Houses are about to get a lot Smaller

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Estimated read time: 3 minutes 30 seconds.

$7.6 trillion of US government debt will mature in the next year, adding pressure on rates link

• $7.6 trillion in US public debt is set to mature within the next year, which is 31% of all outstanding US government debt.

• This maturing debt is adding upward pressure on rates, with the 10-year Treasury yield currently at 4.25% and the three-month yield at 5.47%.

• The Federal Reserve's quantitative tightening program has also influenced rates, removing a significant buyer from the bond market.

Q3 GDP Tracking: Over 3% link

• BofA reports a rise in 3Q US GDP tracking to 3.1% q/q saar, with 2Q also increasing by two-tenths to 2.5%.

• Goldman Sachs adjusted their Q3 GDP tracking estimate to +3.1% (qoq ar) due to stronger July goods exports.

• The Atlanta Fed's GDPNow model predicts a 5.6% growth rate for Q3 2023, maintaining its previous estimate from September 1.

Houses are about to get a lot Smaller. link

• The average size of new houses in America has grown by 250% since 1950, but this trend is reversing. The average size of a newly completed house has decreased from a peak of 2,687 SF in 2014 to 2,469 SF today, an 8% reduction.

• High housing prices and 7% mortgage rates are pushing buyers towards more affordable, smaller homes. Additionally, fewer households are having children and more individuals are living alone, leading to increased demand for smaller homes.

• The demographic shift, with fewer children and more people living alone, will significantly impact the US Housing Market. The preference for larger homes will decline, and smaller, ranch-style homes will become more popular.

Home Buyers Say This Is Their Magic Mortgage Rate link

• The magic mortgage rate for many home buyers is 5.5%. A survey indicates that 71% of potential buyers won't accept a 30-year mortgage rate above this threshold.

• The interest rate for a 30-year loan has been above 7% for four weeks. Despite this, 35% of homes are selling above their asking price due to limited inventory.

• Homeowners with low rates from previous years are hesitant to sell, leading to an inventory bottleneck. Nearly 82% of buyers feel "locked in" by their current low-rate mortgages.

Apartment rents are on the verge of declining due to massive new supply link

• Rents in August 2023 were only 0.28% higher than in August 2022, a sharp contrast to the 11% annual growth seen a year prior.

• A record-breaking number of new apartment units have been built in the past three years, surpassing one million. This year alone saw the completion of over 460,000 units.

• Several local markets, including Austin, Phoenix, Las Vegas, Atlanta, and Jacksonville, have already experienced negative rent growth, with drops ranging from -3.4% to -4.9%.

Construction Starts Falling Rapidly Amid Financing Constraints link

• The construction industry in 2023 has seen a return to more standard pricing for materials and a surge in demand, particularly from publicly funded projects.

• However, challenges persist in hiring and wage distribution within the sector.

• A report from JLL highlights a sharp decline in construction starts during Q2, attributing it to financial constraints in a market that shifted from booming to cooling.

1.11 million Homeowners with Negative Equity in Q2 2023 link

• U.S. homeowners with mortgages witnessed a decline in equity by $287.6 billion since Q2 2022, marking a 1.7% decrease year over year.

• In Q2 2023, mortgaged residential properties with negative equity dropped by 6% from Q1 2023, equating to 1.1 million homes or 2% of all mortgaged properties.

• U.S. homeowners with mortgages gained an average of $13,900 in equity quarter over quarter, resulting in a collective increase of $806 billion or a 5.2% rise in home equity.

Insurance costs are no longer worry-free link

• Over recent years, property & casualty insurance has become pricier and less accessible. Some carriers have pulled out of states like Florida and California due to climate change risks.

• Insurance costs as a percentage of total operating expenses have surged since 2019. In Florida, insurance now accounts for 11.5% of total operating costs, up from 6.5% in Q4 2019. In California, the rise is to over 10% from about 6% in the same timeframe.

• While insurance costs are currently overshadowed by taxes and other operating expenses, they might surpass utility costs in the coming years. Investors are advised to reevaluate past assumptions about operating cost growth when considering property acquisitions.