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Good morning. In today’s edition:
- Blackstone winds down HPA
- Existing home supply reaches 4-year high
- A September interest rate cut is “on the table”
As we all know, the Fed has a dual mandate: maximum employment and stable prices (and if you didn’t know, your life just changed forever). Since 2021 the story has been the fierce battle against inflation (aka stable prices). Now prices are beginning to stabilize and attention is shifting to the other mandate - labor. Unemployment continues to creep up each month (now at 4.1%), and Fed Chair Powell told a Senate Banking Committee that he is “well aware that we now face two-sided risks.” If the interest rates remain elevated for too long, the labor mandate gets left in the dust.
This made me think of other recent trends that appear two-sided. Take renting vs. owning a home: since 2019, median rent prices have increased 21% (in line with overall consumer price increases), while the median price per square foot of for-sale listings has increased 52%. Consumer sentiment: the gap in sentiment between consumers that own stocks and those that do not is widening rapidly. Housing market: it appears we are shifting from a seller’s market to a buyer’s market. Politics: … you get the idea.
- Blackstone plans to wind down HomePartners of America (HPA), moving the management of its SFR assets over to Tricon Residential. This will make Tricon the only single-family rental company for Blackstone. HPA was acquired by Blackstone in 2021, and Tricon was acquired by Blackstone in January 2024. HPA is known for offering high quality rental housing to lower-income households, including a path to homeownership for renters. Tricon is known for premium single family rentals and high standards in operating and managing their homes, and it will be interesting to watch these two companies come together - will the HPA business model continue as-is?
- The White House calls on Congress to pass a bill meant to lower housing costs, including an annual rent increase cap of 5%. “If it is taken up by Congress, the plan would apply to landlords who hold more than 50 units, meaning more than 20 million units nationwide could be affected.” (CNBC) The White House is also looking to sell federal land that would be used for affordable housing - specifically citing 560 acres of land in Nevada. As one might imagine, these calls caused a bit of a stir in the industry. The National Association of Home Builders (NAHB) said rent caps “exacerbate” the housing affordability crisis because they discourage development and they might cause reduced maintenance if the landlord is unable to cover rising costs with capped rents. Jay Parsons called the rent cap proposal “hurried and unserious”, citing data from the multifamily industry that is seeing a significant drop in construction starts and already flat-to-falling rent prices… due to market dynamics, not a bill passed by Congress.
- The rental market slowdown is beginning to level off, according to a new report by Zillow. “Rents are growing at their fastest annual pace in nearly a year, and concessions offered by landlords and property managers have flattened after reaching a three-year high this spring.” (Zillow) This could be a sign that demand is picking up a little speed after slower months in the first half of this year, and it could also simply be a sign of seasonality. According to the report, single family rents are up 4.7% over last year, and multifamily rents are up 2.7%. Looking at it more closely, single family rents have seen an annual increase of between 4.7% and 5% every month so far this year - compared with multifamily which is closer to 2.6% and 2.7% annual increases in that timeframe.
- Invitation Homes reports Q2 earnings, and the rental rate growth numbers tell an interesting story. I won’t pretend to be an investment analyst - you can chat with Google or Moody’s to learn whether the 8.8% revenue increase YOY is good or bad for INVH… but what I found interesting was the rental rate growth numbers for new leases compared to renewals. In 2023 the year-over-year rent rate growth for renewals was 6.8% and growth for new leases was 6.7% - very comparable. In 2024, these growth numbers were 5.6% and 3.6% respectively - a much wider gap. This tells me that existing residents (i.e. renewals) are open to paying a little more in rent because the alternative (buying a home) is currently out of reach, whereas the rent for new leases relies on demand - and there aren’t as many people moving now compared with recent years. Note that the reported occupancy is still high at 97.5% compared with 97.6% last year - so leases are still getting signed - but it appears the market rate for new leases is not increasing as rapidly. This will also be important to keep an eye on as it relates to the “shelter index” in the monthly inflation numbers.
- Mortgage refinance demand jumps to a 2-year high, according to the weekly report by the Mortgage Bankers Association. Refinance applications jumped 15% week-over-week in the second week of July after the average contract interest rate for 30-year fixed mortgages dropped from 7% to 6.87%. The refinance rate reached its highest level since August 2022. Interestingly, according to CNBC: “Demand was 37% higher than the same week one year ago when mortgage rates were exactly the same”. Overall refinance demand is still down significantly, 70% lower than it was in early 2020. Imagine what these numbers will look like when the Fed begins to cut rates!
Proprietary insights into the SFR industry from our research and consulting team
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All the relevant data releases from the past month
- Permits for single-family units are up 17% YTD vs. YTD last year, while multi-family permits are down -20% over that same timeframe.
- Existing-home supply reached 4.1 months given the current sales pace, the first time exceeding 4 months since May 2020.
- 52% of small business owners reported capital outlays in the last six months, down 6 points from May and the lowest reading since August 2022.
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
- Roots featured on Channel 2 in Atlanta
- Pretium raises $1.5B in sixth single-family housing fund\
- ProperXPM to deploy up to $100M for roll-up of multi-family property management companies
- Attom Data releases foreclosure report for the first half of 2024
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