Episode Summary:
In this episode, Craig and Jack discuss the latest current housing market trends. They explore the impact of low inventory on housing prices and the challenges buyers and agents face today. They also examine the present market situation, noting the drop in seller confidence and contracts. Finally, they analyze the effects of low mortgage rates and make predictions about the market’s future.
Overview of Episode 7
Craig and Jack explore real estate trends, focusing on inventory shortages, demand shifts, and rising mortgage rates. These trends are reshaping market dynamics for buyers, sellers, and investors alike.
Low Inventory Levels Tighten the Market
Inventory is down 51% compared to 2019, with 25% fewer new listings than last year. Consequently, housing prices remain buoyed despite affordability challenges. Buyers face fewer choices, while agents contend with reduced transaction volumes.
Rising Mortgage Rates and Affordability Issues
Mortgage rates hover between 7-8%, significantly impacting affordability. For example, cash flow on rentals is increasingly tight, especially on properties valued over $200,000. Consequently, lower-value homes are attracting more interest but are harder to finance.
The Headache Factor in Real Estate Investments
While lower-priced homes promise higher cap rates, they bring challenges like tenant turnover and maintenance costs. All in all, balancing returns with stability is critical for investors navigating current housing market trends.
Tenancy Duration Affects Cash Flow
Public REIT data shows average tenancy durations of 4 years for single-family homes and 2.5 years for multifamily units. Notably, Craig and Jack’s Baltimore portfolio achieves a 7-year average, emphasizing the importance of long-term tenants.
Shifting Price Trends Across Markets
Nationally, home prices fell 1% annually in June 2023, marking the first drop since 2017. However, this trend varies by region, with inventory and mortgage rates influencing localized price changes.
Marketing Challenges for Sellers
Sellers are reluctant to list due to higher mortgage rates, limiting inventory further. At the same time, “lipstick-on-a-pig” rehabs face longer days on the market, as buyers favor move-in-ready homes.
The Importance of Quality Rehabs
Jack emphasizes the value of above-average rehabs for quicker sales and better profits. In essence, quality craftsmanship reduces risks and shortens loan durations for flippers.
The Role of New Construction
New homes now make up 23% of total inventory, driven by constrained existing home listings. Furthermore, this trend highlights a growing shift toward new construction as the primary source of inventory.
The Impact of Fixed-Rate Mortgages
Fixed-rate mortgages, with 81% under 5%, anchor homeowners to their properties, further tightening the supply. This unique American feature influences housing market trends by discouraging movement.
Luxury Multifamily Projects Dominate
Luxury multifamily developments are increasing in major cities like Atlanta and Baltimore. However, Craig and Jack caution that oversupply in this segment could lead to rent concessions.
Affordable Housing Challenges
Affordable multifamily projects remain scarce, often requiring subsidies. Nevertheless, Jack discusses successful Baltimore projects that prioritize affordability without government funding.
Navigating Regulatory Hurdles
Permitting challenges in cities like Baltimore highlight difficulties in producing affordable housing. As developers persist, they play a vital role in addressing supply shortages.
Opportunities in Adaptive Reuse
Craig and Jack discuss opportunities in converting office spaces into multifamily housing. By adapting to zoning codes, developers can unlock untapped potential in urban areas.
