Apartment starts tumble in Q2 2024

Dana Anderson of Redfin reports on a new survey showing younger generations are likelier to move between rental units. Over half (55.5%) of Gen Z renters stayed in their homes for 12 months or less as of 2022, and another 40.6% stayed for one to four years. Just under 4% of Gen Z renters have lived in the same place for five-plus years. For Millennials, 28.8% have lived in their homes for 12 months or less, and 50.7% have lived there for one to four years. For Baby Boomers, 32.9% have lived in their rental for 10-plus years, and 32.2% have lived there for 4+ years.

Source: Redfin (June 2024)

Redfin Senior Economist Sheharyar Bokhari comments:

“The uptick in tenure is beneficial for renters and their landlords…While the fact that people are staying longer in their rentals may mean they can’t afford to buy a home in today’s market, staying put also means they’re saving some money that could eventually go toward a down payment if they do have a goal of homeownership. Staying in the same home means they’re likely to face smaller rent increases, and they’re saving money on moving costs and application fees. Landlords typically prefer long-term tenants because they don’t have to spend money on cleaning and marketing vacant units.”

According to a new study from Credit Karma, 29% of Americans experience money dysmorphia (feeling insecure about their financial standing), with younger generations being more affected. “This problem was much more pronounced among younger generations with 43% of Gen Z and 41% of millennials saying they experience money dysmorphia, compared to 25% of Gen X and just 14% of respondents aged 59 or above.”

Abha Bhattarai and Federica Cocco of the Washington Post report that younger generations increasingly rely on their parents to help purchase their first home. According to Freddie Mac’s data on home loans, there has been a significant increase in the number of young home buyers who rely on older mortgage co-signers. The data shows that in 1994, only 1.6% of first-time home buyers under 35 had a co-borrower who was 55 or older. However, by 2022, this figure had more than doubled to 3.7%, matching the high set in 2015.

Homebuyers increasingly relying on cosigners

Source: Washington Post (June 2024)

Housing starts

According to Robert Dietz of the National Association of Home Builders (NAHB), housing starts fell by 5.5% in May to 1.28 million units due to high interest rates for construction and development loans and elevated mortgage rates. Single-family starts decreased by 5.2% to a seasonally adjusted annual rate of 982,000 units.

Starts down for housing

Source: NAHB (June 2024)

Hannah Jones of Realtor.com comments on the data, highlighting that housing starts fell to their lowest level since 2020 in May, with decreases in both single- and multi-family starts. Multi-family activity dropped significantly by 51.7% annually. Notably, the West saw an overall increase of 10.4% in starts and a 2.7% increase in single-family starts every month.

Additionally, Danushka Nanayakkara-Skillington of NAHB reports that permits for single-family homes rose in May, while multifamily saw a steep decline nationwide except for the northeast.

Permits down for multifamily

Source: NAHB (June 2024)

“Year-to-date ending in April, single-family permits were up in all four regions. The range of permit increase spanned 36.4% in the West to 12.6% in the Northeast. The Midwest was up by 27.2% and the South was up by 22.7% in single-family permits during this time. For multifamily permits, three out of the four regions posted declines. The Northeast, the only region to post an increase, was up by 51.2%, while the West posted a decline of 36.4%, the South declined by 27.9%, and the Midwest declined by 11.6%.”

Fannie Mae comments on the housing data, noting that “Single-family starts were somewhat below our Q2 expectations but in line with our broader forecast for some slowing in new construction, as the pace of new home sales has softened in recent months. Given the continued decline in permits along with the lowest homebuilder confidence reading this year, we are likely to downgrade our near-term single-family starts forecast. We also expect multifamily construction to remain modest for the foreseeable future, as rent growth in many of the larger markets is soft and construction financing relatively tight.”

Risky loans

S&P Global recently reported that US banks face increased capital requirements due to regulators focusing on commercial real estate. Banks with high commercial real estate concentrations are reportedly required to hold more capital. The banks subject to these requirements are confidential, but S&P notes that State Bank of Texas and NorthEast Community Bank have the highest commercial real estate concentrations among banks.

Risky bank loans

Source: S&P Global (June 2024)

Indeed, according to Candyd Mendoza of MPA, a recent analysis from Florida Atlantic University found that 67 of the largest US banks have commercial real estate (CRE) loans exceeding 300% of their total equity capital, which regulators view as excessively risky. This analysis used public government data to screen the 157 biggest banks with over $10 billion in assets.

Paul Bubny of ConnectCRE also reports that “the level of commercial/multifamily mortgage debt outstanding increased by $40.1 billion, or 0.9%, in the first quarter of 2024. Total commercial/multifamily mortgage debt outstanding rose to $4.70 trillion as Q1 ended. Multifamily mortgage debt increased by $23.7 billion (1.1%) to $2.10 trillion from Q4 2023.”

Finally, Samantha Barnes of the International Banker reports on this topic, noting that CRE loans make up a significant portion of the US banking system, accounting for about one-quarter of the average lender’s assets and a total of $2.7 trillion in aggregate bank assets. According to Green Street’s Commercial Property Price Index (CPPI), which tracks the prices of US institutional-quality CRE transactions, commercial property prices have decreased by 7% over the past year and 21% since their peak in March 2022.

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