Apartment List’s Predictions for the 2024 Rental Market

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Private Equity Funds, Flush With $300 Billion, Stand Ready To Pounce link

• Blackstone's $700 million investment in data center developments signals a shift in private equity real estate strategy. In 2023, U.S. property transactions involving private equity were down 45% from 2022, with firms like Blackstone holding significant "dry powder" (unspent capital).

• The real estate market is showing signs of opportunity for 2024, with conditions like stabilized interest rates and receding recession fears. The largest amount of dry powder is targeted at opportunistic investments ($139 billion), followed by value-added ($84 billion) and debt funds ($40 billion).

• The office market remains uncertain, but other sectors like multifamily, self-storage, retail, and industrial are expected to have narrower bid-ask spreads. Higher interest rates and tighter underwriting could lead to more distressed properties, offering opportunities for private equity and debt funds.

Home Sales Start to Rise, Building Momentum for 2024 link

• Existing-home sales saw a slight increase last month, breaking a trend of five consecutive monthly declines. This change indicates a potentially more favorable real estate market in 2024, with existing-home sales rising by 0.8% in November.

• Despite the recent increase, November's existing-home sales were still down 7.3% from the previous year. Home prices continue to rise due to low inventory, with a 4% year-over-year increase in November, reaching a median of $387,600.

• The construction of single-family homes is surging, with an 18% increase in November compared to the previous month and a 42% rise from the previous year. This boost in construction, along with expectations of lower mortgage rates and inflation in 2024, could lead to a 4% increase in single-family starts next year.

Typical US Homebuyer Earns $107,000 and Increasingly, She Is a Single Woman link

• In 2023, the average income of US homebuyers rose to $107,000, up from $88,000 the previous year. This increase is partly due to the challenging housing market, characterized by limited inventory, rising prices, and high mortgage rates.

• First-time buyers are now making higher down payments, reaching 8% of the total price, the highest since 1997. The demographic of homebuyers is also changing, with a notable increase in single women purchasing homes.

• The age of buyers is increasing, with the average age for first-time homebuyers now at 35, compared to 29 in the early 1980s. Additionally, 20% of buyers in 2023 paid in cash, a significant rise from 13% in 2021, as people adapt to escalating home values and mortgage rates.

Apartment List’s Predictions for the 2024 Rental Market link

• 7 key predictions for 2024 are:

• 2024 will bring the most new apartments in decades

• Low single-digit rent growth in 2024

• The changing rent vs. buy math will create more long-term renters

• Hybrid work will cement itself as the new norm for office jobs

• Sun Belt markets will see more renters, but not necessarily higher rents

• As the economy takes center stage in the presidential election, candidates will need to speak to housing concerns

• More renters will use AI in their searches

Insurance Costs More Than Double for Apartments link

• Since the COVID-19 pandemic, insurance costs in the apartment sector have skyrocketed, more than doubling from around $30 to $65 per unit per month. This 119% increase over four years is a significant financial burden for apartment operators.

• The most substantial hikes in insurance costs have been observed in Florida and California, regions frequently affected by natural disasters. Cities like Tampa, Miami, West Palm Beach, Jacksonville, San Jose, San Francisco, Anaheim, and Sacramento are particularly impacted, highlighting the influence of climate change and crime on insurance rates.

• Outside of these high-impact states, Cleveland and Memphis also experienced notable increases in insurance costs. This trend reflects a broader national issue affecting various markets, indicating a widespread challenge for the apartment industry.