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Inventory Is 19% Higher Than a Year Ago

Plus, Northern Virginia Sees Record Demand for Data Centers and 5 more RE insights

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A Quote

“If more information was the answer, then we’d all be billionaires with perfect abs.”

– Derek Sivers

Today’s Rates

Real Estate Trends

Inventory Is 19% Higher Than a Year Ago link

  • The housing market inventory has surged by 19% year-over-year, highlighting a significant increase in unsold homes. This growth raises questions about the market's capacity to absorb this inventory without impacting home prices negatively.

  • As mortgage rates remain elevated, the demand for homes has lessened, contributing to the inventory buildup. Interestingly, the current inventory level is still 107% higher than two years ago, during the end of the pandemic buying frenzy, suggesting a prolonged period of market adjustment might be required to return to pre-pandemic inventory levels.

  • The volume of new listings has slightly increased by 5.7% compared to the same week a year ago, indicating a slow growth in seller activity. This trend suggests that while there is a slight increase in inventory, it's not due to a sudden influx of sellers but rather to decreased demand, potentially moderating the impact on home prices for now.

Hotel Investors Tired of Waiting for Distress, Move to Well-Performing Assets  link

  • Hotel investors are shifting focus to well-performing assets, driven by prolonged waiting for distressed opportunities. The expected market of distressed hotels has not materialized as anticipated, leading investors to adjust their strategies.

  • The increase in borrowing costs is complicating deal-making within the hotel investment sector. Higher financing rates are affecting the feasibility of new acquisitions, pushing investors towards more stable, high-performing assets despite the less favorable financing conditions.

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More than 90% of housing markets overvalued, Fitch says link

  • Over 90% of U.S. housing markets are overvalued, with home prices rising at an unsustainable pace. On average, prices were overvalued by 11.1% across the country, up from 9.4% in the previous quarter.

  • Supply is slowly returning, yet it's not enough to meet the high demand and improve affordability. Interest rates, higher than recent norms, further complicate the path toward greater affordability.

  • Fitch forecasts national home price appreciation to slow to under 3% this year, after a 5.5% rise by the end of 2023. This is due to a mix of affordability challenges and a tight supply of homes, with the latter being a dominant factor for sustained positive growth.

Opportunities

Northern Virginia Sees Record Demand for Data Centers link

  • Northern Virginia continues to dominate the U.S. data center market, achieving a fourth consecutive year of record demand. The region reported 1.6 gigawatts (GW) of transaction volume with 581 megawatts (MW) of net absorption last year, setting a new high-water mark.

  • Data center rents in Northern Virginia are surging, reaching up to $300 per square foot, which is over 20% above the highs of 2022. This increase in rent is indicative of the burgeoning demand for data center services in the area.

  • The explosion in generative AI, requiring unprecedented amounts of power, is driving this increased demand for data centers. Companies like Microsoft, Facebook, and Google are investing heavily in AI, further exacerbating the need for more data center capacity.

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Off Topic

What are America’s Most Disappointing Cars in 2024?

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Something I found Interesting

Whole Foods to Launch Small Format Stores, Starting in NYC link

  • Whole Foods plans to open mini-stores in NYC, a significant shift towards smaller, more urban-focused retail spaces. These stores, ranging from 7,000 to 14,000 square feet, aim to offer a curated selection of meals, snacks, and everyday staples.

  • The move is part of a broader retail trend towards micro-stores, designed to cater to the fast-paced lifestyle of city dwellers. While some retailers have struggled with small format stores, Whole Foods' strategy focuses on convenience and proximity to customers, betting on the growing consumer preference for quick and easy shopping experiences.

  • This strategy highlights the evolving landscape of grocery retail, where traditional large-format stores are being complemented or even replaced by smaller, more accessible locations. Whole Foods, under Amazon's ownership, continues to innovate, aiming for growth through adaptation to consumer habits and urban living requirements.

  • The initiative reflects an industry-wide attempt to boost margins through smaller retail footprints. Despite mixed success in the sector, Whole Foods is leveraging Amazon's resources and market insights to make its small format stores a key component of its expansion strategy.

Pro Member Only Content Below

U.S. Cap Rate Survey BY CRE (H2 2023) - Interesting insights.

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

  • The survey reveals a unique period for real estate capital markets with pricing uncertainty due to limited investment volume. Data was gathered from mid-November through December 2023, reflecting market conditions and investor sentiment during the second half of the year.

  • Cap rates trended upward in H2 2023 as bond yields stalled, peaking at 5% in October 2023 before falling below 4% by year-end. The average cap rate increased from 6.4% to 7%, indicating an acceleration of cap rate expansion across multiple property types.

  • Commodity office assets experienced the most significant cap rate expansion, especially Class C urban properties, which saw a 100+ basis point increase. Suburban office assets and the multifamily sector also saw cap rate increases, though neighborhood retail pricing remained stable.

  • A majority of survey respondents believe cap rates have peaked, with fewer expecting increases in H1 2024. This outlook likely reflects expectations of a more accommodative Federal Reserve policy and a decline in bond yields from their October 2023 highs.

  • link

Top 10 Airbnb Investment Markets in the US 

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  • Tofte, MN, stands out for its outdoor attractions and boasts an average nightly revenue of $237 with an occupancy rate of 69.8%. The ROI here is an impressive 31%, making it a top choice for investors looking for affordability and high returns in a market with medium competition.

  • Alexandria Bay, NY, is ideal for those interested in boating and history, offering an average nightly revenue of $312 and a 60.1% occupancy rate. With an ROI of 24% and an affordable average home price of $135,000, it represents a lucrative investment in a small yet competitive market.

  • Wawona, CA, near Yosemite National Park, attracts year-round tourism, making it a smart investment choice with a high average nightly revenue of $446 and an occupancy rate of 68.7%. Despite a higher property price of $395,000, its 24% ROI and unique location make it a worthwhile investment with strong potential for growth.

  • Full list:

    • Tofte, MN - Best for outdoor activities and scenic beauty.

    • Alexandria Bay, NY - Best for boating, fishing, and historic attractions.

    • Wawona, CA - Best for proximity to Yosemite National Park and year-round tourism.

    • Sylvan Beach, NY - Best for water sports and proximity to a casino.

    • Lutsen, MN - Best for skiing, hiking, and Lake Superior views.

    • Jefferson, TX - Best for historic charm and proximity to outdoor recreation areas.

    • Rileyville, VA - Best for Shenandoah National Park and small-town charm.

    • Fairlee, VT - Best for Lake Morey and skiing at Killington and Stowe.

    • Natchitoches, LA - Best for history, culture, and unique events.

    • Ovid, NY - Best for the Finger Lakes region and outdoor activities.

  • link

Insights from National Rent Report by Zumper

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  • Lease renewals will be significantly smaller this year for many renters as record supply hits the market.

  • Annually speaking, the national one-bedroom rate is down 0.7%, which is only the second time we’ve seen it fall into the negatives in the last 3 years, and two-bedrooms increased 0.7%.

  • While many Sun Belt and Intermountain markets are seeing rents drop due to new supply, the national rates are being stabilized by the rent hikes in low supplied Midwest and Northeast cities.

  • Austin and Dallas are experiencing double-digit annual rent price declines and have buildings offering concessions that include up to 8 weeks of free rent.

  • link

That's all, folks.

Cheers,

Vidit

P.S - Read past newsletters here

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