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Visualizing Major U.S. Banks by Commercial Real Estate Exposure

Plus, Inventory Could Grow by 40% This Year and 6 more RE insights

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A Quote

“I love quotes… but in the end, knowledge has to be converted to action, or it’s worthless.”

- Tony Robbins

Today’s Rates

Macro Trends

Economic Watch: Strong February Job Growth Validates Fed Patience link

  • The US added 275,000 jobs in February, surpassing the expected 198,000. This indicates a robust labor market, with significant contributions from healthcare, local government, and food services & drinking places.

  • Despite a slight uptick in the unemployment rate to 3.9%, the job market's strength reinforces the Federal Reserve's cautious stance on interest rates. The Fed is unlikely to start cutting rates before June, reflecting confidence in the economic outlook.

  • Strong job growth has varied impacts on different sectors, notably boosting demand in the healthcare and construction sectors. However, high capital costs are expected to temper real estate investment activity in the first half of 2024, with leasing activity potentially stronger than anticipated.

Real Estate Trends

Rental Market Tracker: Asking Rents Climb 2% in February, Biggest Gain in Over a Year link

  • Rents are rebounding from last year's low. In February, the median U.S. asking rent rose to $1,981, marking a 2.2% increase from the previous year and a 0.9% increase from the preceding month. This is the largest gain since January 2023, attributed partly to the jump in mortgage rates last month.

  • The Northeast and Midwest see the most significant increases. These regions experienced asking rents rising roughly 5%, with the Northeast's median asking rent jumping to $2,481, and the Midwest's to $1,441. In contrast, rents in the South and West were essentially flat.

  • Asking rents still above pre-pandemic levels despite recent stability. The median asking rent in February was $73 below the record high of August 2022 but remained $387 higher than in February 2020. This highlights ongoing affordability challenges for many U.S. renters.

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Why Inventory Could Grow by 40% This Year link

  • Home inventory in the U.S. is climbing, with a current 21% increase from last year. If mortgage rates don't drop, projections show a 40% inventory increase by July compared to last year.

  • The rise in new listings is 15% higher than in 2023, with an additional 16,000 homes sold immediately. This indicates a gradual return to pre-pandemic seller levels, suggesting more sales opportunities in 2024.

  • Median home price remains relatively stable, only 1% higher than last year at $432,000. The lack of significant buyer demand is keeping home price appreciation flat, with expectations close to 0% change for 2024 unless mortgage rates decrease soon.

Risks

Nearly 50 banks have multifamily loan issues link

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  • At the end of 2023, 49 community banks reported multifamily nonperforming loans greater than 5% of their total multifamily loans. Fitch Ratings highlighted that these banks, though small with an average of $1.3 billion in total assets, signal a cautious note in the multifamily lending space.

  • Multifamily lending by U.S. banks has increased by 32% to $613 billion outstanding since the pandemic began in 2020. However, with 12% of mortgages backed by multifamily properties set to mature in 2024, Fitch anticipates asset quality metrics to decline due to higher refinancing rates and valuation pressures.

  • The broader commercial real estate market is facing a significant wave of loan maturities in 2024, with $929 billion, or 20%, of the $4.7 trillion in outstanding commercial mortgages set to mature. This marks a 28% increase from the previous year, potentially amplifying stress in the commercial lending landscape, particularly among loans extended or modified in response to the challenging conditions of 2023.

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Off Topic

Ranked: Global Airlines with the Most Plane Crashes

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Something I found Interesting

Majority of U.S. Homeowners and Renters Say Housing Affordability Affects Their Pick for President link

  • Over 53% of U.S. homeowners and renters indicate that housing affordability will influence their presidential election vote in 2024. This sentiment is driven by challenges such as high mortgage rates, escalating home prices, and a severe housing shortage.

  • Nearly 64% of respondents feel negative about the economy due to housing affordability issues. Despite a strong economy on paper, the American dream of homeownership remains elusive for many, affecting their quality of life and future plans.

Location Specific

Stockton Leads the Nation in Occupancy link

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  • Stockton-Lodi, California, boasts the highest apartment occupancy rate in the US at 99.1%. This marks the tightest reading among the nation's largest 150 markets, with a significant month-over-month increase of 30 basis points and an impressive annual surge of 190 basis points.

  • The region's apartment market has outperformed the national norm for the past decade, consistently registering occupancy rates above 96%. During the pandemic, Stockton-Lodi's occupancy soared by 200 basis points between March and November, ranking it seventh nationally for performance during this period.

  • This exceptional occupancy rate has provided apartment operators in Stockton-Lodi with significant pricing power. As a result, effective asking rents in the area have risen by 8.1% year-over-year in November, making it the third-highest increase among the country's top 150 markets and placing Stockton-Lodi among the nation's top 10 for rent growth leaders over the past six months.

One Chart

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Pro Member Only Content Below

Latest Proptech Funding Rounds

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Top 5 Cities in Texas for Financial Balance and Wellbeing 

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  • Texas shines as a beacon for renters aiming for financial health, highlighting suburban cities as prime locations. These areas offer a perfect blend of high median incomes and manageable living expenses, enabling renters to enjoy a quality lifestyle without financial strain.

  • Round Rock stands out with an annual median income of $68,517 against a modest monthly rent of $1,574, coupled with low basic monthly expenses of $1,058. This city combines urban conveniences with a suburban feel, promoting a balanced and financially sound lifestyle.

  • Plano draws attention with a robust economy, an annual median income of $76,824, and a monthly rent of $1,786. Beyond the economics, its top-notch schools, vibrant shopping districts, and green spaces offer a high quality of life for diverse residents.

  • Cedar Park, near Austin, provides a financial equilibrium with a median income of $66,479 and rent of $1,657. It's a family-friendly city offering outdoor activities, excellent education, and a growing job market, maintaining affordability alongside modern amenities.

  • Austin merges a lively cultural scene with financial wellness, where a $66,681 median income and $1,784 monthly rent allow residents to enjoy the city's diverse offerings without financial compromise. This capital city is rich in entertainment, outdoor adventures, and job opportunities, ensuring a dynamic yet balanced lifestyle.

  • Allen prioritizes renter well-being with a $62,814 median income and average rent of $1,737, keeping living costs manageable. It’s a tranquil suburban retreat with access to Dallas, offering community resources to achieve financial goals without sacrificing comfort or accessibility.

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One Thing Gen Z Refuse To Live Without

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  • Generation Z homebuyers are making significant trade-offs due to high home prices and mortgage rates, with many prioritizing practical features over size and luxury. About two-thirds believe in the possibility of homeownership, yet they face challenges with affordability and are open to concessions on the home's size, location, and amenities.

  • High-speed internet and smart home technology are non-negotiable for Gen Z, reflecting their preference for homes that support remote work and offer sophisticated tech solutions. This generation expects their homes to be equipped with the necessary technology to facilitate their daily activities and work, indicating a shift towards functionality and efficiency in their living spaces.

  • Despite their willingness to compromise on many aspects of their future homes, Gen Z homebuyers draw the line at living without a washer and dryer or central air conditioning. This insistence on certain conveniences highlights the importance of practicality and comfort in their housing choices, underscoring a pragmatic approach to homeownership.

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That's all, folks.

Cheers,

Vidit

P.S - Read past newsletters here

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