BiggerPockets Real Estate Podcast - 959: BiggerNews: 2024 Housing Market Update and Why Prices Are Still Rising

Episode Date: May 24, 2024

The 2024 housing market isn’t turning out how most of us thought. At the beginning of the year, real estate investors were hopeful that mortgage rates would fall, affordability would return, and home prices would have a chance to stabilize before going back up. But none of those things happened. Rates are still high, affordability is at a forty-year low, and home prices are slowly rising even with diminished demand. Why is this happening, and what’s causing these market moves? All that and more, with VP of Market Intelligence at BiggerPockets, Dave Meyer, in this BiggerNews episode. We’re giving you an entire wrap-up of the 2024 housing market (so far) on today’s episode as Dave goes through the data behind affordability, home prices, inventory, sales, and which real estate markets are faring the best. With more and more homeowners “locked in,” the US as a whole is still experiencing low housing inventory—HALF the amount of inventory from just a few years ago. This puts buyers in a tough spot. Should they buy now with limited choices and high rates or wait for mortgage rates to drop? And if they do decide to wait, what happens to rent prices? Dave answers it all plus shares the region-by-region differences affecting each corner of the US housing market. From high inventory in the Southeast to the often overlooked real estate regions with massive demand, we’ll get into where money is moving and which states you should be most concerned about investing in. All that, and much more, in this BiggerNews housing market update!  Support today’s show sponsor, Rent App: the free and easy way to collect rent! In This Episode We Cover A 2024 housing market update and the data you should pay attention to most Why home prices continue to rise EVEN with low demand and record-low affordability Our ongoing affordability crisis and how mortgage rates are stunting home sales Why inventory is exploding in one specific region of the United States (and what it means for investors) Slow rent growth and the multifamily overbuilding problem that could affect many investors Exactly what Dave is investing in this year, plus the one big concern he has for future real estate deals  And So Much More! (00:00) Intro (02:11) Affordability at 40-Year Low (06:13) Inventory is Rising (Good News) (08:41) Home Sales Are Up…Kind Of   (10:48) Rent and Home Prices Increase  (15:04) Hot and Cold Housing Markets  (21:51) What Investors MUST Know (26:42) How to Track the Housing Market  Check out more resources from this show on BiggerPockets.com and  https://www.biggerpockets.com/blog/real-estate-959 Interested in learning more about today’s sponsors or becoming a BiggerPockets partner yourself? Email [e-mail]. Learn more about your ad choices. Visit megaphone.fm/adchoices

This year has been a bit of a roller coaster for the housing market. We've seen a lot of conflicting market data and information. There's been a lot of surprises. And I find it personally confusing. I'm sure many of you do as well. And that can make it difficult to make decisions about what to do next. But don't worry, I got you guys. Market data is my thing.

And I'm going to break it all down for you today in an easy, actionable way. So you can make informed decisions about what deals to do next and how to manage your existing portfolio. Hey, everyone, this is Dave Meyer here for another episode of bigger news. This is our weekly segment where we cover current events impacting investors. And today, I'm going to provide an overview of the 2024 market so far. In some of the next couple of episodes we have coming up, we're going to break out our crystal balls and make predictions about the second half of the year. But since there's a lot to cover, today I'm just going to focus on what we actually know. We'll talk about what's happened this year.

why certain trends are occurring, and a couple surprises you may not have heard about. So I'll start with an overview of the market on a national level, but obviously, regional differences are pretty big these days and pretty important, so I'll share some observations there. And then lastly, I'll go into just some personal observations. This might not necessarily be data. It's just things that I've seen myself and my own deals and my own portfolio and from talking to hundreds of investors all the time. And I'll give you guys a little bit of a preview right now. There's some good news in here. There's also some sobering news and there's still a lot of uncertainty. And my goal here, if you hear something that doesn't sound great, isn't to scare anyone away. I've been investing fairly actively this year and there are deals to do.

But I want to help everyone understand what type of decisions and what types of underwriting makes sense in our current economic and housing market conditions. Before we jump in, our bigger news episode today is brought to you by a rent app. It's the free and easy way to collect rent. And if you want to learn more, you can do that at rent. Dot app slash landlord. Let's do this thing. First up is our national data. And like I said, I'm going to hit you with a bunch of data.

And I will share some statistics, but don't get overwhelmed. Here's the story in a nutshell. Affordability and inventory. These are two key metrics in the housing market. They are driving most of the behavior and what you need to know about the market right now. If you're not familiar with these terms, I'll just go over them quickly. So affordability is basically how easily the average American can afford the average price home. And affordability is basically made up of three things.

It's housing prices, it's wages, basically how much money people have to buy a house, and mortgage rates. And when you look at that's sort of like this Venn diagram of those three things and how they're interacting with one another, affordability right now is the lowest it has been since the 1980s. And you probably see this in the news all the time, but it's really difficult for people to afford homes. There was hope that this would get better this year in 2024. At the beginning of the year, a lot of economists, a lot of forecasters were saying that mortgage rates were going to fall and that was going to improve affordability. But unfortunately, that hasn't happened. Right now, mortgage rates are sitting at around 7%, which is better than it was just a couple of weeks ago

where they shot up to 7.5%, but we're just about even, almost exactly even from where we are a year ago. And so affordability's actually gotten worse, right? Because wages have gone up a little bit, and mortgage rates are the same, but housing prices are actually up. So affordability has only gotten worse this year. And if you're confused about why that happened with mortgage rates, rates. I just will share with you quickly why I think what's going on. And honestly, I didn't think rates were going to come down as much as a lot of people were saying at the beginning year. And don't get me wrong, I'm wrong all the time. But this is something I've actually been right about so far this year. Basically, people, I think, were a little overly optimistic about what was going

on in the labor market and with inflation data. And the Fed, although they said last fall that they were going to cut rates, they're very data-driven. They don't make these decisions and then just stick to them. What they do is look at data every single month. And if you looked at the inflation data and that labor market data back when they made that announcement, it wasn't super clear. So it did, at least to me, seem like there was a good chance they were going to backtrack on that. And that is exactly what has happened. And so while I do think, I guess I'll give you a little preview of the crystal ball, I do think mortgage rates will come down a little bit over the second half of the year. So far in 2024, that hasn't happened.

So that means that this period of low affordability where we have high prices and high rates is impacting the market by pulling out buyers. This reduces demand in the market because even though people do want to buy homes, they just can't afford it. And so that lowers demand. And in the housing market, we can measure home buyer demand in a couple of different ways. but my personal favorite way to do it is there's something called the MBA Index. And the MBA stands for the Mortgage Baker's Association.

And basically, they just track how many people are applying for mortgages every single week. And what you see is that over the course of 2024, we've been consistently under the last two years. It's not that far under, but given that affordability has continued to decline, it's not surprising to see that less people want to buy a home. at this point in 2024 than they did in the previous year or even back in 2022. And normally, when you see demand leave any sort of market, housing market, whatever you're trying to buy, that would mean falling prices or it often leads to falling prices, right? Because when less people want to buy something, usually sellers have to compensate by lowering prices.

But this is where that second piece of the puzzle that I talked about at the beginning comes in. Remember, I said affordability and inventory were the main stories in the housing market in 2024. So now we have to shift and talk about inventory because inventory is basically how we measure supply in the housing market. So even though that buyers are leaving the market because of the low affordability, sellers are actually even less eager to be in this market right now. And that has lowered inventory.

So basically, we're in this environment where, both demand has lowered, but supply has actually fallen even further. And just briefly, why this is happening is you've probably heard this term, but it's mostly because of something called the lock-in effect. And this is because of one of the unique attributes of the housing market. Unlike a lot of other economic markets, in the housing market, sellers typically go on to be buyers, right? You sell a house and you go buy another one. That happens about 70% of sellers. And so, So when you're in a period of low affordability like we are right now, many of the people who would normally want to sell are saying, you know what, it's going to be too expensive.

So I'm just not going to sell. And that's what's led to this prolonged period of low inventory that we're in right now. Now, there are some encouraging signs here. Inventory is actually up just a bit this year. It's up 2% year over year, but it's actually been backtracking a little bit because in February, it was up 4%, so we're not exactly moving in the right direction. There is some other positive signs, though. There's another metric I really like to look at, which is called new listings.

This is basically just how many people decide to sell their home in a given period. And that's actually up 11% year over a year. And so that I find personally really encouraging. And when I can say encouraging, this is just personal bias, but I am of the belief that we need more inventory. And we need more demand. And if both of those can rise, that will lead to a healthier housing market. And I know that might mean that there is less rapid appreciation in the housing market. I'm personally okay with that.

I would rather see home volume increase and just slow, steady, boring appreciation. Like, is typical in the housing market. That is personally what I would like to see. All right. Now that we have a baseline on what's going on with affordability and inventory, what are we seeing in terms of home sales and rent prices, stick with us. We've got insights on all of that right after the break. Do you ever notice how every passive investment somehow turns into a very active lifestyle, active spreadsheets, active phone calls, active stress? Here's a better question. What if you could

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in what economists who called low demand, low supply, and that also typically means that we are having low home sales. So the total number homes are selling is below where it normally is. Home sales are actually up a bit year over year, but you have to remember that last year was really bad, so saying we're up 7% from last year doesn't really mean that much. In fact, the annualized rate, which basically means we're on pace to sell 4.2 million homes in the United States this year. Compare that to the average for most of the 2010s, like basically the period between the great financial crisis and the pandemic, it was averaging somewhere between 5.2 and 5.5 million. So it's down about 20% from there. Of course, if you compare it to the

pandemic, that's an even further drop. It's down like 50%. But the pandemic was unusually high. We don't usually see home sales above six, six and a half million. And we saw that for a little bit. So as investors, I know that we don't always think about home sales volume, but it actually tells us a lot about the market. First, it tells us that supply and demand our both. both low and that there's just not a lot of transaction volume. That impacts comps, right? It's harder to get a good sense of what a property is worth when less properties are selling. It's also just bad for the industry in general.

It's bad for agents, lenders, transaction coordinators. The people who rely on transactions for their income, this obviously negatively impacts them as well. And so that's why I was saying earlier that I would rather see a healthier market where we have more home sales transaction. I should also mention that home sales and housing in general account for about 16% of the U.S. GDP. So the total economic output of the U.S. is largely reliant on housing. And so when this part of the economy is slow like it is right now, it drags on everything else. So a little bit of a side note there, but back to our low demand and low

supply summary here. And this may surprise some people, but even in this kind of environment, prices can rise. The whole key here is which is higher, right? Even if they're both relatively low, if supply is still less than demand, prices are going to grow. Just think about it this way. Like, what if 10 people wanted eight houses? There are eight houses for sale. 10 people want them. What happens? Well, people who have the money to bid up the price are going to do that so they can be one of the eight people who get a house. And that's essentially what's happening on this huge scale. across the entire country. And right now, because of that dynamic, home prices are at a whopping median of $434,000 in the United States, which is up 6.2% year over a year. We have seen now 10

straight months of positive year-over-year appreciation in the United States. And if you've gotten into investing over the last couple of years, 6.2% might not sound like a lot of appreciations. but it is. In normal years, housing prices go up about three and a half percent. So six and a half is almost double our normal rate. And that's even with low demand, even with almost record low affordability. It really is pretty wild what is going on right now. So that's what's happening with prices. Before we move on to regional differences, which are super important, I just wanted to quickly mention what's going on with rent. Rent prices across the U.S. have mostly been flat. We actually have been down a lot for the last couple of months, but mostly flat.

Like I say, it's up 1%. It's down 1% in most places. So it's basically flat for the last year or so. But it has started to tick up a little bit recently. It's now up a little bit over 1% year over year. So that is encouraging, but 1% rent growth is actually still well below the average. Usually rent goes up somewhere between 3% or 5% in a year. And of course, rent is still up way more than it was.

at the beginning of the pandemic, but the growth rate is a little bit subdued. And this is due to a lot of things, but my personal belief is the main reason this is going on is because there's been a lot of multifamily over supply and overbuilding. And I know it just said that there's a lack of supply in the housing market, and that is true in the residential space for single family homes, two to four unit homes. But multifamily is a whole different animal, and I probably should have mentioned this at top, but all the data I've given you so far is just for residential properties. But there are areas of the housing market where things overlap, where multifamily and residential properties collide, and rents is one of those things. Because if you're a tenant,

right, most people are just looking for the best possible living situation, and they don't really care if it's a four unit or a 30 unit, they're going to take the best value that they can get for them and their families. And what's been happening in the multi-levels, multi-family space for the last few years is that during the pandemic, builders went crazy. They just started building, like we've honestly never seen. There have been record high number of construction of multifamily units. But it takes years to build multifamily properties. So even properties that started, you know, got under construction back in 2022, 2022,

23, they're only starting to hit the market now. And even though things started slowing down and they might not want to be finishing these projects right now, you know, the train has left the station. And so all these units are coming online. We're seeing record numbers of multifamily units in a lot of major metros. And that basically just floods the market with units. And so we see that multifamily operators and just investors in general have to compete for tenants right now. And I personally think this is sort of this temporary glut of supply and things will get back to normal relatively soon in the next year or so. But while this is happening and all this multifamily supply is coming online, rent growth is going to be subdued,

and we're basically seeing that reflected in the data. Okay, so that's what's going on with rent prices and the overall national data. But what does this mean for different regions? What area still offer opportunity? What's the deal with Florida? And what should you, as an investor, do with this information? We'll get into all of that right after the break. People love to call real estate passive income, which is interesting because most of the investors I know are very busy. Busy finding deals, busy managing teams, busy worrying they pick the wrong market. Rent to retirement flips that model. They help investors buy turnkey new construction homes, often 10% below market value in top rental

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Learn more at biggerpockets.com slash bam. Welcome back, investors. Let's jump back into our housing market update. All right. So that's what we had for our national summary. Hopefully you're all following me right now. And we're going to go into some regional differences because I'm sure. You guys care a little bit about what's going on in the broad economic macro level, but you probably want to know what's going on in your specific region in the country. So let's dive into that.

Most regions in the country are going to relatively similarly reflect what you see in the national average. It's kind of how averages work. But we are seeing some notable differences and deviations that I think are important to see. So because prices are up across the country, 6.2%, you can assume that most places in the country are seeing positive price appreciation. But there are some notable areas where we are seeing price corrections. And right now, in terms of year-over-year corrections, the most pronounced ones are in Texas and Louisiana. Much of Texas actually has negative

price growth at this point. Louisiana, Mississippi, there are also some parts in Northern California, North and South Dakota, but Texas is the big, notable one, the most high density, biggest population center that you'll see. And the places I just mentioned are really just over the last year. If you want to know what places have had a correction in general since peak prices in 2022, you actually can just kind of draw a line almost down the middle of the country and no left, right, east, west. On the west, most places have seen prices come down a bit off of their, pandemic highs. There's no market that I know of that is really close to pre-pandemic prices, but, you know, everything shut up and a lot of the West Coast has come back down a little bit.

This is on the West Coast, like, you know, California, Washington, Oregon, a lot of the Mountain West in Utah, Colorado, Montana, all those places, and much of the Sunbelt, like New Mexico, Arizona, Texas, and the places I just mentioned. But if you actually look at the northeast, which is a place real estate investors often ignore, that hasn't come down at all off of their peaks. And a lot of the Midwest hasn't come down at all because there is no inventory. And so what I said at the beginning of the show that this housing market is really all about inventory holds true both on a national level and on a regional level. Because as we know, there's a lot of Sunbelt demand, right?

people are moving to the southeast and moving to the sunbelt. But this is one of the places where there just is excess inventory. Because of all that demand, this is where a lot of building has happened, which is where a lot of supply is coming online. And so it is overshadowing the increased demand in these areas. I think a great example is looking at Austin, Texas. You know, this is a market that has really strong fundamentals. It is huge population growth.

But in just the last. two years, inventory, the amount of homes for sale at any given point, has gone up 324%. Now, that is huge, but a lot of markets have seen inventory go up over, you know, the pandemic lows. But in Austin in particular, inventory is actually up over pre-pandemic levels, 26%. So you can see what's going on here is that there's just so many homes on the market in inventory that sellers now have to compete for buyers and they compete for buyers by lowering prices. And this is happening in other places like San Antonio and Memphis and New Orleans, some more than others. Like I think Austin's kind of the poster child for the correction that's going on right now. Some of these other markets that

are seeing corrections are pretty small, one or two percent, and again, still well above pre-pandemic levels. But these are sort of the markets, at least a lot of people I talk to think of as sort of the sexy markets, the ones that are growing the fastest. But actually, if you look at some of the less sexy markets like Providence, Rhode Island or Hartford, Connecticut, when you look at their inventory, they haven't gone up off pre-pandemic levels. They are down 70% or more on pre-pandemic levels. So there is absolutely nothing to buy in these markets. And basically, buyers are competing for the few homes that are on the market, and that bids up prices.

So that's basically what we're seeing in some of the regional differences here. But I also just wanted to quickly talk about Florida, because people seem to always want to talk to me about Florida and what's going on in the market there. So I want to give a quick update. A lot of areas are still up. Some are experiencing mild corrections right now. But we're seeing Florida weakening significantly more than other markets right now. And this may be surprising because it's just been so hot over the last few. years, but these type of cycles are natural, right? Like, the ones that grow the fastest for a while

often then experience a bit of a correction, a bit of a reversion. And I do think we're starting to see that in Florida in really a modest way. And so when I say that it's one of the weaker markets in the U.S. right now, it's not necessarily that all of them are negative. It's that we are seeing outsized depreciation and growth in so many areas that Florida just growing modestly or being relatively flat does stand out as a difference from some of these things. And again, I just want to reiterate, I know I'm a broken record here, but the reason this is happening is because of inventory. You look at a city like Punta Gorda, Florida. They have seen a 108% increase in inventory year over year. So we've done double the amount of homes for sale right now.

I know they have great population growth, but the number of buyers has not doubled in the last year. And so basically demand can't keep up with supply. It's happening in Cape Coral, in Miami, in Tampa. You're seeing this a lot of places across Florida. So that's just my brief diatribe about Florida. In terms of rent nationally, it's up a bit, but we're seeing the same trend where a lot of major metro areas are seeing the weakest rent. So we see this in places like Seattle, Austin, Nashville.

I know where I invest in Denver, we're seeing negative rent as well, because these are the places where we're seeing a lot of multifamily supply. And so if you want to, you know, track where rent might be weak for the foreseeable future, look at where there's a lot of multifamily apartments coming online and you'll probably see some of the weakest rent markets for growth right now. And ones where there's not a lot of multifamily supply, rents are probably growing at least at the average rate or maybe even higher. All right. So those are my regional reports. And then lastly, I just wanted to share with you all just some observations from my own investing and maybe some recommendations about what you can do with all this data and information that I'm

giving you to help your own portfolio. So first and foremost, flipping is still a good idea in this market or in a lot of regional markets. I don't personally really flip houses, but I am friends with a lot of flippers. And given that we are still seeing home price appreciation, that makes it a good time to be flipping, especially because cash flow can be harder to find. So that is just one observation that I've seen is that a lot of people I know who do both, like invest in both long term, they do midterm, they do flipping, they do a little bit of everything. A lot of the people I know

are focusing more on flipping because it's driving the best profits and potential right now. Now, like I said, I don't flip houses, so I'll just tell you what I've done so far this year, if it helps you make decisions about your own investing. First, I've invested in one syndication so far, and I know that is a unpopular thing to be doing right now because the multifamily commercial market is a little bit crazy, but I was able to get into a syndication that is heavy, heavy value ad and bought at a huge discount.

Basically, the GP, the syndicator, was able to buy this property for 40% below what it sold for in 2018. So not off peak pricing, off 2018 pricing. It's going to take two years for this to generate cash flow, so you do need to be patient. But I like this one because I invest over the long term. And so I'm willing to wait on cash flow for this type of deal. But I've also purchased two duplexes in the Midwest over the first half of 2024.

And I just wanted to call these out because these are on-market. properties. And one of them, I actually paid well above asking price, and they're both still cash flowing. I inherited tenants, and they're both doing actually quite well. I closed on the other one last week, but it's going to at least break even right away, and I'm doing a little bit of stabilization, value add to it. But once the leases renew, it should produce really good cash flow for me, at least 6 to 8% in a really strong market that is appreciating. And I know that people think this is crazy that it's not possible, but I do want to just highlight that I am not a super sophisticated fancy investor here. I'm buying stuff on the MLS. I'm buying relatively

stabilized properties in good markets, and I am able to make them cash flow. But I think the key here that I want to make sure everyone knows is that if you're investing in 2024, you have to be very, very conservative with your underwriting because despite everything I told you, and the stuff we know about what's happened so far this year, I think I know what might happen through the rest of the year, but we don't actually know. Rent growth is unclear. We don't know what's going to happen there. Appreciation is unclear and might slow down.

And the one thing I do feel quite confident about is that expenses are going up and it's not slowing down that much. We talk about this a lot on the show, but taxes are up. They're actually up 23 percent since the beginning of the pandemic. which sounds like a lot, but a recent data report I was reading suggests that taxes are actually going to go up significantly more in the next few years. Because even though taxes went up 23% property taxes, home prices went up over 40% in that same period, which means that municipalities and states are just taking some time catching up

with that, but they will probably figure out how to stick you with the bill. We all know insurance is going up. I think that's one of the main reasons we're seeing flow. Florida sees some weakness, as we've seen insurance premiums double or even triple in some areas. Home repair costs are up 40% over pre-pandemic levels. And again, I am not telling you this to scare you out of investing. Again, I'm investing myself. But I think it's really important to be patient to find the kind of deals that are appropriately valued and that sellers have realistic ideas about what they should be selling for right now. And don't count on.

on rank growth like you were a few years ago. Don't count on appreciation like you were a few years ago because we just don't know if that's going to happen. If you can find a deal that makes sense with this conservative underwriting, pull the trigger. That's what I'm doing, at least. And I know my strategy and approach is not for everyone, but I just wanted to share with you how I am navigating this uncertain market.

Last thing I wanted to leave you guys with is if you are interested in this kind of data, which if you have made it through 25 or 30 minutes of me talking about data, you probably are interested in this data. So if you want to try tracking this stuff for yourself, I highly recommend you do that. Some sources that you might want to look at are Redfin. I really like their market data. We also could look at Zillow or Realtor.com. They all have pretty similar information.

And we're actually working on something really cool here at Bigger Pockets where we're going to make investor-focused market data for people. that's going to be launching pretty soon, so keep an eye out for that. But in the meantime, look at some of those big public data sets. And I would recommend track four things. Like, you don't need to track every single thing that I just said. Just track these four things. Look at inventory, look at new listings, year over your price growth, and month-over-month

price growth. And just get some practice at this. If you look at this stuff, you know, once a month is plenty. Just take literally 15 minutes and look at this once a month. you're going to get a better sense of how all these things work together to shift mycidynamics. You'll see that when inventory goes up, that usually weakens month-over-month price growth. When new listings go down, that usually strengthens price growth.

And you'll get a better sense of how all of this data can and should inform your investing decisions. Just like with analyzing deals, getting practice in is the key to getting good at it. It's the same thing with market analysis. Just get some practice in. and I promise you you can get good at this too. All right. That is the end of my data market update for you today.

Thank you all so much for listening. If any of you have questions about this data, how to track it yourself or didn't understand something I said, find me. I'm always on Bigger Pockets. You can send me a message there or post a question in the forums. If not, I'll see you very soon for another episode of the Bigger Pockets Real Estate podcast. And make sure to keep an eye out for those prediction episodes. that we're going to be airing in the next couple of weeks to give you sense of what me and

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