• Zero Flux
  • Posts
  • Apartment List’s Predictions for the 2024 Rental Market

Apartment List’s Predictions for the 2024 Rental Market

Plus, Home Sales Start to Rise, Building Momentum for 2024 and 6 more RE Trends

Welcome to Zero Flux - A daily real estate newsletter of 5-10 market trends handpicked from > 100 sources, including paywalled articles.

No opinions, just data and facts.

Let’s begin

Macro Trends

Private Equity Funds, Flush With $300 Billion, Stand Ready To Pounce link

  • Blackstone's $700 million investment in data center developments signals a shift in private equity real estate strategy. In 2023, U.S. property transactions involving private equity were down 45% from 2022, with firms like Blackstone holding significant "dry powder" (unspent capital).

  • The real estate market is showing signs of opportunity for 2024, with conditions like stabilized interest rates and receding recession fears. The largest amount of dry powder is targeted at opportunistic investments ($139 billion), followed by value-added ($84 billion) and debt funds ($40 billion).

  • The office market remains uncertain, but other sectors like multifamily, self-storage, retail, and industrial are expected to have narrower bid-ask spreads. Higher interest rates and tighter underwriting could lead to more distressed properties, offering opportunities for private equity and debt funds.

Real Estate Trends

Home Sales Start to Rise, Building Momentum for 2024 link

  • Existing-home sales saw a slight increase last month, breaking a trend of five consecutive monthly declines. This change indicates a potentially more favorable real estate market in 2024, with existing-home sales rising by 0.8% in November.

  • Despite the recent increase, November's existing-home sales were still down 7.3% from the previous year. Home prices continue to rise due to low inventory, with a 4% year-over-year increase in November, reaching a median of $387,600.

  • The construction of single-family homes is surging, with an 18% increase in November compared to the previous month and a 42% rise from the previous year. This boost in construction, along with expectations of lower mortgage rates and inflation in 2024, could lead to a 4% increase in single-family starts next year.

Typical US Homebuyer Earns $107,000 and Increasingly, She Is a Single Woman link

  • In 2023, the average income of US homebuyers rose to $107,000, up from $88,000 the previous year. This increase is partly due to the challenging housing market, characterized by limited inventory, rising prices, and high mortgage rates.

  • First-time buyers are now making higher down payments, reaching 8% of the total price, the highest since 1997. The demographic of homebuyers is also changing, with a notable increase in single women purchasing homes.

  • The age of buyers is increasing, with the average age for first-time homebuyers now at 35, compared to 29 in the early 1980s. Additionally, 20% of buyers in 2023 paid in cash, a significant rise from 13% in 2021, as people adapt to escalating home values and mortgage rates.

Apartment List’s Predictions for the 2024 Rental Market link

  • 7 key predictions for 2024 are:

  • 2024 will bring the most new apartments in decades

  • Low single-digit rent growth in 2024

  • The changing rent vs. buy math will create more long-term renters

  • Hybrid work will cement itself as the new norm for office jobs

  • Sun Belt markets will see more renters, but not necessarily higher rents

  • As the economy takes center stage in the presidential election, candidates will need to speak to housing concerns

  • More renters will use AI in their searches

Risks

Insurance Costs More Than Double for Apartments link

  • Since the COVID-19 pandemic, insurance costs in the apartment sector have skyrocketed, more than doubling from around $30 to $65 per unit per month. This 119% increase over four years is a significant financial burden for apartment operators.

  • The most substantial hikes in insurance costs have been observed in Florida and California, regions frequently affected by natural disasters. Cities like Tampa, Miami, West Palm Beach, Jacksonville, San Jose, San Francisco, Anaheim, and Sacramento are particularly impacted, highlighting the influence of climate change and crime on insurance rates.

  • Outside of these high-impact states, Cleveland and Memphis also experienced notable increases in insurance costs. This trend reflects a broader national issue affecting various markets, indicating a widespread challenge for the apartment industry.

Something I found Interesting

Areas With the Most "Returning" Buyers link

  • The National Association of REALTORS® predicts a boost in housing demand in 2024 due to declining mortgage rates. Lower mortgage rates increase affordability, allowing more people to buy homes within their budget. For example, a drop from a 7.5% to a 6.5% mortgage rate reduces the monthly payment from $2,215 to $2,005, enabling an additional 5.8 million households to afford homes.

  • Older millennials, aged 35-44, make up the majority of these "returning" buyers. Approximately 1.1 million households in this age group will be able to afford a median-priced home if rates drop to 6.5%. Notably, nearly 30% of these potential buyers are currently renting, with the ability to purchase homes valued at $375,000 for the same cost as their rent ($1,890).

  • Hispanic households are expected to benefit significantly from the decrease in mortgage rates. An estimated 4.7% of all Hispanic households (818,820 households) will be able to afford a median-priced home, potentially increasing the Hispanic homeownership rate. The report also highlights areas with the largest pool of "returning" buyers, including Madison, WI, El Paso, TX, and Durham-Chapel Hill, NC.

Pro Member Only Content

Zillow names top places people dreamed of moving to in 2023 

(This content is restricted to Pro Members only. Upgrade)

  • Northeastern U.S. dominated Zillow's top 10 markets list, with eight locations in this region. These areas were sought after for their affordability, reflecting a significant trend in consumer preferences.

  • West Chester, Pennsylvania, topped the list with a median home price of $565,000. The town experienced an 8% growth in home values in 2023, attracting a lot of interest from outside its borders.

  • Among larger cities, Chula Vista, California, led the way for those with populations over 250,000. This indicates a shift towards more affordable alternatives near major urban centers, like San Diego, for home buyers.

  • Here is the list:

    • West Chester, Pennsylvania

    • Nashua, New Hampshire

    • Manchester, New Hampshire

    • Wethersfield, Connecticut

    • West Hartford, Connecticut

    • Stow, Ohio

    • Middletown, Connecticut

    • Twinsburg, Ohio

    • Newington, Connecticut

    • Concord, New Hampshire

  • link

5 trends that will reshape the real estate market in 2024 

(This content is restricted to Pro Members only. Upgrade)

  • Proptech Sector's Strategic Shift: The proptech sector is adapting to financial challenges by focusing on profitability and expanding product offerings. This includes leveraging technology in rental segments and enhancing efficiency in areas like online rental screening.

  • Emergence of Secondary Markets: Due to affordability issues and remote work trends, there's an increase in migration to secondary markets. This shift is changing the focus of real estate agents from local to national markets, as evidenced by a rise in out-of-state rental applicants.

  • MLSs Expanding to Rentals: Multiple listing services (MLSs) are increasingly including rental listings, a move critical for market efficiency. Over 60% of rentals are currently not listed on MLSs, impacting agent and tenant finances.

  • Rental Market Gaining Prominence: With high home prices and interest rates, the rental market is becoming more attractive. The construction of new units is leading to more choices and decreased competition for renters, shifting the focus of real estate professionals.

  • Financial Empowerment Tools for Homeownership: Initiatives like rent payment reporting are gaining importance for financial empowerment in real estate. Major mortgage players are incorporating rent payments into credit histories, influencing loan approvals and addressing market disparities.

  • link

That's all, folks. If you enjoyed today's issue, please reply (it helps with deliverability)

Cheers,

Vidit

P.S - If you are finding value, please consider helping the newsletter by becoming a paying subscriber

A subscription gets you:

✓ Content delivered 5-6 days a week

✓ Exclusive insights that are usually tucked behind paywalls (which I cover the costs for)

✓ Curated Top 10 lists

✓ The latest updates on prop-tech funding rounds

Subscribe for free to keep reading

This content is free, but you must be subscribed to Zero Flux to continue reading.

Already a subscriber?Sign In.Not now

Join the conversation

or to participate.