smallest Apartments Are Getting Even Smaller

Developers are increasingly designing smaller studio apartments, with the average size dropping by 54 square feet to 445 square feet since 2014, according to RentCafe. This 10% reduction appeals to both renters and landlords, as smaller units are more cost-effective. Renters prioritize affordability, while developers benefit from renting more units and offsetting construction costs. Some studios are under 300 square feet, like those at Fremont Village Apartments in Seattle.

The downsizing trend is significantly more pronounced for studios compared to other apartment types, with overall apartment sizes decreasing by just 12 square feet over the past decade. In contrast, two- and three-bedroom apartments have slightly increased in size.

For a detailed analysis, read the full Wall Street Journal article here.

Investment Shift Ahead

Miami-Dade CRE Market 2024: Office and Retail Properties Lead Amidst Economic Shifts

In the first half of 2024, investors in Miami-Dade County favored office and retail properties, with a significant shift from multifamily and industrial assets. The dollar sales volume for the four core property types—multifamily, office, retail, and industrial—dropped by 18.2% year-over-year to $1.5 billion. Despite this decline, retail property sales volume surged by 63.4% to $484 million, while office property sales increased by 11.0% to $348 million. Multifamily properties saw a steep decline, with sales volume falling by 51.8% to $248 million. Industrial property sales also dropped by 40.9% to $394 million. The overall number of transactions for core commercial real estate fell by 44.9%, totaling about 490 transactions. Miami-Dade’s strong job growth, elevated migration, and rebound in tourism have bolstered investor confidence despite high interest rates and tighter credit conditions. Office and retail markets benefited from specific deals in areas like Aventura, Miami Lakes, and Sweetwater. The Miami-Dade commercial real estate market remains dynamic with these shifts in investment preferences. For more detailed insights and data, access the full report from Miami Commercial Realtors here.

Slow Down Ahead: High Mortgage Rates

New Home Sales Retreat in June

New home sales declined by 0.6% in June, falling to an annual rate of 617K, significantly below the forecasted 640K. This drop marks the second consecutive month of declining sales and places the rate 7.4% lower than June 2023. Despite upward revisions to prior data, the June sales pace remains the lowest since November 2023. The non-seasonally-adjusted median sales price fell 0.1% year-over-year, marking the fifth consecutive month of annual price declines. Elevated mortgage rates, averaging 6.9% in June, continue to deter potential homebuyers, despite slightly lower rates compared to April and May. Builder incentives, including price cuts and sales promotions, have not been sufficient to counteract the high financing costs. The National Association of Home Builders (NAHB) reported that 61% of builders offered incentives in July, yet buyer traffic remains weak. Expectations for lower mortgage rates later in the year have kept many buyers on the sidelines. Consequently, new home inventories rose for the third consecutive month, reaching levels above the previous cycle peak from October 2022. Current inventory could sustain a 9.3-month supply at June's sales pace, higher than the 7.7-month supply in June 2023. For more details, visit the full Wells Fargo report here.