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Apartment Starts Plummet Nearly 32%

Plus, Mortgage rates should drop below 7% and 6 more Real Estate Insights

Welcome to Zero Flux - A daily real estate newsletter of 5-10 market trends handpicked from > 100 sources, including paywalls. No opinions, just data and facts. 🙂 

Let’s begin

Macro Trends

Fed’s New Report Highlights Economic Slowdown link

  • Economic activity across various districts has slowed, with a mix of modest growth, flat conditions, and slight declines. Retail sales are mixed, with a decrease in discretionary and durable goods due to increased consumer price sensitivity. Travel and tourism remain healthy, but transportation services demand is sluggish.

  • Labor markets show a continued easing in demand, with more applicants available and improved retention. Wage growth is modest to moderate, with some easing in wage pressures. However, challenges in attracting and retaining high performers and skilled workers persist.

  • Price increases are moderating across districts, but overall prices remain high. Costs for construction inputs like steel and lumber are stabilizing or declining, while utilities and insurance costs rise. Expectations are for moderate price increases to continue into the next year.

Real Estate Trends

Mortgage rates should drop below 7% as housing demand picks up link

  • Mortgage rates are nearing a drop below 7%, with the 10-year yield falling below 4.25%. This change is significant, as it reflects a shift in economic conditions and expectations for future Federal Reserve rate cuts.

  • The housing market is showing signs of resilience despite higher mortgage rates. Purchase application data has been positive for four consecutive weeks, indicating a potential uptick in housing demand as mortgage rates decrease.

  • The relationship between mortgage rates and the 10-year yield is crucial. If the spread between these rates were normal, mortgage rates could be under 6% today, highlighting the impact of economic policies and market trends on housing affordability.

High mortgage rates sideline homeowners from tapping home equity link

  • Homeowners are increasingly hesitant to withdraw equity despite near-peak levels in Q3 2022. The withdrawal rate was just 0.41%, significantly lower than the 12-year average before the Federal Reserve's tightening cycle.

  • The reluctance to tap into equity is impacting the broader economy, with an estimated $54 billion to $250 billion in 'missing' withdrawals over the last 18 months. This trend is also contributing to low default and foreclosure activity, with foreclosures still 35% below pre-pandemic levels.

  • Mortgage originations are now dominated by purchase lending, accounting for 86% of all first-lien lending in Q3. Cash-out refinance loans, however, fueled the remaining refinance market, with borrowers withdrawing a record average of $104,000.

Foreclosed Office Buildings Occupancy Stats link

  • Since the pandemic's outbreak in early 2020, occupancy rates at foreclosed U.S. office buildings have plummeted. Occupancy has fallen at an average rate of 2.5% per quarter, a significant increase from the pre-pandemic decline of 0.6% per quarter.

  • The total number of office foreclosures as of November involves 134 buildings valued at $2.7 billion. This dramatic increase in foreclosures is attributed to occupancy levels dropping below 70%, making it challenging for property owners to meet debt obligations and maintain their properties.

  • Rent growth in the office property sector has been stagnant from 2020 through 2022, turning negative in 2023. This trend reflects the broader impact of the pandemic on the commercial real estate market, particularly in the office sector.

Apartment Starts Plummet Nearly 32% link

  • In October, starts for buildings with five or more units dropped dramatically by 31.8% year-over-year, reaching a seasonally adjusted rate of 382,000. This significant decline highlights the challenges facing the multifamily housing sector.

  • Despite the decrease in starts, completions of new buildings rose by 14.3% year-over-year. This increase in completions amidst falling starts indicates a complex dynamic in the housing market, where supply issues are becoming more pronounced in certain areas.

  • The overall housing market also saw a decline, with total housing starts falling by 4.2% year-over-year in October. This broader trend reflects the challenges in the housing sector, including rising interest rates and economic uncertainties.

Pro Member Only Content

7 Airport Expansions to Watch 

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  1. St. Louis Lambert International Airport - Planning a $3 billion reconfiguration to create a single, consolidated terminal with more gates and retail space. Location: St. Louis.

  2. Austin-Bergstrom International Airport Concourse B - A $1.1 billion to $2 billion project for a new 20-gate concourse. Location: Austin, Texas.

  3. Denver International Airport - Undergoing a $1.3 billion Great Hall expansion project. Location: Denver.

  4. William P. Hobby Airport's West Concourse Expansion Project - A $470 million expansion including additional gates and facilities. Location: Houston.

  5. Des Moines International Airport - A $445 million expansion to add more gates and upgrade facilities. Location: Des Moines, Iowa.

  6. Minneapolis-St. Paul International Airport - A $242 million renovation project for Terminal 1. Location: St. Paul, Minnesota.

  7. Missoula Montana Airport - A $109 million extension project, including new gates and facilities. Location: Missoula, Montana.

    link

Housing market outlook for 2024: the good news and the bad  

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  • The US housing market in 2024 is expected to see some relief, but challenges will persist. Home prices are predicted to drop, yet the decline in mortgage rates will be modest, hovering around an average of 6.8%.

  • The "lock-in effect" from current mortgage rates will continue, exacerbating the market's supply shortage. The inventory of existing homes for sale is anticipated to plummet by 14%, with homeowners reluctant to give up their current low rates.

  • On a positive note, the rental market is showing signs of improvement. Year-over-year rent growth has been slowing since May, and an outright decline of 0.2% is expected in 2024. This is attributed to increased construction of multi-family homes, leading to higher vacancy rates.

  • link

Latest Proptech Funding Rounds

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Vidit

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