Today, we’re diving into some crucial headlines and market trends that could have a significant impact on both homeowners and investors alike. Whether you’re considering buying a personal residence or looking to invest in properties, this discussion is for you.
First, we’ll examine the current state of mortgage rates. Rates have been on the move, and we’ll explore what this means for potential homebuyers and investors in the real estate market. The Federal Reserve’s recent decision on interest rates will also play a role in our analysis.
Next, we’ll shift our focus to the rental market. Rent growth has been on a roller coaster ride over the past few years, but now, for the first time in three years, it has taken a surprising turn. Is your cash flow as a landlord in jeopardy? We’ll explore the factors behind this decline and its implications for landlords and renters.
Moreover, we’ll discuss the changing dynamics of the rental market in various regions across the United States. While some areas are experiencing rent declines, others are showing resilience. Understanding these regional variations will provide valuable insights for property owners and investors looking to make informed decisions.
We’ll also delve into the reasons why rental supply has been growing, leading to a rise in vacancies and putting pressure on landlords to reconsider their rent strategies. Factors such as homeowners choosing to rent out their homes instead of selling and a surge in multi-family housing construction will be critical elements in our analysis.
Throughout this video, we’ll reference data from trusted sources like Mortgage News Daily, Redfin, and insightful real estate experts like Mike Delfrey. By the end of this discussion, you’ll have a clearer understanding of the current real estate landscape and be better equipped to navigate the ever-changing market.
So, let’s dive right in and get started! If you find this content helpful, be sure to hit that like button, and don’t forget to subscribe to stay up to date with more insightful discussions on the real estate market. If you have any questions or need further information, feel free to reach out. Now, let’s explore the current trends and implications of the declining rent growth. Watch this video!
Transcript:
Rent growth is negative for the first time in 3 years. Is your cash flow in Jeopardy? So if you’re a landlord, if you own apartments or a single family residence there’s been some change there.
“All right, good morning, everybody. So, first time I’m trying multiple cameras, multiple displays, so let’s see how this goes. But I just want to kind of share some morning things that I do, and I will take a look at some articles, some headlines, discuss that a little bit, and at least see if it applies to you whether you’re on the personal side whether you’re looking to buy a personal residence, single-family property, or you’re looking to go ahead and purchase an investment property. So, let’s go ahead and get started.
One of the first things I like to do is I like to take a look at where rates are at, what are rates doing? Yeah, but what are rates doing? And just seeing, you know, if there’s anything has changed from the day before. If you don’t know, rates adjust every single day. A lot of things are, you know, can cause some adjustments, whether it’s the Federal Reserve’s announcement which we just heard the FED decided not to move rates. This was last week. They’re keeping them the same, so they haven’t raised the consumer rate, the federal fund rates I should say, that’s staying where it was. That’s a good sign staying put. But they’re gonna go ahead and raise rates a couple more times and they don’t foresee any drops in rates, so that’s something to consider there and to factor in decision making. But we gonna see here rates are sitting at, this is the 30 year fix. If you’re not familiar with mortgage news daily, they go ahead and put out what the average rates are. I’m gonna go ahead and look into this, but 6.95% on a 30 year fix.
If you’re a veteran you’re looking at 6.65%, and you can see here this is just some history of where what we were going back 2014 up until you see the pandemic and then the rise since then. And then they put out some articles which are always great too. I give you an idea of what’s going on, what may have caused that, show some analysis, but mortgage rates are edging back towards recent highs. I hope you go ahead and take a look at these rates here we see they’ve been fairly flat, right? Obviously, if you’re a buyer in the market, it doesn’t feel like that, a lot of unknowns, it feels like, and because we don’t know, you know, what’s going on, what’s going to happen, are we going to see rates decrease or should I wait? Should I not wait? And there are definitely a lot of opinions on that. We can see in October here we hit 7.37 October of last year and then it has been, it was a little volatile, and you know, we’re kind of relatively staying, high sixes, low sevens. Let’s go back here and take a look at their article. What’s going on here.
Mortgage Rate Edging Back Towards Recent Highs. One important disclaimer right upfront: there’s no real need to concern yourself with recent day-to-day movement in mortgage rates if your goal is to witness something significant. As we discussed yesterday, things have been very sideways and have exhibited a distinct lack of volatility.
Today’s movement happened to be toward slightly higher rates. It’s not a huge departure from yesterday’s offerings. But because the recent range is so narrow, and because the past two days have seen rates move higher, we’re now closer to the highest rates of the month after seeing the lowest rates of the month on Tuesday.
So that’s what’s going on with rates. A lot of times we’ll see these rates correlate to, on the commercial side, what those rates, whether they’re going to go up or down. And let’s take a look at this graph right here.
And so if you’re not familiar with Mike Delprete, check him out. You might want to sign up for his newsletter, but he puts out some great analysis and some information here. He put out just recent newsletter which was today. US existing home sales, the US real estate market in three charts, here’s one of them. And he goes on to say that transactions, so existing home sales numbers for NAR were out and they’re 20% below the previous year. So you can see here 2023, I see a previous year here. So transactions are down. I mean, partly some of that’s right, the rates of buyers in the market, some of it I believe is inventory. There’s just not as many people selling their property, less supply. So people are staying put. So, to give you a little background about Mike Delprete, Mike is a global real estate tax strategist and a scholar and a resident at the University of Colorado Boulder, he is internationally recognized as an expert and thought leader in real estate tech. His evident-based analysis is widely read by global leaders and his sought after strategy. He is a sought after strategy and new ventures consultant. Sign up for his newsletter it’s free. Put out some great information. Another great resource there. Let’s get into some headlines
Here’s one by Inman. May Saw the Lowest Housing Report Inventory in a Decade. The number of homes for sale in the United States fell 7.1% year over year to 1.4 million on a seasonally adjusted basis, according to a new report from Redfin. Redfin’s a great resource for data, a lot of publications use them for data. Naturally they have it, a lot of buyers who shop on them daily who look, a lot of them use them for you know on the listing side as well too. There’s a lot of transaction data that they have included on the rental side which is great.
We can see another headline here by Bigger Pockets and they’re referencing some more Redfin data as well too.
Rent Growth is Negative for the First Time in 3 years- Is your Cash Flow in Jeopardy? So if you’re a landlord, or you own apartments or a single-family residence? There’s been some change there. So, right. The record-breaking rent growth of the last several years is showing signs of fading. Earlier this month, Redfin reported that the rent growth slid 0.6% on a year-over-year basis for the first time since the pandemic. Every market is different, but the West is showing more of a decline in the rents and rent growth than some of the other markets, actually. So let’s take a look at some of this Redfin data, right? It’s Redfin report.
There are Fewer Homes for Sale in May than any other Month on Record. The pool of homes for sale is shrinking because homeowners feel trapped by rising mortgage rates with new listings down 25% to the third lowest level on record. So why aren’t people moving?Again it goes back to rates, right? If you’re locked in on a lower rate, whether you’re thinking of buying a new home cause you want a bigger home or were you thinking about downsizing or you’re moving out of the area, put you in a position where you “should we stay longer? Should you stay put?” And if you move it out of the area, right, relocating, should I rent out my property versus sell it? You get a lot of people that are even making those moves or even if they’re staying locally, they’re deciding to rent out their property because there has been a high rent increase, so they’re capitalizing on that as well too. But creating less inventory, maybe more inventory in the rental market, which could be contributing to the decrease in rent there because there are more options for renters. But definitely not helping on the buyer side.
A shortage of homes for sale is fueling bidding wars in some areas. Despite sluggish home buyer demand, 37% of homes that sold in May went for more than their list price, a higher share than usual this time of year. Home buyer competition is propping the prices, which were down just 3% in May from the record high hit a year earlier. That’s what we read in the other article over on Inman. The number of homes for sale in the US fell 7.1% year over year to 1.4 million on a seasonally adjusted basis in May, that’s the lowest level in Redfin’s records, which date back to 2012 and the first annual decline since April 2022. So we see a decline here. Let’s go in and skim just a little bit. By comparison there were 2.2 million homes for sale in May 2019 before the pandemic rocked the US housing market, meaning housing supply was 38.6% below pre-pandemic levels.
It’s the houses pre- pandemic levels 38.6% below. America’s housing stock is dwindling because there are very few people selling homes. All right, Americans talk about inventory because there are very few people selling homes. New listings of homes for sale declined 25.2% year over year in May to the third lowest level on record on a seasonally adjusted basis as homeowners were handcuffed by high mortgage rates as we discussed. I mean, if you’re someone that you purchased a property, you refinanced, and you’re sitting in, you know, in the, in the in the twos, and right now rates are almost near 7th, as we saw 6.95% as of today, I mean, you’re going to second, you know, second-guess moving away from your current position to a new position sitting with the 7% mortgage. You’re gonna second guess, you’re gonna take a look at some other factors. Not only home prices have risen.That’s going to mean the higher property tax and you’re going to revisit that position and take a look at is that the best move? And so some people might be deciding to become landlords, rent out the properties we discussed, some people might just decide, you know, we’re staying put, we are fine where we’re at, we don’t need that bigger home or we don’t need that that’s to downsize, we don’t need that smaller home, and they’re just going to stay put with what they’re currently at.
Here we are right here. Nearly every homeowner with a mortgage has an interest rate below 6%, meaning many are opting to stay put because selling and buying a new home would mean taking on a higher monthly mortgage payment. The average 30-year fixed mortgage rate in May was 6.43%, up from 5.23% a year earlier, and a record low of 2.6% in 2021. Housing supply has already been lacking for years due to a steep drop-off in building following the 2008 financial crisis. The shortage intensified in 2020 and 2021 because of rock-bottom mortgage rates prompted scores of people to buy homes.
All these compounding factors I know when I was out helping clients. This was one of the things that we saw. I mean having the right tons of offers, so much competition and so a lot of people that purchased properties at the time , They’re sitting at really low rates. Again, it’s causing them to really have–, there’s need to have strong motivation
to make that move, and we’re seeing it on the multi-family side too. I talked with a lot of owners who own properties or who own property that they know they’re under-sitting with the, under, you know, five units, and they’re sitting on a residential mortgage on their units. They refinance their property and then they’ve said it, there’s, you know, unless it’s a great deal and a really motivating reason for them to trade their current property for another one, there’s no reason for them to make the move. Their rates are just too low. Look at the numbers, they do the underwriting, it’s just, it’s not a motivating factor for them. We can go in and get more into this, but we’ll probably go to create a longer video just specifically on this as well, but I want to get over to talking about rent. For those of you multifamily owners, apartment owners, and even single-family owners out there, you landlords who are renting your property or maybe those of you that are considering, you know, buying a property and renting your current property, right, where is the rental market going?
So–Asking rents fell 2% in the West but rise 5% in the Northeast and Midwest. Nationwide, rents declined 1% from a year earlier in May, the largest drop since 2020 as a building boom increased supply and economic certainty cooled demand. Now, there are a few things that might relate to this. Permits had been up, there’s been a lot of building since the pandemic. There’s a lot of multi-family as well too. As we see more supply and a lot of those developments as they finish. I know, as I drive around Orange County —county you’ll see a lot of multi-family properties being built, that don’t look to be by huge developers, they look to be but small developers. You’re going to see a lot of that’s finishing up as providing supply to the rental market, more supply. Again, in the rental market it’s gonna cause, you know, it’s going to give renters more options, and they might be, you know, they’re going to be pickier about it and maybe causing rents to come down. So let’s take a look at this.
The median US, excuse me, still fighting this thing. The median US asking rent fell 0.6% year over year to 1995 in May. $1,995 in May, the largest annual decline since March 2020 when the coronavirus was declared a pandemic. That compares with a near record low, excuse me, that compares with a near-record 16 and a half percent increase one year earlier. May’s drop also represented the first annual decline since March of 2020 on a revised basis. The median asking rent rose 1.4% from a month earlier in May.
And I know for those of you Long Beach, if I’m looking up here in one of the tools I use and rent a meter, but if I’m looking at their report here, I’m going to pull this over. So for Long Beach, we’re looking at two bedrooms. This is a sample size of 751, the average rent $2,700, median rent 25 almost 2,600 here. And that’s on a two-bedroom property in Long Beach, of course, that’s for a two-bedroom, see, look at that, that’s, this is nationwide.
In the west, asking rents declined 2.1% from a year earlier, nearly four times the national pace. But other US regions saw increases with rents climbing 5.4% in the Northeast, 4.9% in the Midwest, and 0.8% in the South, which we’ll discuss further in this next section.
So you look at the headline and yes, it’s, headline it is very, I should say this headline is very scary, right? Rent growth is negative for the first time in, and yes, that’s, you know, any decline in rent growth is concerning for landlords there, but if we look at rent, the rent increase, I mean, this is since 2020, rent posted large drops since 2020 in May, but I mean, look at this year, this year over. This is from May, almost May of 2021 to February, 17.5% growth in rent, that’s huge. So if you were a landlord at the time
when you’re coming into that you’re, the rent increase that you’re seeing on your properties from where you currently at to market rents, that’s the 17 and a half percent growth, that’s, that’s pretty large. And then as you can see here, year over year, we’re on a decline, right?
The typical asking rent was $1,995 in May. So we can see here, this is May of 2022, $2,600, to August 2022, $2053 and then here we are $1,995.
Rents have cooled in part because the number of rentals on the market has grown. Giving landlords less leeway to hike prices because they’re grappling with a rise in vacancies as renters get more options to choose from. One reason rental supply has been growing is many homeowners are opting to rent out their homes, rent their homes out instead of selling.
You know, it’s funny, I have a sibling of mine, and she’s, you know, they’re relocating, and one of the things that they’re doing is signing to rent out their property versus sell their property and not because of their position that they, they couldn’t sell it. It’s just rents are healthy where they’re currently at. They’re in the market that’s growing, and you know, it’s something that they’re looking and then decided to take on. You’re getting owners that are deciding that as well too.
Some have already moved into their next home and are renting their previous home out to cash in on still- ‘high rents and continue building equity on a house with relatively low mortgage payment. Given that’s part of the reason right, locking in on low rate. If you’re locked in on low rate, that gives you more reason to consider that. The average 30 yea-fixed mortgage rate is 6.8% up from 5.09% a year ago and a record low of 2.65% in January 2021. The average monthly payment is $320 higher than it was at this time last year.
Many homeowners are deciding that instead of selling, they’re going to renovate their current home or rent it out while they wait for the market to improve, said David Orr a Redfin Premier real estate agent in Sacramento, California. Some homeowners are likely waiting for housing prices to bounce back so they can make a larger profit when they do sell. Rental supply has also increased because America has been building more multifamily housing. Another thing I mentioned, completed residential projects and buildings with 5 or more units rose 24.2% year over year on a seasonally adjusted basis to 400,000 in April- the most recent month for which data is available. This is likely because of the reason that rental vacancy rate has ticked up. It was 6.4%in the first quarter– the highest level in two years.
So there’s a nice chart look at. Rental Completions Climb, But Permits Fall. So we can see here, these are like permits, not permits that are being filed for, so those have declined.
This is the completion. So all these permits that were out for, and now we’re on completion, so more properties are being completed. Now that is more options again for renters out there. That’s part of the reason why we’re seeing some of the declines, and you got all these things coupled together again, that’s owners out there who are considering renting out their property that adds more options for renters there. Create more competition between landlords. Let’s go ahead, and we’ll skip some of this.
So it’s not applicable everywhere. In the West, the median rents fell 2.1%. So if you’re out here in the West, you’re likely experiencing a decline in rent. 2.1% year over year to $2,409 in May. Because we looked at the Long Beach average right, which is $2,700, $2,732 average and that was a sample size of 751. That was worth a 2 bed-room apartment . That’s the only reason Redfin analyzed that saw an annual decline, which was the West asking rents rose 5.4% to $2,495 in the Northeast, 4.9% to $1,406 in the Midwest, and 0.8% to $1,663 in the South. So you know, if we can go from this, right, negative for the first time, it’s not the case everywhere. We’re seeing it here in the west. Part of the reason we just discussed multi-family properties completions. Sellers are saying they’re renting their property out , renters having more options. So, we’re experiencing that, but that’s not everywhere in terms of rental decline.
Rents are cooling fast as in the West and South, in part because they rose so much during the pandemic, and we talked about the rise too. They rose so much during the pandemic as scores of people moved in places, including Phoenix and Miami. Now, rents in those regions have relatively more room to fall as supply catches up with demand. Rent growth has been steadier in the Midwest, which is home to many relatively affordable markets. The west is also seeing rents decelerate quickly because it is building a lot of multifamily housing, one of the things we mentioned. Which means landlords in some areas are grappling with the rise in vacancies. There were 440,000 new non-single-family homes completed in the West in the first quarter compared with roughly 200,000 in each of the other three US regions. See, so we’re seeing more multi-family properties being built in the west. (as compared to other regions). Expensive West Coast tech hubs like Seattle and San Francisco may also be experiencing rent declines due to remote work and tech layoffs. That’s one of the things that we I just talked had a call with us with Steven Smith, we talked about the just the office sector scene being impacted with the vacancies because more people are working from home.
So it’s almost pretty much the end of this article, but if we go ahead and and look at where rents at, right, rent rents are declining in every single market. So if you have rental property, that sits in East Coast, it’s not maybe here in the west. not to be too concerned here, but even considering in the west, we’ve seen such a high increase in rent. So part of the decline can be due to that as well as the introduction of more completions of construction from multi-family being introduced into the market, giving renters more options, getting landlords the ability to have less leverage for higher rents there. So anyways, that’s all we have for this morning. You might be looking in this morning, it’s already 11:30. I know, so we’ve been going at this took a little bit of time, but if you have any questions, hit me up, my information is down below. If this interests you, we’ll do stuff like this, cover some articles, take a look at my resources. But if you have any questions, let me know. Have a good night. Bye”