Housing #s may have Peaked for 2024...But every city is not Equal

Welcome to A Skeptical Dude’s Take on Real Estate: a frank, hopefully insightful, dive into real estate and financial markets. From one real estate investor to another.

Coming at you live from Nashville, TN.

I’m at Frothy Monkey, and the medium roast coffee is on point. May pick some up for the home brew. Highly recommend.

Today We’re Talkin:

• - The Weekly 3 - News and Data.
• - Has Housing Inventory Peaked for 2024?
• - This is Not 2008: A Gentle Reminder
• - Growth Markets: Nashville
• - The Skeptics Take.

The Weekly 3: News and Data to Keep You Informed

1. - Federal Debt Keeps Exploding. This is why we have inflation. Fun fact, if your salary was $500,000 per day, every day, since The Great Pyramid was built, and you spent nothing, you'd still have LESS money today than the U.S Government borrowed in March to operate through Sep, of 2024...(X).
2. 
   
3. - Americans need to earn 80% more than they did before the pandemic to comfortably afford a home. BUT good news on pricing on the horizon (Zillow).
4. 
   
5. - Book Recommendation: Real Estate by the Numbers: A Complete Reference Guide to Deal Analysis. Highly recommend, a must for new or experienced investors to properly analyze deals.

Today’s Interest Rate: 7.09%

(☝️ .10%, from this time last week, 30-yr mortgage)

Inflation Talk, in Brief

The inflation talk this week is less data, more sentiment. So let’s talk one item: shelter.

I found this chart particularly interesting. It appears that inflation for stuff people pay for (CPI), excluding rent costs, actually shows inflation right at the Fed’s target of 2%. Wow. Rents really be Too Damn High.

Remember, last month we noted that shelter costs represented more than 50% of the monthly inflation increase. And the shelter data will likely accelerate in the next 60-90 days or so from here, for 2 reasons: shelter numbers are lagging because most renters sign a 1 year lease, and most leases turnover in the April-July timeframe. I.e. rent increases are happening now and will start showing up in the data.

A note to the Federal Reserve. Don’t cut rates just yet. I know, I know, hate me more.

The Fed should not simply subtract rents, declare inflation sufficiently squelched, and cut rates. This risks inflation resuming to the upside. Remember, rents are increasing because landlords/developers are looking to offset their input cost increases. Absent signals showing labor market and/or GDP weakness, the Fed should not be cutting rates, yet. When should they? Keep reading…

Has Housing Inventory Peaked for 2024?

New listings volume may have peaked for the year (HousingWire). April/May is the seasonal height of housing sales but housing market practitioners (myself included) were hoping we would see sales growth through May and into June. 2022 had listings growing into July, before taking the elevator down, as the Fed’s hiked rates.

unfortunately, pending sales have slowed over the past couple weeks along with new listing volume. HousingWire data showed 20% fewer home sellers than 2023, which is applying the downward pressure necessary to suppress sales growth. There are 401,000 homes in contract now. About the same as last week and a year ago. Again we would hope to see continued sales growth this time of year. New contracts pending this week came in at 68,000, down 6% for the week and flat YoY. This is a strong signal that the data over the next 30 days or so will show weakened sales. I.e. inventory may have peaked.

Regionally Texas and Florida are starting to show large inventory (and sales) growth. But in most of the country, low inventory continues to construct sales.

Florida’s inventory growth

Of course, inventory is a double edged sword. We are looking for an equilibrium of supply not wild oversupply, like in the 2008 Great Financial Crisis.

And on that topic, a gentle reminder….

This is Not 2008: A Gentle Reminder

While housing affordability is not trending in the right direction (we need more homes), that alone does not make a housing crisis. Somebody (actually many -bodies) is buying those houses and unlike 2008, they are qualified to do so. In short, we have several key data points to remember, to keep us on the straight and narrow whenever we get the urge to compare today to the 2008 GFC….

• Supply - Is around 3.5 months, not 10 months+

• The Qualified Mortgage law (i.e. you can’t lend to people that can’t afford the mortgage) has almost completely removed crazy loan risk. Banks are no longer offering exotic lending products that circumvent the lending rules. This explains why sales volume has tanked, and why home price gains have cooled (yes home prices are growth but less quickly. This will bet the norm till rates shift).
• Adjustable rate mortgages are a thing of the pst, down from 35%+ to <10%

Growth Markets: Nashville

Let’s talk some fun stuff, cool cities and cool developments! Starting with Nashville. (Yes, yes, of course I’m biased since I live there but there are some really cool developments happening now).

Nashville Skyline

More than 100 large projects proposed and underway downtown. Check out the potential change to the downtown Nashville skyline.

East Bank Development and Greenway

This will be a transformational project or Nashville’s relatively barren (and boring) waterfront. This reminds me of when DC redid their waterfront. But bigger. 7 parcels, 130 acres+. Parks, mixed use residential/retail, new bridges, Titans Stadium, Performing Arts Center, Oracle office park, riverside greenway and more….This is going to be a great step forward to make Nashville a world class city.

Nashville Airport is Expanding, Twice

Construction is ongoing to expand the current Terminal I to 60 gates, completing next year. More international flights and more nonstop flights. Phase 2: This one may take a while (project is slated for sometime this “decade”), but will include a full new Terminal II. 309 acres, 20+ gates & eventually up to 60.

And Finally… The New Titans Stadium!

Construction has begun on the new Titans Stadium, ETA 2027. An NFL record $1.2 billion in public investment. Check out the cool renderings.

Construction begins!

With Timelapse.

The Skeptics Take:

While home affordability is worse than in 2008 (it’s really bad, like historically bad) in all likelihood we pulled forward home price appreciation during COVID, so the good news for homebuyers is that home price appreciation, while still growing, is leveling off YoY (see chart). Interest rates are doing their job to bend the growth curve down these last 12-18 months. Last year at this time home prices showed year-over-year declines from 2022. This year we’re showing small gains.

Of course once the Fed starts to cut rates, BOOM. I agree with Barbara Corcoran’s 10% to the upside call.

Housing Affordability

The median price of all the homes on the market is $450,000, flat YoY, according to HousingWire (and again, all cites are not equal, this is an average). I.e. Nashville, Miami, Charlotte, Charleston vs…. San Francisco, New York, Austin etc…. In Nashville we are up 9% YoY.

All hope is not lost homebuyers!

I am still of the opinion that the Fed will cut rates in 2024, most likely twice, by .25% each. Inflation is not yet trending down to the Fed’s 2% target, this is true. But this too shall pass. Fed policy is still restrictive.

That’s it for now.

Until next time. Stay curious. Stay skeptical.

Herzliche Grüße,

Andreas

Please Share this Article!

It takes several hours to write the Skeptical Dude article, and they will always remain free. All I ask is that you share it with 1 friend. If you do, you will get two gifts: free education for one of your friends and good karma for helping to grow the community. So take a moment to share! Share A Skeptical Dude's Take on Real Estate

Contact Us

That’s it for this week. If you are interested in talking real estate investing and digging deeper into any of these ideas don't hesitate to reach out. I always like a rigorous discussion and helping fellow real estate investors.

Looking for a realtor in the Nashville area? Shoot me a note, right here on BP! We work with the best here who specialize in helping investors find great properties.

* The preceding has been my opinion only, the views are my own, and are intended for educational and entertainment purposes only and does not constitute financial advice.