US Real Estate Market Update June 2022

As Q2 draws to an end, Inflation remains elevated and a recession is on the radar of market participants, though uncertainty remains on the intensity and duration. The U.S. Fed has repeatedly signaled that addressing inflation remains their primary objective. With few monetary policy tools available, aggressive interest rate hikes remain the Fed’s primary inflation fighting tool.

In June, the Fed finally bit the bullet raising its target interest rate by 75 bps, the steepest rate hike since 1994 — and indicated another similar move could be coming in July. In addition to increasing their target for short-term interest rates to a range of between 1.5% and 1.75% The Fed also projected that their target rate will reach 3.4% later this year, far higher than the 1.9% as projected in March.

As a base case, the market anticipates the Fed will raise rates by 75bps in July and another 50bps in September. The yield on the 10-year Treasury note surged to nearly 3.50%, a level not seen since 2011.

Also, it is worthwhile to note that Inflation is now a global problem, so Fed’s demand side tools may prove to be blunt in resolving high inflation in USA. An analysis of inflation across 111 countries from Deutsche Bank puts the U.S. near the middle of the pack. Among these countries, the median rate of 7.9% annual inflation has more than doubled from 3.0% one year ago, largely due to spiking energy and food prices.

Real Estate

The housing market is moving into a new phase. Homebuilder confidence declined for the sixth straight month in June, dropping to its lowest level in two years, though it's still in positive territory, according to the National Association of Home Builders/Wells Fargo Housing Market Index.

These are on expected lines and in response to higher interest rates - the 30 year mortgage is close to 6%, discouraging new home buyers.

On the supply scenario, Builders have ramped up to respond to the pandemic-driven demand, and right now there's a big backlog of unfinished single-family homes — 815,000 units under construction, according to census data, a number last seen during the 2006 boom. The buildup is partly due to supply chain issues slowing down the process.

The U.S. multifamily market maintained a remarkable performance, below only that of 2021, according to Yardi Matrix’s latest survey of 140 markets. Although the average national rent growth decelerated by 40 basis points, it still means an increase in rents of 13.9% year-over-year through May 2022.

Sun Belt metros remained in the lead in rent growth—Miami (24.2%), Orlando (23.2%) and Tampa (21.6%)—while another 23 of the top 30 markets had asking rents rise by at least 10%.