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U.S. Housing Market Is Short 7.2 Million Single-Family Homes

Plus, CRE Distress Rates Surge Over 440% in 12 Months and 6 more RE insights

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A Quote

“I've learned that people will forget what you said, people will forget what you did, but people will never forget how you made them feel.”

― Maya Angelou

Today’s Rates

Real Estate Trends

U.S. Housing Market Is Short 7.2 Million Single-Family Homes link

  • The U.S. housing market is experiencing a significant shortage, with a deficit of 7.2 million homes as demand outpaces supply. Over the past decade, 17.2 million households were formed, but only 10 million single-family homes were built.

  • Builders may need until 2029 to close the housing gap unless production increases by at least 50%. In 2023 alone, 1.7 million new households were formed, exacerbating the shortage and widening the inventory gap from 6.5 million in 2022 to 7.2 million.

  • Affordably priced new homes are in high demand, with 43% selling for less than $400,000. Millennials, making up 48% of new-home buyers, are driving this trend with a preference for new homes, providing more options for home shoppers willing to consider these properties.

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Multifamily Starts Predicted to Drop 20% This Year link

  • The National Association of Home Builders (NAHB) forecasts a 20% decline in multifamily starts this year, aiming to curb inflation. This follows a 14% decrease in 2023, with 472,000 units started.

  • The expected drop to 379,000 units in 2024 signifies a cooling period for the multifamily development sector. This adjustment comes after a notably high year of activity.

  • The reduction in multifamily starts is part of a broader effort to stabilize the housing market and address inflation concerns. This strategic move reflects shifting economic strategies and market anticipation.

Risks

CRE CLO Distress Rates Surge Over 440% in 12 Months link

  • The overall distress rate for CRE CLOs skyrocketed from 1.4% to 7.4% in 2023, peaking at 8.6% in January 2024. This significant increase indicates a growing concern in the commercial real estate finance sector.

  • Outstanding CRE CLO loans are valued at approximately $80 billion. These loans, primarily floating-rate with three-year terms, are facing increased risks due to maturity issues exacerbated by rising interest rates.

  • Over the past year, the amount of distressed CRE CLOs jumped from $1.3 billion to more than $6.8 billion. This over 440% increase in distress levels showcases the volatility and the emerging challenges within the commercial real estate market.

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Off Topic

The industry hiring the most in every country

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Something I found Interesting

The U.S. is the World’s Top Oil Producer  link

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  • Over the last decade, the United States has become the world's largest producer of crude oil, overtaking giants like Saudi Arabia and Russia. This significant achievement is highlighted by data from the U.S. Energy Information Administration.

  • The rise in U.S. oil production is largely due to advances in hydraulic fracturing, or "fracking," across shale formations from Texas to North Dakota. This method has revolutionized oil extraction, contributing to the U.S. claiming the top spot in 2018.

  • The U.S.'s position as the leading oil producer marks a pivotal shift in global energy dynamics. It not only underscores the country's energy independence but also its influential role in the global oil market.

Location Specific

Indiana's housing market is primed to bounce back in 2024 link

  • Sales in Indiana dropped by 14% from 2022 to 2023, but optimism is high for a recovery in 2024. Inventory was up year over year, but new listings hit a 25-year low.

  • The Altos Market Action Index shows Indiana's housing market improving, with February 2024 figures indicating a seller's market. Mortgage rates stabilizing and slight decreases have encouraged both buyers and sellers to return.

  • Housing inventory struggles continue, with new construction taking on a more significant role due to existing inventory challenges. Despite slower market conditions in 2023, the median list price in Indiana rose, suggesting a potential for growth in sales by 7% to 10% in 2024.

Proptech

The New Tiny Home Capital link

  • Samara, co-founded by an Airbnb cofounder, is revolutionizing the accessory dwelling unit (ADU) industry by moving its manufacturing operations in-house. This strategic move to a factory in Mexicali, Mexico, aims to streamline production, enhance quality control, and meet the surging demand for ADUs in California.

  • The startup's initiative is a response to California's evolving ADU regulations, which have been relaxed to address the state's acute housing shortage. Between 2016 and 2022, the number of ADU permit requests soared nearly 19-fold, showcasing the growing popularity and potential impact of these housing solutions on the housing crisis.

  • Samara's product lineup, including one-bedroom, two-bedroom, and studio models, emphasizes longevity and efficiency in homeownership. The company's 150,000-square-foot Mexicali factory enables end-to-end construction of prefabricated homes, promising quicker delivery times and a seamless customer experience from design to build.

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The Best Markets for First-Time Home Buyers: NY Times

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  • The Realtor.com study highlights 10 U.S. markets where first-time home buyers aged 25 to 34 have the best opportunities, considering affordability, job prospects, and quality of life. Median home prices in these areas are below the national median, with four markets featuring homes under $200,000.

  • Geographic diversity and the inclusion of suburbs or satellite areas of major cities provide these markets with a unique blend of affordability and access to city amenities. Irondequoit, N.Y., and Benton, Ark., top the list, offering hopeful signs for younger buyers in a tough market.

  • Despite low levels of mortgage applications and home sales nationally, 65% of mortgage approvals in 2023 went to first-time buyers. This indicates a significant interest and activity from younger buyers, highlighting their resilience and adaptability in navigating the current housing market challenges.

  • link

Britain to lead 2024 European real estate boom as international buyers eye opportunities, research says

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  • The UK is set to lead a European real estate boom in 2024, driven by international investors attracted by decreasing interest rates and a moderate economic recovery. Savills predicts a 20% rebound in investment activity, with significant contributions from US, Israeli, Japanese, and Taiwanese investors focusing on the UK, Germany, Spain, and the Netherlands.

  • London has emerged as the most attractive city for real estate investment in Europe, thanks to its resilience against economic challenges and high potential for returns. The UK is expected to capture one-third of the US's outbound investment in 2024, amounting to approximately $13 billion.

  • The shifting preference towards logistics and residential properties over offices marks a significant trend change. More than one-third of investors now prefer logistics (34%) and residential (28%) properties, with office transactions dropping 71% compared to the five-year average in 2023, highlighting a broader commercial property downturn yet presenting opportunities in the office and retail sectors for opportunistic investors.

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Multifamily's Bounce Back Will Be Sharpest in These Markets 

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  • The multifamily sector is facing increased scrutiny amid economic uncertainties, highlighted by a recent uptick in delinquencies and banking concerns. Freddie Mac reports a spike in multifamily delinquencies, yet the figure remains relatively low at 0.44%, indicating resilience in the face of challenges.

  • Banks are closely monitoring their multifamily loan portfolios, with JPMorgan Chase affirming confidence in its $120 billion multifamily segment. Despite broader market concerns, strategic underwriting practices focused on current rents offer a cushion against potential downturns.

  • Market recovery predictions vary by city, with Phoenix, Charlotte, and Nashville expected to lead in rebound strength. These areas may see accelerated rent increases due to high demand and favorable investment conditions, contrasting with markets like Austin, where an oversupply could delay recovery.

  • The balance between supply and demand across various markets influences recovery timelines. While some cities grapple with oversupply, others like Cleveland and Milwaukee benefit from stable market fundamentals and barriers to homeownership, suggesting a slower yet steady path to growth.

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That's all, folks.

Cheers,

Vidit

P.S - Read past newsletters here

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