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Home Sales Are Growing. Will It Continue?

plus, Rental Application Fraud Costs Landlords Millions and 5 more Real Estate Insights

Macro Trends

Fannie Mae economists offer housing market outlook, potential timeline for interest rate cuts link

  • Fannie Mae predicts mortgage rates to fall below 6% by the end of the year, but this decrease may not be enough to motivate existing homeowners to sell. The anticipated drop in rates is set against a backdrop of slow income growth and a persistent inventory shortage.

  • Economists at Fannie Mae foresee a potential Federal Reserve interest rate cut as early as May. This forecast is based on a scenario of slow economic growth, with several factors still indicative of a looming recession.

  • The housing market's future hinges on supply growth and strong buyer demographics. Without significant supply increases, and with robust demographic demand, home prices are expected to rise again, with a projected 3% increase in 2024.

Real Estate Trends

Housing Demand Rises as Inventory Falls link

  • Despite higher mortgage rates in 2024 compared to the previous year, housing demand is increasing. This trend is notable as it occurs against the backdrop of historically low demand levels, adding a unique context to the current housing market dynamics.

  • Forward-looking purchase application data shows a positive trend, with an 8% week-to-week increase, although still down 18% year-over-year. This uptick in demand comes even as mortgage rates have slightly risen from their 8% peak, suggesting a resilient housing market in the early stages of the seasonal demand period.

  • The weekly housing inventory data will be crucial to monitor in the coming weeks. Historically, higher mortgage rates have negatively impacted weekly purchase application data, but the current trend indicates a potential shift in this pattern, highlighting the evolving nature of the housing market in 2024.

Multifamily Housing Permits and Starts See Uptick at End of 2023 link

  • The seasonally adjusted annual rates (SAAR) for multifamily permits and construction starts increased in December 2023. Multifamily permits rose by 1.4% to 449,000 units, and construction starts jumped 7.5% to 417,000 units, although both were lower than the previous year's rates.

  • Single-family housing also showed varied trends. Single-family permitting was up by 1.7% at 994,000 units, significantly higher than the previous year, while starts decreased by 8.6% to 1.027 million units but were up 15.8% from last December.

  • Major shifts in top multifamily permitting markets were observed. Austin surpassed New York with 21,368 units permitted in 2023. Significant declines in annual multifamily permitting were noted in major markets like New York, Houston, and Washington, DC.

Home Sales Are Growing. Will It Continue? link

  • December 2022 saw an 8% jump in pending home sales compared to the previous year, marking a notable increase. This growth trend, observed for two months, coincided with a dip in mortgage rates, raising questions about its sustainability.

  • The total number of single-family homes in contract is now 5% higher than last year, with 276,000 homes awaiting sale. However, this number is still 30% lower than in January 2022, indicating a cautious recovery from a low base.

  • Home prices are showing signs of appreciation, with the median price of single-family homes in the U.S. now at $424,000, a slight increase from last year. The stability of mortgage rates in the 6% range is crucial for maintaining this growth trend, as higher rates could stall the market recovery.

New Multifamily Supply Exceeds Strong Demand:CBRE link

  • The multifamily vacancy rate rose to 5.4% in Q4 2023, a 20 basis point increase from the previous quarter. This uptick is expected as the market adjusts to a surge of new supply, but it should stabilize around the long-term average of 5.0%.

  • A record high of 416,500 new multifamily units were completed in 2023, the most since CBRE began tracking in 1996. However, fewer recent construction starts suggest a decrease in new deliveries for 2025 and beyond.

  • Despite the increase in supply, net absorption of multifamily units remained strong at 84,800 units in Q4, over four times the pre-pandemic average. Meanwhile, average monthly rent decreased by 1.2% in Q4, with only a slight year-over-year increase, indicating a potential short-term stabilization in rent growth.

Risk

Rental Application Fraud Costs Landlords Millions link

  • In a recent survey, 93.3% of apartment owners and managers reported experiencing rental application fraud in the past year. This represents a significant increase of 40.4% compared to the previous year.

  • The most common type of fraud involves fake or falsified pay stubs, employment references, and other income documentation. Over 84% of respondents encountered this issue, highlighting a growing challenge in the rental industry.

  • The financial impact of this fraud is substantial, with respondents indicating an average write-off of $4.2 million due to fraudulent applications. This trend adds to the existing challenges faced by apartment owners and managers.

Location Specific

San Francisco Might Be Coming Back: Homebuyers are Leaving the Bay Area at Half the Pandemic-Era Rate link

  • The Bay Area experienced a significant decrease in homebuyer outflow in Q4 2023, with a 13% year-over-year drop and a 50% reduction from the peak in September 2021. This change reflects a return to pre-pandemic norms, as tech companies increasingly require in-person work.

  • San Francisco's real estate market is showing signs of revitalization. Popular restaurants are fully booked, public spaces are bustling, and the housing market is becoming more competitive, indicating a strong urban recovery.

  • The Bay Area's net outflow of homebuyers has slowed, partly due to tech giants like Apple, Google, and Meta mandating office work. This shift has reduced the migration to more affordable areas like Sacramento and Austin, with a 25% year-over-year decrease in moves to these cities.

Nashville’s downtown core sees 17% vacancy rate as rental market shifts link

  • Nashville's vacancy rate has hit double digits, the highest in 20 years, with the downtown core experiencing a significant 17.5% rate. Real estate agent Ethan Flynn highlights the overbuilding in the urban core, leading to increasing vacancies each month.

  • Around 22,000 units are currently under construction, signaling a renters' market with numerous lease deals and negotiation opportunities. Two years ago, only one in twenty apartment buildings offered deals, but now, one in three is offering incentives.

  • Despite the current challenges, Flynn remains optimistic about Nashville's long-term prospects. However, he cautions about potential short-term difficulties, including the possibility of distress in the multi-family market due to high vacancies and rent reductions.

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

Cheers,

Vidit

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