79,540 Homes Flipped

Energetic Monday, Dwellers! Welcome to another edition of Dwellings Digest, a realtor and investor driven newsletter simplifying real estate, exploring the economy-stock-real estate link, adding a fun twist with niche topics and more. Enjoy!

Quote of the day - “Real estate isn’t just about property; it’s about possibility”

In today’s edition - The Fed's recent rate cuts may lower mortgage rates, offering some relief to buyers, but high home prices and limited supply keep affordability tight. Builders still face rising costs, with financing rates jumping from 5% to 13% since 2022, stalling projects. Most existing homeowners, with mortgages under 6%, are unlikely to sell until rates drop further. Despite challenges, builder sentiment is improving, with experts expecting housing starts to rise. Historically, homebuilder stocks outperform the market within months of rate cuts, signaling potential opportunities for buyers and builders alike.

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Rates & REITS

Average going rates as of Sep 20 2024

Numbers as of Sep 20 2024 closing

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🎢 Impact on Real Estate

What Fed Rate Cuts Mean for Homebuyers and Builders, Does it Move Housing Market?

The Fed's recent rate cuts have sparked cautious optimism in the housing market, potentially offering relief to buyers weighed down by multi-decade high mortgage rates. A lower cost of borrowing could bring more buyers off the sidelines, but the broader market dynamics still present significant hurdles.

• Affordability Stays Tight Despite Rate Cuts:
  While borrowing costs from Fed rate cuts may fall, housing affordability will remain constrained. In 2023, average home prices rose by 7.5%, outpacing wage growth of 4.6%. Even with lower rates, high prices and limited supply will keep many buyers priced out of the market.

• Home builder Challenges Persist:
  Financing costs for homebuilders jumped from 5% to 13% since 2022, according to the NAHB. Coupled with material price hikes (e.g., tariffs on transformers surged 73%), this has led to stalled projects. Currently, there are 250,000 unfilled construction jobs, keeping supply short and making it harder to meet increasing buyer demand.

• Existing Homeowners Unlikely to Sell:
  Only 24% of outstanding mortgages are priced above 5%, meaning most homeowners with sub-6% loans are unlikely to list their homes until rates drop significantly. Fitch Ratings predicts mortgage rates won’t fall below this level until 2027, limiting the inventory of existing homes for years to come.

The good news? Builder sentiment is on the rise, with analysts expecting improvements in housing starts as financing conditions ease. Historically, in three of the past five rate-cutting cycles, homebuilder stocks have outperformed the S&P 500 within three months of the first cut. While it won’t solve all the market’s challenges overnight, the Fed’s action may be laying the foundation for a more balanced housing market in the future.

While material costs are increasing, read how Walmart is 3D printing real estate

Read - U.S. Framing Lumber Prices Rise for Seventh Consecutive Week

🎙️ RE Spotlight

Apartment Supply Set to Triple in Desert/Mountains Region in 2025

• Desert/Mountain Region Supply Surge:
  In the year-ending Q2 2024, the Desert/Mountain region saw 60,000 new apartment units delivered, tripling the pre-pandemic average of 20,000-30,000 units annually. Phoenix alone accounted for 20,000 units, driving the area's record supply increases.

• Even More Supply Expected in 2025:
  Developers show no signs of slowing down, with 85,000 new units set to come online in the Desert/Mountain region by mid-2025. This marks a significant increase from current levels, challenging the market's ability to absorb the influx despite ongoing demand.

• Rent Growth Lags Amid High Vacancy:
  While migration and demand remain steady, rent growth in the region has fallen below the national average. Many operators are offering rental concessions to maintain occupancy as the market struggles to keep pace with the substantial increase in supply.

Property Owners Look at Deals on Self-Driving Cabs

• Retail Properties Embrace Driverless Future: Vestar, a major retail property owner, has partnered with Waymo, offering 25% ride-share discounts at Tempe Marketplace for Arizona State University students, reflecting a growing trend in integrating high-tech transportation solutions.

• Ride-Sharing Meets Retail Strategy: By offering exclusive discounts to shoppers using autonomous ride services, CRE property owners like Vestar are tapping into the $1.7 trillion retail sector, where easy access plays a pivotal role in foot traffic and revenue.

• Tech-Driven Transport Boosts Retail: With 63% of consumers more likely to visit a retail location that offers convenient transportation options, Vestar’s collaboration with Waymo could significantly increase shopper convenience, further strengthening the appeal of retail spaces.

Retail properties meet high-tech transit demands with autonomous ride-sharing at the forefront.

🏕️ Niche-RE

Reported: Q2 2024 U.S. Home Flipping Profits Rise as Market Shifts

• Flipping Activity Declines, But Still Strong: In Q2 2024, 79,540 homes were flipped, representing 7.5% of all U.S. home sales, down from 8.7% in Q1 2024. This seasonal decline aligns with a typical spring surge in other home sale types.

• Profit Margins Improve for Flippers: Despite market challenges, home flippers saw a typical 30.4% profit before expenses in Q2 2024, marking the fourth increase in five quarters. Gross profits rose to $73,500, up from $70,000 in Q1 2024, but still below the 2022 peak of $81,000.

• Metro Areas with Highest Flipping Rates: Leading metro areas in home flips during Q2 2024 include Warner Robins, GA (20.7%), Macon, GA (15.4%), and Atlanta, GA (13.4%). Meanwhile, the smallest rates were seen in Hilo, HI (3.3%) and Honolulu, HI (3.5%).

🖼️ Chart-Tastic

👾 Interesting in Social

Picture speaks thousand words, but this one speaks trillions for investors.

🌍 Dwelling of the Day

Two Towers, Exceptional Views.

Lake Geneva

And…that's a wrap on this edition!

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