June 4th, 2024 - This Week in Real Estate

Brought to you by Percent, offering vetted private credit investments to individual investors

Headlines

What’s new in the world of Real Estate
  • Single family rentals are all the rage

  • The best buyer’s markets

  • Office vacancies reach a new high

  • Common goes bankrupt

Plus: Housing values hit an all-time high, sellers are cutting prices, Gen Z wants affordable housing, and more.

Listing of the week: A lot that is truly underwater.

Performance

Freddie Mac 30 Year Fixed
7.03% (+.09% weekly)
Dow Jones Real Estate Index
331.52 (+1.4% weekly)
S&P U.S. REIT
322.81 (+1.4% weekly)
FHFA House Price Index - Mar.
423.4 (+0.1% monthly)

as of market close on June 3

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Market Updates

(NAR)

When it’s difficult for people to buy a home, there is more demand to rent one. As younger generations start having children and want more space and good school districts, they increasingly want to live in single-family homes. Due to low inventory, rising prices and high mortgage rates, many end up renting. This makes single family homes an attractive option for investors, both individual and institutional. Which in turn keeps prices high and supply restricted, creating a cyclical effect. Developers are now building single family houses purely to rent, rather than to sell, with built-for-rent housing starts hitting a record-high. What is good for investors tends not to be good for potential buyers and renters, but perhaps the increased supply will bring a better equilibrium to the market.

Two Florida cities top the list of the best buyer’s markets in the country. Realtor.com looked at the metro areas with homes that sold for the lowest amount compared to their original listing price. The top ten areas saw an average sales price of 9% below the listing price, compared to a nationwide of 3% below. Given that some of the cities on the list — like Key West, FL and Breckenridge, CO — have median listing prices above $1 million, it’s not necessarily a list of affordable locations, just those where sellers may have been overvaluing their properties.

(CBRE Research)

The commercial real estate market is facing rising vacancy rates and slowing rent growth. A report from the National Association of Realtors (NAR) showed office vacancies rising to 13.8% nationwide, a new all-time high, while demand for industrial and retail spaces slows. On the other hand, more renters have led to higher demand for multifamily apartment buildings, and hotel occupancy rates have also stabilized. Meanwhile, a new report from CBRE showed the average downtown office vacancy rate in urban areas has hit a record-high 19.3%. The one bright spot is that mixed-use districts in the biggest cities show far lower vacancy rates than downtown districts. This suggests a potential road to recovery, as many cities are converting vacant downtown office buildings into residential units, hoping to create more vibrant, mixed-use neighborhoods.

Co-living startup Common filed for bankruptcy. The New York-based company raised $113 million of venture capital funding since its 2015 founding, but today holds assets of only $10 million with liabilities above $50 million. It operates more than 5,200 units in 12 cities, and it is unclear what will happen to tenants. Like WeWork in the office sector, Common made agreements with landlords, then sub-divided and sub-leased units to its tenants while never owning property itself. While its failure could be seen as an indictment of the space, other co-living models could potentially prove successful if operators share in property appreciation upside.

Listing of the Week

A property that caught our eye

(Bridge MLS)

A quarter-acre lot in Alameda, CA, an island town just south of Oakland, is on the market for the relatively modest sum of $400,000. The catch? It’s literally underwater. The lot is zoned for residential, and a building of up to 4 units could be constructed on it, provided that someone figures out how to actually do it. The location is great, and it’s hard to beat the view.

Explore

  • Housing prices continue to rise: The S&P CoreLogic Case-Shiller US National Home Price Index for March showed a 1.3% monthly gain and a 6.5% yearly gain. Meanwhile, the FHFA House Price Index for March rose by 0.1% monthly, 1.1% quarterly and 6.6% yearly and has now shown positive gains every quarter since 2012.

  • Price cuts jump: More recent data from Redfin showed that 6.4% of home sellers cut their price over the past four weeks, and the median asking price nationwide dropped for the first time in six months.

(Redfin)

  • Housing affordability matters: 91% of Gen Z voters say that housing affordability is an important factor in the upcoming election, making it their top issue ahead of immigration, abortion rights and gun control.

  • Chicago’s office conversions: In an effort to combat its 25% office vacancy rate and revitalize its struggling downtown, the Windy City is earmarking $1.5 billion for a public subsidy program to convert older buildings into residences and hotels.

  • Industrial originations rising: While total lending has fallen precipitously to office buildings (-54%), multi-family (-30%) and retail (-10%), industrial debt originations were up 49% year-over-year in Q1.

  • CRE at bottom?: Blackstone’s COO Jonathan Gray thinks the commercial real estate market is on the verge of recovery, and that now is the time to start investing.

  • AI for agents: Broker Keller Williams launched a new AI assistant that has been trained on the company’s proprietary data, and is designed to help agents draft content and advise clients on how best to buy and sell homes.

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