Real Estate and Design Trends to Watch in 2024

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

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Treasury Yields Decline & Equities Gain after Economic News link

• Last week's economic news brought cheer with major gains in equities and declines in Treasury yields. The Consumer Price Index (CPI) showed a positive disinflation trend, with Treasury yields moving lower and the S&P 500 reaching its highest level since January 2022.

• The Federal Reserve's dovish pivot led to significant declines in Treasury yields and the Dow closing at an all-time high. Retail sales also reported strong growth, increasing 0.3% month-over-month in November, surpassing expectations and boosting the GDP forecast.

• The real estate market, both residential and commercial, may benefit from the prospect of rate cuts. With deal volume currently low compared to 2021, reduced rates could stimulate market activity and influence property prices across various geographies and types

Are Sellers Finally Coming Back? link

• The housing market is showing early signs of increased seller activity for 2024, with a notable rise in new listings in November and December 2023. This trend, if continued, could lead to more home sales in the coming year.

• Inventory of unsold single-family homes slightly decreased by 1.4% to 539,000, but there's a 3.2% increase compared to last year. Despite being 34% lower than in 2019, the gradual inventory increase suggests a market adjustment to the new reality of 7% mortgage rates.

• Home sales are showing signs of recovery, with a 7.7% increase in new contracts for single-family home purchases compared to last year. This shift indicates a potential expansion in the market, moving away from the deep recession experienced earlier.

Real Estate and Design Trends to Watch in 2024 link

• Homeowners are increasingly opting to stay put, enhancing their current homes with sustainable features, accessory dwelling units, and AI-driven technology. This trend is driven by high mortgage rates, steady home prices, and low inventory.

• There's a growing focus on specialized housing needs for the aging population, including facilities with amenities like memory care gardens and light therapy for circadian rhythms. This shift is in response to the large number of aging boomers and the prevalence of conditions like Alzheimer's disease.

• The trend towards natural, native landscaping is gaining momentum, with homeowners prioritizing ecosystem conservation and biodiversity. This approach includes using native plants in private backyards and creating conservation communities, reflecting a heightened awareness of environmental impact.

Tough Housing Market Is Luring Buyers Without Kids and Higher Incomes link

• The current housing market is challenging, with high prices and interest rates, coupled with a limited number of homes available. Despite these obstacles, first-time buyers made up nearly a third of home sales in the year ending June.

• A significant shift in buyer demographics is evident, with a record 70% of buyers not having children under 18. This change reflects the evolving preferences and financial capabilities of modern homebuyers.

• Financial hurdles remain significant, especially for first-time buyers grappling with high rent and student loans. The average income of homebuyers has reached a record $107,000, highlighting the increasing difficulty for middle-income individuals to afford homes.

First-Time Homebuyers Wealthier Than Years Past: Survey link

• The median household income for home buyers has significantly increased, jumping from $88,000 last year to $107,000. This rise reflects a notable shift in the economic profile of home buyers.

• First-time buyers now represent 32% of all home buyers, up from last year's historic low of 26%. However, this figure is still below the 38% annual average since 1981, indicating changes in the home-buying demographic.

• The trend of single women entering the housing market is on the rise, competing with repeat buyers who generally have higher incomes. This shift highlights the evolving dynamics of the real estate market, particularly in terms of buyer demographics and affordability challenges.

Why First-Time Homebuyers Are Getting Older link

• The median age of first-time homebuyers has risen to 35, up from 29 in 1981, reflecting the increasing challenges in the housing market. The median age of all homebuyers is now 49, significantly higher than the 31 recorded in 1981.

• Existing home sales dropped by 4% from September 2023 and nearly 15% from the previous year, while median home prices continue to climb, reaching almost $392,000. This price surge necessitates higher incomes for potential buyers, with the median income for first-time homebuyers now nearing $96,000.

• The rising costs and market challenges are changing the dynamics of home buying. Household incomes for first-time buyers increased by nearly $25,000 from 2021 to 2022, indicating the growing financial demands of entering the housing market.

Baby Boomers Are Buying up All the Houses link

• The median age for repeat home buyers has risen significantly, reaching 58 in 2023. This is a notable increase from 36 in 1981, reflecting a shift towards older buyers in the housing market.

• First-time buyers now constitute only 32% of the market, a decrease from the average of 38% since 1981. Today's first-time buyers are typically in their mid-30s, older than the late 20s demographic of the early 1980s.

• The current housing market is challenging for first-time buyers, with older and wealthier individuals, often cash buyers or those with substantial equity, more likely to succeed in multi-offer situations. This trend is creating a market dominated by older, more financially established buyers.

US Home Investor Activity Steadily Increased in the Third Quarter link

• In the third quarter of 2023, the share of single-family home purchases by investors rose to 26.8%, 27.2%, and 28% in July, August, and September, respectively. This trend suggests a potential rise above 30% in the fourth quarter.

• Despite rising mortgage rates in 2023, investor activity persisted, with smaller investors showing resilience. Mega-investors and large investors have reduced their market presence, while small investors maintained steady activity.

• California and Texas emerged as hotspots for home investors, with San Jose and Los Angeles leading in investor share. The investor market has cooled, with flippers and large/mega-investors reducing their activity, while small investors support the housing market segment.

Report: 44% of Office Loans, 14% of All CRE Loans at Risk of Default link

• A staggering 44% of office loans and 14% of all commercial real estate (CRE) loans are at risk of default, with loan balances exceeding property values. This alarming situation stems from a study of 35,253 loans, revealing a potential crisis in the CRE loan market.

• The average CRE loan was underwritten at a 61% loan-to-value ratio, but now, 29% of these loans have ratios above 80%, indicating significant declines in property values. This decline poses serious refinancing challenges, especially if property values continue to drop.

• The potential impact on the banking sector is profound, with a 10% default rate on CRE loans possibly triggering up to $80 billion in bank losses. This scenario highlights the vulnerability of the banking sector to fluctuations in the CRE market and the broader economic implications of these loan defaults.

Affordable Housing Mirrors Overall Multifamily Investment Performance link

• Since the Global Financial Crisis, affordable housing investment has surged, reaching $13.5 billion in 2021, up from $674 million in 2009. This growth closely aligns with the overall U.S. multifamily market trends.

• The first half of 2023 saw a 50% increase in affordable housing investment compared to pre-pandemic levels, despite a general decline in overall multifamily investment. This indicates a robust and growing interest in affordable housing as an investment sector.

• The average price of affordable housing units has risen by 133% since 2009, reaching $135,000 by Q2 2023. Despite a recent 16% drop from its peak in Q2 2022, the sector continues to offer strong fundamentals and growing investor demand, making it an attractive option for those committed to ESG initiatives.

The List of Latest Proptech Companies to Receive Funding

These two markets are seen as Nation’s Top Two Home Markets in 2024

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