The Small Balance Intersection Update - November 6, 2024

Fun Fact: On November 6, 1869, the first official college football game was played between Rutgers and Princeton. Rutgers won 6-4, marking the start of what would become one of America's favorite sports.

Business Fact: On November 6, 1928, Jacob Schick patented the first electric razor. His invention paved the way for electric grooming devices, creating a new industry in personal care and revolutionizing shaving for millions around the world.

Vacancy Lane

Stabilizing Vacancy Rates Signal Potential for Rent Increases in 2024

The U.S. apartment market shows early signs of stabilization as vacancy rates plateau for the first time in three years, fueled by an increase in demand that hit the highest levels since 2021. Over the past two years, more than 1.2 million apartment units flooded the market, but that inventory is gradually being absorbed, with about 672,000 units expected to be completed by year-end and fewer units projected in the coming years. The outlook suggests that landlords could regain pricing power if demand remains steady, as new supply dwindles and housing prices stay elevated. Rent for new leases has remained flat on average, but tenants renewing leases are still facing a 3.5% increase year-over-year, with the sharpest rises on the coasts and Midwest cities like New York and Los Angeles. Coastal markets may also see rental demand rise further as return-to-office policies take effect, exemplified by Amazon employees in Seattle leasing apartments ahead of a five-day in-office requirement in January. In contrast, Austin’s apartment market faces high vacancy rates, above 15%, due to a construction surge and tenant incentives like months of free rent to attract residents. Apartment sales are on the rise as investor confidence strengthens, with significant activity in markets like Denver and Washington, D.C., while many renters continue to be priced out of homeownership. With affordability challenges persisting, high demand for rentals is anticipated to continue into 2025. Read more

Equity Divide Drive

Older, Wealthier Buyers Define America’s New Homeownership Landscape

A recent survey by the National Association of Realtors (NAR) shows that the profile of American first-time homebuyers has shifted significantly, with buyers now older, wealthier, and more reliant on financial assistance from family or inheritances for down payments. Between July 2023 and June 2024, the median income of first-time buyers rose to $97,000, and the median age reached a record high of 38, contrasting sharply with the late-20s demographic of previous generations. This shift highlights the increasing difficulty middle-income Americans face in affording homeownership, as home prices and mortgage rates remain persistently high. First-time buyers now make up only 24% of the market, the lowest level since NAR began collecting data in 1981, marking a more exclusive housing market.

Support from family has become a lifeline for many, with 7% of first-time buyers using inheritances—a record figure. Meanwhile, wealthier repeat buyers, often backed by substantial home equity, are intensifying competition with median down payments of 23% and, in 31% of cases, buying homes outright in cash. This financial advantage enables sellers to command higher prices, with most properties selling at or above asking. In response to high costs, multi-generational living is becoming more common, with 17% of buyers opting for homes that accommodate extended family members. These trends underscore a widening gap between existing homeowners benefiting from accrued property wealth and prospective buyers struggling to enter a tightening housing market. Read more

Forecast Lane

Cooling U.S. Housing Market Holds Steady Amid Economic Uncertainty

The U.S. housing market showed further signs of cooling, with CoreLogic's September report indicating a 3.4% year-over-year price increase—a significant slowdown from previous months. On a month-to-month basis, prices saw a marginal 0.02% increase, marking an end to a streak of monthly declines since late summer. This period of relative stability comes amid economic uncertainties, including volatile mortgage rates and minimal job growth; only 12,000 new jobs were added in October, the lowest figure in nearly four years. Despite recent mortgage rate dips, buyers have largely remained cautious, with many opting to wait out the election cycle and possible interest rate shifts.

Regionally, Rhode Island and New Jersey posted the largest annual price gains, at 9% and 8.6%, respectively, while Miami led among major metro areas with a 6.8% increase. Meanwhile, CoreLogic's Market Risk Indicator identifies Provo-Orem, Utah, along with four other U.S. metros, as having a high likelihood of home price declines over the next year. Despite limited movement overall, CoreLogic predicts a 2.3% increase in national home prices by September 2025, suggesting potential stabilization as economic conditions clarify. The report highlights CoreLogic's extensive data sources, with comprehensive national-to-zip-code insights on price trends, reflecting robust market intelligence in real estate forecasting.

Read the full report here

Deduction Drive

SALT Cap Showdown Looms as Expiration Approaches

The debate over the $10,000 cap on state and local tax (SALT) deductions is intensifying as the cap's 2025 expiration looms. High-tax states, including California, New York, and New Jersey, argue the cap disproportionately burdens wealthier residents who face substantial local taxes, with both Democratic and Republican representatives advocating for its repeal. Former President Donald Trump, who initially supported the cap, has now reversed his stance, indicating possible support for its removal. However, SALT deductions remain divisive even within parties; some progressives resist repeal, noting that the top 1% would capture nearly half of the benefits.

Economic impacts are evident, with studies showing slowed home-price growth in areas hit hardest by the cap, which may have influenced migration patterns from high- to low-tax states. Congressional alternatives to repeal include adjusting the cap based on inflation or household income, or targeting its effect on individual wage-earners versus businesses. Repealing the cap would reduce federal revenue, pressuring Congress to consider new adjustments to tax policy, particularly regarding the alternative minimum tax, which limits deductions for high earners. Lawmakers face a complex balancing act as they assess potential revenue losses and the need to support constituents facing high state taxes.

Read more from The Wall Street Journal