Real Estate Investor Weekly #47 - January 30, 2023
The best content this week for real estate investors from around the web.
A really good article about rent-to-income ratios over time and some of the subtlety involved with that. Be sure to check out the article he links to at the top as well because that is also really interesting.
Charts with Commentary
Here are some charts shared with me from Lon Welsh and my commentary.
Number of homes sales is lower than we’ve seen in the last 7 years prior.
Measuring the difference in the number of home sales this past month compared to a year ago, there’s a massive difference. You might expect that with the Fed raising rates to get inflation under control. It’s like slamming on the brakes.
Prior to the slowdown in the last year, we had really low inventory AND really high demand… that pushed prices up via bidding wars on properties. Now, we just have really low inventory and decent demand (not the crazy, over-the-top demand we saw a year ago when rates were near all-time lows).
We’re still see the number of homes for sale well below the previous 7 years (excluding 2021 when the number of homes for sale was lower than it is now).
Months of Supply takes into account how many homes are available for sale (inventory) and home many homes are selling (demand). So, you might argue it is a better metric to get a gauge of what is happening from both a supply and demand perspective.
In that case, we’re still hotter—more of a seller’s market—than we were in 2015-2019. Although, we’re not as blistering hot as it was in 2020 and 2021.
This shows how many active listings a buyer can select from. Still really low compared to 2017-2019 numbers. But, more than 2020 and 2021 which was not reasonable or sustainable in my opinion.
The number of new listings coming on the market is also down compared to 2020-2022. I personally speculate that’s because some of the folks that bought with really low interest rates would rather keep their interest rates than buy another property with current, higher rates. But, that’s just the story I am telling myself to match the data.
The median (middle-most) asking price of homes for sale is actually up from this time last year despite the massive increase in interest rates. Could be composition (more expensive houses are being put up for sale than less expensive houses), but my guess is that we’re seeing reasonable appreciation too.
The differences between 2020 to 2021 and 2021 to 2022 are not normal. They were exceptionally large increases in price appreciation. So, you should not look at the difference between 2023 and 2022 and think… wow… that’s tiny. It’s not. It is still higher than the long-term average of about 3%.
In a more balanced market—not the last 5 years—you might expect a little negotiating room on price when buying a property that has been on the market for a month or two.
The chart below shows that, on average, homes are selling for a little more than a 2% discount. That’s more in-line with normal than the craziness of 2021 and 2022, but still less of a discount than we saw this time in 2020.
We’re not starting as many homes (per 1,000 inhabitants) as we were in most of our history going back to 1960.
In other words, we’re probably not building enough homes. You might expect that to lead to continued low inventory challenges, which will likley push home prices up… good for investors that own properties… and potentially painful for those that are trying to get in.
Inflation (CPI) forecast is apparently down from its recent peak. Still seeing inflation, but not as fast as it was… still faster than the Fed’s stated goal of 2% per year.
Bill McBride talks about housing completions in a recent article.
The Real Estate Financial Planner™
P.S. We’re looking for real estate investors looking to buy a property in the next 90 days when prices are high, interest rates are high and rents are lagging for a new 90 day coaching program I am putting together. Reply to this email if you’re interested.