July 16, 2024 - This Week in Real Estate

Brought to you by Groundfloor, where you can fractionally invest into real estate debt

Headlines

What’s new in the world of Real Estate
  • Is a rate cut coming?

  • Data centers in record demand

  • Rents are growing again

  • Are office buildings bargains now?

Plus: The best beach towns, positive momentum for CRE, a student housing update, and more.

Listing of the week: Bennifer’s mansion is on the block.

Performance

Freddie Mac 30 Year Fixed
6.89% (-.06% weekly)
Dow Jones Real Estate Index
352.92 (+7.4% weekly)
S&P U.S. REIT
345.72 (+4.6% weekly)
FTSE NAREIT Equity REITs
761.61 (+4.8% weekly)

as of market close on July 15

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Market Updates

Good inflation news is raising the chances of interest rate cuts. The Consumer Price Index (CPI) declined by 0.1% last month, and the 3% rise year-over-year is getting closer to the Federal Reserve’s stated 2% target - which Fed Chair Jerome Powell said did not have to be hit before rate cuts begin. As a result, traders now place an 89% chance of a rate cut in September, up from 52% last month. They also see an 89% chance of two or more rate cuts through the end of 2024. In the immediate aftermath of the inflation news, real estate stocks saw the biggest gain of any sector in the S&P 500, as a lower rate environment could lead to a market resurgence.

Rental rates for U.S. data centers have surged 20% year-over-year. This growth came despite inventory growing 24.4% in Q1. It highlights the incredible amount of demand there is for data centers nationwide, due in large part to the growing AI industry. Vacancy rates have hit a new low, with the largest market in the country, Northern Virginia, seeing vacancy below 1% despite adding 18% more inventory in Q1. A record amount of data center space is under construction, but over 90% of that space is already pre-leased, so expect further increases in rent until supply can catch up, as long as AI remains in vogue.

(Zillow)

Rents are growing at their fastest pace in nearly a year. The typical rent in the U.S. in June was $2,054, a 0.5% increase over May and a 3.5% increase year-over-year, the highest growth rate since last July. Relatedly, the share of listings where landlords are offering concessions has fallen slightly as they grow more confident in the market. The markets with the highest annual rent increases were Hartford, Cleveland, Louisville, Providence and Milwaukee.

Bargain-hunting investors are targeting distressed office buildings. As prices have dropped an estimated 25% or more, and with nearly $1 trillion of commercial real estate debt maturing in the next year, more distressed assets than ever could be hitting the market. Private equity firms have allocated 64% of their commercial real estate dry powder to the office sector as they expect strong buying opportunities to emerge in the near future.

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Listing of the Week

A property that caught our eye

(Mansion Global)

Amid rumors of marital discord, Hollywood power couple Jennifer Lopez and Ben Affleck listed their Beverly Hills mansion for sale. The 38,000 square foot home sits on a 5-acre property. It boasts 12 bedrooms, an eye-popping 24 bathrooms, a two-bedroom guardhouse and a 5,000 square foot guesthouse. Maybe the couple is splitting, or maybe they’re just looking for a profitable flip - the property is listed for $68 million after they originally purchased it last May for $60.8 million.

Explore

(Realtor.com)

  • Affordable beach towns: Not surprisingly, Florida led the way, with six of the top ten best beach towns for retirees, but Calabash, NC was rated #1 based on the cost of living and the climate, along with access to medical facilities, major highways and airports.

  • CRE momentum is growing: LightBox’s Monthly CRE Activity Index rose by 7.7% in June and is nearly double what it was last December, as property listings, saw a notable increase alongside due diligence and valuation activity.

  • Luxury appreciation: The five markets with the biggest jump in luxury prices since 2020 are West Palm Beach, FL, Savannah, GA, Lake Havasu City, AZ, Reno, NV and East Hampton, NY.

  • 2023 was tough for realtors: As existing-home sales hit a 28-year low last year, the typical agent saw fewer transactions and the average brokerage saw sales volume fall by over 25% - realtors cite lack of inventory and housing affordability as the main factors slowing the market.

  • China’s home prices plummet: New-home prices fell by 0.67% in June and are down 4.9% year-over-year, and existing-home prices fell by 0.85% in June and are down 7.9% year-over-year, as the Chinese real estate sector continues to struggle.

  • Student housing slowdown: At the 175 universities tracked by RealPage, 84.5% of beds have been pre-leased for the fall, compared to 85.8% a year ago, and annual effective rent growth slowed to 4.4% year-over-year.

(RealPage)

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