Goldman Sachs Lowers Recession Risk

Good morning, 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 is the art of creating the perfect backdrop for life’s greatest moments.

In today’s edition - The U.S. trade deficit narrowed in August, fueled by record exports, boosting Q3 GDP growth. Stocks rebounded as oil prices eased, but uncertainty lingers over the Fed's next rate move. Apartment demand remained strong despite record supply, while regional rent trends varied. Many Americans continue moving to disaster-prone areas, despite rising climate risks. Meanwhile, labor shortages are driving innovation in home building with pre-finished millwork saving time and money. Lastly, retail trends show bookstore and craft store foot traffic surging in 2024, thanks to back-to-school shopping.

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Rates & REITS

Average going rates as of Oct 8 2024

Numbers as of Oct 8 2024 closing

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🏛️ Economic & Market Sentiment

U.S. Trade Deficit Shrinks as Record Exports Boost Economic Growth

• Trade Deficit Narrows by 10.8% in August: The U.S. trade gap fell to $70.4 billion, driven by record exports of $271.8 billion. Capital goods, telecommunications equipment, and consumer products surged, while imports declined, largely due to lower crude oil prices and reduced vehicle imports. This trade shift could support Q3 GDP growth, with Goldman Sachs forecasting a 3.2% annualized rate.

• Goldman Sachs Lowers Recession Probability: In response to strong economic data, including robust exports and a surprising 254K job growth in September, Goldman Sachs has reduced the risk of a U.S. recession to 15%. The unemployment rate dropped to 4.1%, and personal income growth remains solid, further boosting economic resilience.

Happening in China: "In response to the new situations and issues in the current economic operation, China will intensify efforts to introduce a package of incremental policies to promote sustained economic recovery and improvement," NDRC head Zheng Shanjie said on Tuesday.

Stocks Rebound as Oil Prices Ease Amid Middle East Tensions

• Major Indices Gain Ground After Losing Session: The S&P 500 climbed 0.97% to 5,751.13, and the Nasdaq rose 1.45% to 18,182.92. The Dow added 126.13 points, ending at 42,080.37, as investors reassessed geopolitical tensions and economic data.

• Oil Prices Drop as Traders Monitor Middle East Conflict: West Texas Intermediate oil futures dropped 4.6% as markets watched Israel's potential retaliation to Iran missile attacks. Despite the easing in oil prices, energy stocks slumped, with Marathon Petroleum and Valero Energy falling 7.7% and 5.3%, respectively.

• Tech Stocks Lead the Recovery: Nvidia and Broadcom surged 4% and 3%, respectively, powering tech sector gains. Meta Platforms, Tesla, and Microsoft also rose, with Palo Alto Networks rallying 5% as investors rotated back into growth stocks amid cooling oil prices.

• Fed Rate Cut Uncertainty Persists: Despite strong short-term economic data, including a blockbuster jobs report, concerns linger that the Federal Reserve may delay rate cuts due to labor market strength. Rising bond yields, with the 10-year Treasury surpassing 4%, have added to market volatility.

🎙️ RE Spotlight

Strong Apartment Demand Persists in 3rd Quarter as Supply Hits 50-Year High

• Robust Apartment Demand Despite Record Supply: The U.S. absorbed 192,649 apartment units in Q3 2024, while delivering a record 162,595 units. Annual supply reached 557,842 units, the highest level since 1974. The gap between supply and demand narrowed to just over 69,000 units, its lowest in two years.

• Stable Occupancy and Rent Trends Nationwide: Occupancy for market-rate apartments stood at 94.4%, down slightly from the prior year. The national average rent remained steady at $1,838 in September 2024, reflecting muted rent growth amid the influx of new supply.

• Midwest Markets Lead in Rent Growth: Kansas City topped the nation in annual rent growth, with other Midwest cities like Detroit, Milwaukee, and Chicago also outperforming. Meanwhile, Austin, Raleigh, and Phoenix saw significant rent cuts, driven by large-scale new supply expansions.

At Least 37% of Couples Are Using Their Wedding Gift Cash To Buy a Home

1. Home Funds on the Rise in Wedding Registries: According to Zola’s 2024 wedding trends report, 87% of couples are including cash funds in their registries, with 37% planning to use these gifts for a home down payment. The shift reflects the rising cost of homeownership, with couples choosing practical financial help over traditional gifts.

2. Changing Marriage Trends Influence Registries: As couples marry later—average ages being 28.6 for women and 30.5 for men—and cohabitate before marriage (76%), they already own many registry essentials. With the median U.S. home price at $412,000 and mortgage rates around 6%, couples prefer cash gifts to help with their financial goals, such as homeownership.

3. Approaching Cash Gift Requests Tactfully: While asking for cash can be tricky with traditional guests, 85% of people in a 2023 Realtor.com® survey said they would have preferred cash toward a home rather than physical gifts. Using platforms like Zola and The Knot allows couples to create home funds, and careful communication—like avoiding a minimum donation—can ensure guests feel comfortable contributing.

Record Numbers of Americans Are Moving to Disaster-Prone Areas—Despite the Risks

• Americans Moving to High-Risk Areas: Despite the increasing threat of natural disasters, many Americans continue to relocate to hazard-prone areas. Realtor.com reports that nearly 45% of U.S. homes, valued at $22 trillion, are at risk from climate issues like floods, wildfires, and hurricanes, yet buyers remain undeterred, prioritizing lifestyle and location.

• Insurance Challenges in High-Risk Zones: States like Florida and California face rising home insurance costs, with major insurers pulling out due to extreme weather. In Florida, for example, Farmers Insurance and others have stopped issuing new policies, while California homeowners face similar challenges from wildfires and landslides, further complicating property ownership in these regions.

• Real Estate in High-Risk Zones Still in Demand: Despite rising climate risks, states such as Florida, Texas, and Arizona are seeing population growth. Many buyers are willing to overlook the dangers for warm climates, coastal living, or lower cost of living. However, real estate investors are becoming more cautious, often shifting their focus to lower-risk areas.

🏕️ Niche-RE

How Pre-Finished Millwork is Helping Home Builders Save Time and Money

• Labor Shortages Drive Innovation: With 85% of builders facing a shortage of finishing carpenters and 74% lacking painters, pre-finished millwork like Metrie Complete is emerging as a solution to reduce labor demands and save time on-site.

• Efficiency Gains with Pre-Finished Millwork: Metrie Complete, a leader in pre-finished millwork, cuts painter hours by 50% and reduces build cycle time by nearly two days. This allows builders to complete homes faster, improving cash flow and cutting financing costs.

• Reduced Jobsite Damage and Better Finish: Installing pre-finished millwork after painting and flooring minimizes damage during construction, ensuring a consistent, high-quality finish. Metrie’s non-metal marking topcoat and touch-up solutions enhance durability, reducing callbacks and paint usage.

Recreational Retail: Store Performance in 2024

1. Bookstore Foot Traffic Surges in 2024: Barnes & Noble and Half Price Books saw strong YoY visit increases in August 2024, up 14.3% and 10.3%, respectively, with back-to-school shopping as a key driver. Both chains experienced consistent foot traffic gains throughout the year, defying trends of online shopping dominance.

2. Craft Retailers Benefit from Back-to-School Season: Hobby Lobby and Michaels experienced YoY boosts in August 2024, with visits rising by 7.9% and 6.0%, respectively. The week of September 2, 2024, saw foot traffic increase by 18.3% at Hobby Lobby and 15.9% at Michaels, signaling a strong back-to-school shopping period.

3. Diverse Customer Base Fuels Growth: Both bookstores and craft stores cater to a wide range of demographic groups, from wealthy suburban families to blue-collar and urban diverse communities. Barnes & Noble and Half Price Books continue to evolve their strategies to align with the needs of their distinct audiences, setting the stage for a promising Q4.

🖼️ Chart-Tastic

And…that's a wrap on this edition!

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