These Pandemic Boom Towns Teetering on Housing Bust

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Cap rates in the single-tenant net lease sector increased for the ninth consecutive quarter link

• Single-tenant cap rates rose to 6.47% for retail, 7.67% for office, and 7.10% for industrial. This marks a five to eight basis points increase across these property types.

• Elevated interest rates and reduced 1031 exchange and institutional buyer activity are driving the upward trend in cap rates. The lack of transactions compared to previous years is causing a surplus in market inventory.

• Investors are focusing on income-tax-free states or regions with strong demographic drivers due to limited competition. Strong real estate fundamentals with credit tenants are also a secondary motivation for buyers.

Pandemic Boom Towns Teetering on Housing Bust link

• Housing inventory in Austin, Texas has hit record levels, while Jacksonville, Florida's inventory surged over 300% in three years. These areas attracted many new residents and investors during the pandemic due to looser restrictions.

• Airbnb market struggles and soaring prices are contributing to rising inventories in Texas and Florida. Markets like Austin and Jacksonville, initially booming, have now become 40% overvalued.

• Austin experienced a 50-60% price increase during the pandemic, now seeing nearly a 20% drop. Rising insurance and HOA fees in Florida are forcing many homeowners to sell, adding to the inventory spike.

Credit scores for homebuyers at record high link

• The median FICO score for homebuyers using conventional mortgages has reached a record high of 768. This indicates a trend towards higher financial health among homebuyers.

• Elevated mortgage rates and rising home values have priced out all but the most creditworthy buyers. As a result, only those with strong credit profiles are able to secure purchase loans in the current market.

• Builders in areas with rising resale inventory, like Texas, Florida, and Arizona, may start seeing normalization in creditworthiness measures. In these regions, buyers with average credit scores might re-enter the market as home prices stabilize.

Manhattan is now a ‘buyer’s market’ as real estate prices fall and inventory rises link

• The average real estate sales price in Manhattan fell 3% to just over $2 million, and the median price decreased 2% to $1.2 million. This trend includes luxury apartments, which saw prices drop for the first time in over a year.

• Manhattan's apartment inventory increased to over 8,000 units, surpassing the 10-year average of about 7,000 units. The current supply indicates a buyer's market, with a 9.8 month supply, where anything over 6 months suggests excess supply.

• High rents in Manhattan, averaging above $5,100 per month, are pushing potential buyers from renting to purchasing. Despite high mortgage rates, 62% of second-quarter deals were all-cash, showing a unique dynamic in Manhattan's market compared to the national landscape.

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That's all, folks.

Cheers,

Vidit

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