Modular Construction for Affordable Housing Real Estate

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 more than a transaction—it's the gateway to a new chapter.

In today’s edition - Despite record household debt, resilient consumer spending supports retail, industrial, and hotel real estate markets. Affordable rentals are under pressure as average rents rise 20% above pre-pandemic levels. Modular construction, scaling rapidly, offers new affordable housing solutions with support from states like Colorado. Recent $110 million settlements in a commission-fixing case may reshape real estate practices. Insights show firm home prices amid high mortgage rates, with demand stabilizing around a 6% threshold. In multifamily, softer fundamentals with long-term opportunities suggest demand resilience in Midwest and Northeast regions.

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Rates & REITS

Average going rates as of Nov 1 2024

Numbers as of Nov 1 2024 closing

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🏛️ Economic & Market Sentiment

Consumer Resilience and Its Ripple Effect on the US Economy and Real Estate

• Debt Levels and Financial Stability: Despite a record $17.8 trillion in household debt, most Americans are financially stable due to job growth and moderate debt service levels. Housing debt remains manageable, thanks to low mortgage rates and equity. However, lower-income households may struggle with disproportionate debt burdens, potentially impacting consumer spending.

• Economic Impact on Real Estate: Sustained consumer spending is expected to support retail and industrial real estate. Job growth and wage gains further stimulate rental housing and self-storage demand, while healthy household finances fuel leisure travel, benefiting hotel markets.

• Positive Market Indicators: Low delinquency rates, strong wage growth (4.7% vs. 2.4% inflation), and record-high job numbers reinforce market resilience. These factors suggest continued demand for commercial real estate spaces, including retail, industrial, and hospitality sectors.

🎢 Impact on Real Estate

Affordable Rental Market Strains as Rents Surge Across U.S. Metro Areas

• Affordable Rentals Shrink as Demand Surges: Apartments under $1,000 per month are becoming scarce, with only 7.5% of listings in this range in 2023. Renters in this bracket are staying in place longer due to fewer affordable options, as the median U.S. rent reaches $1,634—a 20% increase from pre-pandemic levels.

• Impact on Vulnerable Demographics: Low-income renters, students, and individuals near the poverty line are hit hardest, often resorting to shared housing or family support. Cities like Oklahoma City and Cleveland still offer rentals under $1,000, but demand has driven prices up, with Cleveland rents increasing by 11.1% year-over-year.

• Outlook for Affordable Housing: Rising inflation and limited new construction threaten to further erode affordable housing availability. Expensive cities like San Diego and San Jose offer less than 8% of listings below $1,000, underscoring the widening disparity between markets.

🎙️ RE Spotlight

Old Meets New: How Modular Construction Is Reshaping Affordable Housing in the U.S.

• Modular Construction Offers Affordable Housing Solutions: By building homes in controlled environments, modular construction speeds up completion time by 50%–60% compared to traditional methods. This rapid production helps lower costs for both developers and buyers in a tight housing market, especially as demand outpaces supply across the U.S.

• Market Growth Amid Changing Perceptions: The modular housing sector grew from $3.7 billion in 2015 to $14.6 billion in 2023, signaling increasing acceptance. A typical modular home must meet local building codes, which often requires higher energy efficiency standards, reducing long-term costs for homeowners.

• Public Funding and Incentives Key for Sustainability: States like Colorado are investing in modular construction, aiming to build thousands of units per year with incentives. This funding could stabilize the industry, which has faced boom-or-bust cycles due to high factory startup costs (up to $50 million) and fluctuating demand.

Judge Approves $110 Million Settlements in Home Commission Price-Fixing Case Involving Major Brokerages

• Landmark Settlements in Commission-Fixing Lawsuit: Judge Stephen Bough approved $110 million in settlements with brokerages like Compass, Redfin, and At World Properties, accused of conspiring to keep residential home sale commission rates artificially high. This comes after a $1.8 billion jury verdict against the National Association of Realtors and other entities in October, which has spurred multiple settlements from major brokerages.

• Redfin's Position and Industry Reforms: Redfin, which emphasizes cost-saving services for consumers, stated it never should have been implicated, but is satisfied with the resolution. Following these rulings, the real estate industry is facing potential shifts in commission practices, particularly with National Association of Realtors’ (NAR) planned reforms as part of their March settlement.

• Ongoing Cases and Broader Implications: This ruling adds to over $1 billion in settlements among brokerages, but cases remain active. In November, larger settlements from NAR and HomeServices of America totaling over $668 million will be reviewed, potentially reshaping how commissions are set across the U.S.

Navigating Housing Demand Shifts Amid Rising Mortgage Rates: Insights from Weekly Tracker Data

• Home Prices Remain Firm Despite High Mortgage Rates: Recent weekly tracker data shows that, even with mortgage rates fluctuating between 6% and 8%, home prices have held steady. This insight is crucial for understanding future market dynamics and predicting reactions to mortgage rate shifts.

• Demand Resilience Below Traditional Thresholds: Historical data since 1996 shows that U.S. existing home sales rarely fall below 4 million. While recent years have seen the lowest adjusted home sales on record, strong demand fundamentals have kept prices steady and prevented a significant sales crash, challenging some 2023 forecasts of a price collapse.

• Finding the Demand Baseline: Contracts data indicates that while high mortgage rates have suppressed overall activity, rates near 6% seem to stabilize sales volumes. This suggests a potential baseline for housing demand, revealing insights into future price trends and clarifying why demand has remained firmer than expected in a high-rate environment.

🏕️ Niche-RE

2024 Outlook: Navigating Multifamily Market with Softer Fundamentals and Long-Term Opportunities

• Moderate Rent Growth and Rising Vacancy Rates Expected: With over 440,000 new units projected to enter the market in 2024 and another 900,000 under construction, rent growth is expected to slow to around 1.2%. Vacancy rates will increase slightly, yet demand is expected to keep average occupancy above 94%, particularly in high-growth job markets like Austin, Dallas, Nashville, and Atlanta.

• Investment Opportunities Amid Supply Surge: Multifamily property values have softened due to higher interest rates, creating buying opportunities for investors with longer hold horizons. The Midwest and Northeast, with balanced supply-and-demand dynamics and higher cap rates, offer the best chance for positive leverage in 2024, especially as cap rates near their peak.

• Long-Term Market Outlooks: Regions like the Midwest, Northeast, and specific metros (New York City, San Diego, Boston, and Dallas) present resilience due to strong economic drivers, balanced fundamentals, and tempered supply pressures. The Sun Belt and Mountain regions may see temporary declines but are poised for future demand growth driven by in-migration.

🖼️ Chart-Tastic

🌍 Dwelling of the Day

Historic Bank in Philadelphia $1.1M  Link to Listing

And…that's a wrap on this edition!

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