Why homeowners are staying put

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Low Returns Expected in the S&P 500 Over the Coming Years link

• With a forward P/E ratio near 22, the S&P 500 is expected to deliver only a 3% annualized return over the next three years. Historically, higher P/E ratios correlate with lower future returns.

• The current forward P/E ratio of 21.8 implies a subsequent 3-year return of just 2.9%. This suggests that today's market valuations are high, leading to modest returns.

• Investors should remain cautious, as overvaluation typically signals reduced future gains. High P/E ratios have often led to underperformance in the years that follow.

The commercial real estate recovery is on, but the rebound may be uneven link

• The Federal Reserve cut interest rates by 50 basis points in September 2024, the first cut since 2020, signaling more cuts may follow. This rate cut is expected to help ease debt costs and improve deal flow in commercial real estate.

• Multifamily real estate saw $40 billion in transactions in Q2 2024, a 13.9% increase quarter-over-quarter, though still 9.4% lower than the previous year. The sector's absorption rate hit its highest in nearly three years, even as over 518,000 new rental units are expected by the end of 2024.

• The office market continues to struggle with high vacancy rates, now at 16.7%, despite positive net absorption of 2 million square feet in Q2 2024. Office prices in central business districts remain nearly 49% lower than pre-pandemic levels.

C-Store Revolution: A Change of C-nery in Retail Convenience link

• The U.S. convenience store sector generated $860 billion in sales in 2023, with over 500,000 square feet leased last year, marking steady leasing activity. The total number of convenience stores increased by 1.5%, reaching over 152,000 stores nationwide.

• 65% of convenience store shoppers make unplanned purchases, with popular impulse buys being bottled coffee (70%), energy drinks (67%), and pre-packaged snacks (65.6%). These stores are becoming key testing grounds for new product launches, tapping into the growing demand for quick, convenient options.

• Electric vehicle (EV) charging infrastructure is becoming a focus for C-stores, as industry leaders like Love’s Travel Stops invest $1 billion to update locations with open-air designs and EV stations. BP, Wawa, and Sheetz are also boosting EV infrastructure, while 7-Eleven plans to rebrand and close 444 underperforming stores in response to inflation-driven sales challenges.

Three Years on the Edge: US Rental Affordability Holds Stable at 30% link

• As of September 2024, the median US rental household spends about 30% of their income on rent, a threshold considered affordable. Wages have increased by 17.6% since 2021, helping keep rental affordability steady despite rising rent costs.

• Rental concessions are rising, with 35.8% of listings offering deals like free rent or waived fees — the highest since February 2021. Property managers are using these incentives to fill vacancies ahead of the slow fall and winter seasons.

• Rent growth has cooled to 3.3% nationally, with declines in 21 major metros. However, only eight cities, including Miami and New York, maintain rental affordability levels above 30%.

The Great Stay: Why homeowners are staying put link

• Inventory of unsold single-family homes dropped to 732,000 this week, a decrease of 0.25%. This marks a 34% increase compared to last year, but with a recent narrowing gap as inventory was 40% higher just a few weeks ago.

• New listings increased to 63,000, about 8% higher than last year’s figures. However, pent-up seller supply remains largely restricted due to high mortgage rates and market uncertainties.

• The median home price for new contracts this week was $389,000, down 1.5%. Despite weak sales over the past two years, home prices have remained resilient, with recent gains fueled by slight dips in mortgage rates.

Increased shadow market availability gives students more options link

• As of August 2024, about 350,000 student-competitive beds sat vacant across the U.S., a significant jump from the low vacancy in 2021 and 2022. This shadow market gives student renters more choices for housing near campuses.

• By August 2023, the number of vacant student-competitive beds rose by 27% to 325,000 compared to the previous year. This increase reflects a slowdown in housing demand across campuses as the class of 2020 neared graduation.

• Competitive vacancy growth has leveled off in Fall 2024 with only 25,000 more vacant beds than at the start of the year. This results in about 8% more available beds over last year, spreading student demand across different housing options.

How developers are catering to would-be homeowners with rental amenities link

• Families are increasingly renting instead of buying due to high mortgage rates and housing shortages, especially in cities like New York, Philadelphia, and Miami. Renting can offer relief from homeownership headaches like maintenance, while still providing a high quality of life through upscale amenities.

• Developers are closing the gap between rental and condo buildings by offering comparable finishes and high-end amenities like pools, playgrounds, and designer interiors. This has made renting more attractive to families who seek luxury living without the financial commitment of buying.

• High-end rental buildings, such as One Bennett Park in Chicago and One Thousand One in Philadelphia, provide family-friendly amenities like children’s rooms, playgrounds, and event spaces. These features cater to the growing demand for larger, family-oriented apartments.

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Vidit

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