Good morning. In today’s edition:
- Buffett makes a bet on homebuilders
- New home sales grab the spotlight
- Auto loan delinquencies are trending up
Industry veterans like to remind me this is just a cycle. This is how real estate works. If something gets too hot it inevitably cools down. What I find interesting with this cycle are the new variables at play - from the pandemic to loose monetary policy to a rapid tightening from the Fed to a downgraded U.S. credit rating to stubborn labor markets to a shortage of housing supply to a sharp increase in new home sales (but that’s compared to a year with supply chain issues), and now analysts are backing off of “recession” talk and coming back to the soft landing.
Every cycle is unique - so what will this one look like? Noel Christopher said the institutional pullback is “temporary”. Warren Buffett made a bet on homebuilders. The city of Minneapolis brought inflation down below the 2% target mark. So how temporary is temporary? How down will the downturn be? Will the landing be so soft that we clap for our pilots upon arrival?
- The Fitch Ratings Agency downgraded the United States Credit Rating for only the second time in American history. The agency lowered the rating from AAA to AA+, citing an ‘erosion of governance’ and the high and growing debt burden for the U.S. “The repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management,” Fitch said in a statement. “In addition, the government lacks a medium-term fiscal framework, unlike most peers, and has a complex budgeting process.”?
- Despite a significant slowdown in transactions, demand for the SFR market remains strong according to a new Yardi Matrix report. Yardi’s data shows through the first two quarters in 2023 only $412 million of transactions were completed by institutional SFR companies - much lower than the $2.7 billion in 2022 and $2.8 billion in 2021. The evidence for strong renter demand can be seen in a) continued (albeit smaller) rent growth on top of the enormous growth over the last few years - average rents are up about 40% since January 2018, b) high occupancy rates for SFR - standing at 95.8% in July 2023, and c) the work from home phenomenon and with it the need for more space - the percentage of people who work from home full-time has increased from 2% to 8%.
- Warren Buffett bets on the new construction sector of the housing market with three new investments. Berkshire Hathaway Inc. disclosed new stakes in three U.S. homebuilders: DR Horton, Lennar, and NVR, Inc. There are plenty of reasons to believe in the strength of new construction, as outlined here by Diana Olick - namely the high interest rate environment dampening the resale market, and the ability of homebuilders to either lower prices or buy down interest rates. The share of homebuilders that cut prices rose from 22% in July to 25% in August, and the share that offered incentives rose from 52% in July to 55% in August. And that’s not to mention the affordability issues around the country that are being addressed through new supply.
- An increasing number of home shoppers are looking for homes outside of their metro area, according to a new report by Realtor.com. In 2023 Q2, an average of 60.3% of all Realtor.com listing page views from the top 100 metros went to homes located outside the metropolitan areas where shoppers live, an increase of 0.7% compared to Q1 and 4.1% higher than last year. The Northeast region saw the highest increase in outbound views compared to last year with an uptick of 5.5%. The report also identified the most common out-of-state metro pairs: Chicago is the top out-of-state metro destination for San Francisco, Dallas is the top destination for Chicago, and Tampa is the destination for multiple markets in New York and Ohio.
- Rates of severe delinquency for auto loans are the highest since at least 2006. Higher interest rates and increasing prices for both used cars (up 30% from pre-pandemic) and new cars have made the situation difficult for buyers. You thought this was a newsletter centered around housing? Yes yes, it is. Hear me out: “Usually you get the default spikes when unemployment spikes—it’s the biggest correlation in consumer credit,” said Clayton Triick from Angel Oak Capital Advisors, “To see [defaults] go up that much while unemployment is still low is not typical.” Interesting. And who watches the unemployment number very closely? The Fed. And who sets the interest rates that impact the entire housing industry? The Fed! Will this rise in auto loan delinquency once again correlate with a higher unemployment number allowing the Fed to pause their rate hikes? If you know the answer to that one let me know.
Proprietary insights into the SFR industry from our research and consulting team
The PlanOlabs team plays a key role in product and innovation at PlanOmatic, so for our Insight this month we interviewed Tom Hamilton, the VP of Product at Mezo, to learn how they manage their roadmap, collect customer feedback, prioritize their features, and more.? Tom hit on just about everything related to Product Management, including:
- Recommended books, podcasts, and newsletters to follow
- Details on how they immerse themselves with the user
- Tips for students or professionals thinking about Product Management
- An amazing sailing analogy
For more industry insights from PlanOlabs, visit our blog.
All the relevant data releases from the past month
- The All Item CPI increased 3.2% for the 12 months ending in July, and the index for shelter accounted for 90% of the increase.
- New Home Sales were up 4.4% MoM in July and up 31.5% YoY, after seeing a MoM decrease of 2.5% in June.
- The unemployment rate changed little at 3.5% in July compared with 3.6% in June.
For the rest of the housing and economic indicators we track, check out the full blog post here.
Everyone knows this stuff and you should too
PlanOmatic?provides quality photos, floor plans, and 3D to the single-family rental industry with speed and at scale, nationwide.
