Below is an excerpt from the quarterly newsletter I sent to passive investors last week.
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Home Sales
The anticipated residential real estate market crash hasn’t materialized, at least not in the manner that many people expected.
With mortgage rates now nearly triple what they were in 2021, single-family home resales are on track to reach a 20-year low.
This could be considered a real estate sales transaction crash.
Unfortunately for potential home buyers, prices are still on an upward trend.
In September, the median home resale price increased by 2.8% YOY, reaching $394,300.
While this growth is far from the double-digit price increases seen in most US markets over the past couple of years, it still represents positive price growth.
One aspect that hasn’t seen significant change is the inventory.
Housing inventory is increasing, but not to a degree that significantly affects home prices.
The National Association of Realtors (NAR) reported 3.4 months of housing inventory at the current sales pace, reflecting a 2.7% increase from August.
However, when compared to September 2022 when housing inventory stood at 3.2 months, the change is relatively minor.
If housing inventory continues to rise, it could potentially have a more pronounced impact on housing prices.
At present, there is ample demand to meet the available housing supply.
Rent Growth
It’s reasonable to anticipate that rent price growth would continue to surge, especially considering the decline in home sales.
However, the data presents a different picture: rent growth has actually decreased across all regions of the United States, with the Southern and Western regions showing a negative YOY trend.
According to a recent RealPage report, the Northeast and Midwest are shown as the two strongest markets for rent growth.
This trend directly correlates with the supply growth in those specific regions.
The Southern and Western regions have experienced a surge in new multifamily construction projects, while the Northeast and Midwest have not seen the same level of expansion.
Demand remains robust, though.
Fewer renters are leaving their apartments to buy homes, and household formation hit a record high in Q2 of this year.
Although there are differing opinions on the strength of future household formation growth, rent growth is expected to be sustained due to the overall scarcity of housing inventory.
Of course, it’s important to consider both macro and microeconomic factors when evaluating investment opportunities.
An experienced operating team, the right asset, and a strategic location in the market are all crucial elements for achieving long-term projections.