Markets Rebound, Real Estate Trends & Election Drama: What’s Next?

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 - Homes are where dreams are built, brick by brick.

In today’s edition - I cover the S&P 500’s recovery and the Nasdaq’s gains despite Dow’s continued losses. Real estate highlights include the equity-rich trends, luxury market outlook, and Florida’s flood zone risks. We also explore Portola Valley’s financial challenges and Texas’ apartment boom. Plus, discover why multifamily housing projects are stalling amid economic pressures and insights on the 2025 housing market. Election markets also signal Trump leading in key states, just 11 days away.

If you missed yesterday’s newsletter, click here

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Average going rates as of Oct 24 2024

Numbers as of Oct 24 2024 closing

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🏛️ Economic & Market Sentiment

The S&P 500 made a modest recovery on Thursday, snapping a three-day losing streak by adding 0.21% to close at 5,809.86. The Nasdaq Composite saw a stronger rebound, climbing 0.76% to finish at 18,415.49. However, the Dow Jones Industrial Average dropped 140.59 points, or 0.33%, ending at 42,374.36, marking its fourth consecutive day of losses—the first time since June.

Highlights:

• Tesla led the gains, surging nearly 22% after a strong third-quarter earnings report, making it the top performer in the S&P 500.

• Molina Healthcare also posted significant gains, jumping 17.7% on positive earnings and revenue results.

• IBM dragged down the Dow, dropping over 6% after its consulting revenue came in below analysts' estimates.

• Boeing slipped 1.2% following the rejection of a labor contract by its machinists.

Despite some positive earnings reports, the broader earnings season has been underwhelming, with a blended earnings growth rate of 3.4%, falling short of expectations. Meanwhile, Treasury yields eased after hitting three-month highs, with the 10-year Treasury yield hovering above 4.25%. Higher rates have been a major factor weighing on market sentiment, limiting the potential for stronger gains across equities.

🎢 Impact on Real Estate

U.S. Home Equity Trends Q3 2024: Nearly Half of Mortgaged Homes Equity-Rich Despite Decline

• 48.3% of U.S. mortgaged homes were equity-rich in Q3 2024, slightly down from 49.2% in Q2 2024 but up from 47.4% year-over-year, reflecting continued market strength.

• Western states like Utah and Arizona saw a drop in equity-rich homes, while Northeastern states like Vermont and Rhode Island experienced growth, with Vermont reaching 86.4% of homes considered equity-rich.

• Seriously underwater mortgages remained stable at 2.5%, with the Midwest and South regions leading in seriously underwater properties, notably Louisiana and Mississippi.

🎙️ RE Spotlight

Prime U.S. Real Estate Markets: Outlook for 2024 as Luxury Home Sales Rebound

• Luxury Markets Stabilize Amid High Rates: The shift toward lower interest rates is expected to revitalize activity in U.S. prime housing markets. However, 2023 saw only 29 properties sold for $50M+—a 41% drop compared to 2021—due to high borrowing costs and economic uncertainty.

• Florida's Luxury Surge: Florida's real estate market continues to benefit from a net population growth of 250,000, primarily driven by New Yorkers, pushing property values up by 214% in Palm Beach over the past five years. While growth has slowed, inventory struggles to meet demand, especially in luxury hubs like Miami.

• New York City and Aspen: Manhattan's luxury market remains resilient, with 68% of Q1 transactions cash-funded to avoid high mortgage rates. In Aspen, home prices surged 67.3% since Q1 2020, but limited land and long building processes continue to drive scarcity in the high-end market.

Portola Valley's Wealth Paradox: Why America's Richest Town is Facing Financial Trouble

• Billionaire Haven Going Broke: Portola Valley, a Northern California town with an average income of $250,000 per capita, is running out of money due to a $2.1 million sheriff’s contract and a mandate to build 253 low-income housing units to retain government funds. Despite financial struggles, the median home list price in the area remains high at $5.82 million.

• Inventory on the Rise: Portola Valley's housing inventory is up 75% year over year, indicating an increase in homes for sale as more residents look to leave. While the median list price surged 29.9% YoY in September, reports of bankruptcy might shift this trend as more properties hit the market.

• Potential Market Impact: Although prices haven't plummeted yet, the situation mirrors other cities like Detroit, where bankruptcy initially drove people out. However, Detroit eventually rebounded, with home prices rising 113.3% in the last decade, suggesting that Portola Valley could follow a similar recovery path in the future.

🏰 RE State Zone

Rising Risks: Why New Florida Homes Are Being Built in High-Risk Flood Zones

• Florida leads with 77,000 new homes in high-risk flood zones since 2019, despite the growing threat of hurricanes, putting developers, insurers, and lenders on a collision course.

• Over half of new Florida properties built outside official FEMA flood zones, leaving homeowners vulnerable to flooding without required insurance or tougher building codes.

• Natural disasters are driving up insurance costs: With expected payouts from hurricanes Milton and Helene between $40 billion and $75 billion, the real estate boom in risky areas is intensifying the insurance crisis.

Texas Apartment Boom: Leading the Nation in Inventory Growth

• Texas Leads U.S. in Apartment Inventory Growth: In the past year, half of Texas' submarkets saw apartment inventory growth rates above the U.S. average of 2.8%, with Austin leading at a remarkable 8.9%. Dallas/Fort Worth (DFW), San Antonio, and Houston also outperformed the national norm with growth rates of 4.4%, 4.8%, and 3.3%, respectively.

• Top Growth Submarkets: Ellis County (DFW) recorded the highest inventory surge in the state, growing by 24%, while Round Rock/Georgetown (Austin) followed closely with a 19% increase in apartment units.

• Smaller Texas Markets Grow Steadily: While the state's major metros dominate in inventory expansion, smaller Texas markets saw an average growth rate of 1.5%, reflecting more moderate but steady development compared to the booming larger cities.

🏕️ Niche-RE

Challenges & Opportunities in Multifamily Housing Amid Economic Headwinds

• Financing Constraints Slow Multifamily Growth: Rising interest rates and higher construction costs have led to about 30% of multifamily projects stalling after initial design phases, reflecting a national slowdown in starts despite high demand for affordable housing.

• Resilient Submarkets and Niche Projects Thrive: Amid financial pressures, AEC firms are focusing on niche opportunities like luxury rentals in Miami and affordable housing in New York City, leveraging state and federal tax credits to keep projects moving forward.

• Innovation in Design and Mixed-Use Projects: To combat rising costs, developers are incorporating mixed-use components and adaptive reuse projects, such as Tin Top Flats in San Antonio, blending historic revitalization with modern housing demand.

What Will 2025 Bring for the SFR/BTR Housing Sector?

Opportunities for Growth:

• Housing Shortage: With a U.S. housing deficit surpassing 3.5 million units, SFR/BTR developments play a crucial role in addressing this gap, particularly for key demographics like young professionals and retirees.

• Home Builder Partnerships: Home builders are increasingly partnering with BTR developers, seeking better returns on investment. This trend will continue in 2025, with greater involvement expected from home builders in producing purpose-built BTR properties.

• Secondary Markets: Untapped markets in the Southeast, with affordable land and favorable conditions, will offer significant opportunities for developers and investors.

Sentiment for 2025:

• Optimism with Caution: Industry professionals maintain a positive outlook for 2025, expecting steady growth and predictability. While the sector has faced its share of challenges, the consensus is that SFR/BTR will continue to be a resilient and promising asset class over the long term.

🖼️ Chart-Tastic

👾 Interesting in Social

BREAKING: Donald Trump now leads in all swing states in the 2024 election with a 60% chance of winning the election.

With over $100 million traded on, election markets continue to suggest Trump's lead is widening. The election is now 11 days away.

And…that's a wrap on this edition!

Got questions or feedback? write to us [email protected] - we'd love to hear from you.