Construction Starts Rose Staggering 17% in July

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Overall Real Estate Market

Rents Are Falling, but They're Falling Slower In the Suburbs link

• Rental Market Dynamics: The rental market in 2023 is experiencing a shift. After witnessing double-digit annual rent growth in 2021 and 2022, the growth rate has now declined to -0.7% as of July. This indicates that apartments are now renting for a lower price than they were a year ago. This is a significant change, marking the first year-over-year price drop since the early stages of the COVID-19 pandemic.

• Urban vs. Suburban Rent Trends: A notable trend during the pandemic was the disparity in rent growth between core cities and their suburban counterparts. From March 2020 to July 2022, suburban rents surged by 27%, while core cities saw a 20% increase. As of now, the growth rates stand at 25% for suburbs and 18% for core cities. This suggests that the suburbs experienced a higher demand, leading to a more pronounced increase in rents.

• The Widening Gap: Despite an overall decrease in rents on a year-over-year basis, the suburbs haven't benefited as much from this affordability. The data from 33 metropolitan areas reveals that rent declines are more pronounced in core cities (-1.7%) compared to the suburbs (-1.2%). This has resulted in a nearly 8 percentage point difference in rent growth between the two, with the suburbs leading. This gap has been expanding consistently over the past eight months.

Construction Starts Rose 17% in July But Also Hit a Plateau link

• Total construction starts surged by 17% in July, reaching a seasonally adjusted rate of $1.2 trillion. This significant boost was primarily attributed to a $12 billion liquefied natural gas facility in Brownsville, Texas. Without this project, nonbuilding starts would have seen a 7% decline, affecting the overall construction starts for the month.

• Despite the rise in July, construction starts have decreased by 7% year-to-date compared to the same period last year. The average monthly level of $1.2 trillion for construction starts has remained consistent since the previous summer. Factors such as higher interest rates, labor shortages, and increasing material costs have contributed to this stagnation.

• The residential market showcased positive growth, with construction starts rising by 20% in July. Single-family construction starts grew by 2%, while multifamily starts skyrocketed by 62%. However, both single-family and multifamily starts have decreased by 21% year-to-date due to rising interest rates and mortgage costs.

Discount Grocery Chains Are Booming. Here’s How They Pick Spots. link

• Rapid Expansion Amid Inflation: Discount grocery chains, including Lidl and Aldi, have been expanding rapidly. The appeal of their low-cost model has grown as inflation has made consumers more budget-conscious. In the past year, Aldi opened or signed leases for 117 locations, with plans for 120 more this year.

• Strategic Location Choices: These discount grocers are selective about their expansion locations. They typically require fewer square feet than mainstream grocery stores. For instance, while a traditional grocery store might need around 5 acres of land, Aldi might only need 2 or 3 acres. However, they aim to be visible to everyday grocery shoppers, emphasizing convenience and high-traffic areas.

• Foot Traffic Indicates Success: Data from Placer dot ai shows that in November 2022, Lidl's foot traffic increased by 7.4%, Aldi's by 13.6%, and Grocery Outlet's by 18.8%. This growth in foot traffic is higher than the 3.1% increase seen by the overall grocery sector, indicating the rising popularity and success of discount grocers.

HELOC Demand Slows in 2023 as Interest Rates Rise link

• HELOC Activity Decline: HELOC activity has seen a decline in 2023 after reaching a 15-year peak in 2022. The surge in 2022 was due to escalating mortgage rates which limited refinancing opportunities, leading to an increase in HELOC activity.

• Impact of Rising Interest Rates: The average rates on 30-year, fixed-rate mortgages increased by nearly 2 percentage points in the first half of 2023, averaging 6.44%. This rise in interest rates has discouraged homeowners from opting for HELOCs, as these rates are tied to the federal funds rate, causing monthly payments to fluctuate.

• State-wise HELOC Trends: In 2023, all tracked states witnessed a decrease in HELOC activity compared to 2022. California led with approved HELOC amounts surpassing $9 billion, followed by Florida with $7 billion and North Carolina at $4.2 billion. States with flat or dropping home prices, like Utah, Idaho, Hawaii, and Montana, saw the most significant declines in HELOC activity.

Housing inventory is at its highest point all year link

• Inventory Surge: Inventory of unsold homes is on the rise, with 495,000 single-family homes currently unsold and active on the market. This trend is expected to continue into September, marking a deviation from the usual peak of inventory at the end of August. The increase in inventory is attributed to the recent climb in mortgage rates, leading to fewer buyers making offers.

• Mortgage Rate Impact: The housing market's dynamics are heavily influenced by mortgage rates. An increase in rates results in a decrease in the number of potential home buyers. For instance, if mortgage rates were to jump to 8%, significant changes in inventory and home prices would be anticipated. The current market is showing signs of slowing down due to the uptick in rates, with fewer home purchase offers and more price reductions.

• Price Dynamics: The median price of single-family homes across the country stands at $449,900, remaining stable from the previous week and year. However, the price of newly listed homes is at $399,000, reflecting a 1.3% increase from last year. Despite the stability in listing prices, the prices of homes going into contract are showing a downward trend, influenced by the recent surge in mortgage rates.

Home sales fall again in July, as supply drops to near quarter-century low link

• Sales Decline: Sales of previously owned homes decreased by 2.2% in July compared to June, resulting in an annualized rate of 4.07 million units. This is the slowest pace for July since 2010. The decline is attributed to contracts likely signed during May and June when mortgage rates surged from approximately 6.5% to over 7%.

• Supply Shortage: The number of homes available for sale at the end of July was 1.11 million, which is 14.6% less than July 2022. This represents the lowest supply since 1999. Due to the limited supply, the median price of homes sold in July increased to $406,700, marking a 1.9% rise from the previous year.

• Regional Variations: While sales fell in all regions except the West, the Northeast experienced the most significant drop at 5.9%. The West, despite being the priciest region, saw no year-over-year price increase in July. Interestingly, about 75% of the homes sold were on the market for less than a month, indicating a robust demand.