Podcast Summary
Renter sentiment shift: Renter sentiment is changing, with over 30% of renters no longer believing home ownership is part of the American dream, potentially impacting the housing market as a whole.
The rental market is experiencing a shift in trends, with single family rentals holding up better than multifamily in many areas due to an influx of institutional investors and suburban migration. Meanwhile, multifamily rents have stagnated or even declined in overbuilt urban areas. Additionally, renter sentiment is changing, with over 30% of renters no longer believing that home ownership is part of the American dream. This could have significant implications for the housing market as a whole. In the conversation between Dave Meyer and Anthmos Georgiades, CEO of Zumper, they discussed the current state of the rental market, including the impact of the Fed's activity on rent growth, the relationship between shelter costs and inflation, and the overall supply and demand dynamics in the rental market. They also delved into the implications of this shift in renter sentiment and how it could potentially change the housing market forever.
Ripple effect on Class B and C rents: The economic downturn and highest interest rates in a generation led to vacancy in Class A rentals, causing tenants to move from Class B and C properties to cheaper Class A options, resulting in increased vacancy and downward pressure on rents for these lower classes, but recent data shows rents have started to climb again in May 2023 due to seasonal trends and increased consumer confidence.
The surge in new Class A rental properties coming to market before the economic downturn, coupled with the current economic uncertainty and highest interest rates in a generation, has led to a significant amount of vacancy in the Class A sector. This vacancy has caused a ripple effect, with tenants moving from Class B and C properties to the cheaper Class A options, resulting in increased vacancy and downward pressure on rents for these lower classes. However, recent data shows that rents have started to climb again in May 2023, likely due to seasonal trends and increased consumer confidence in the housing market, leading to new household formations and a shift away from multi-occupancy living situations. Overall, the rental market is showing signs of heating up again as we enter summer, but the long-term impact of the pandemic on rental prices remains uncertain. Additionally, it's important to note that rent specials and concessions can significantly alter the data on published rent prices, potentially making them weaker than they appear.
Real Estate Trends: Understanding real estate trends can help investors make informed decisions, from passive investing in private funds to no money down options, and even mortgage qualification. Rents may continue to rise but impact on landlords' P&Ls varies.
While the rental market conditions may not be ideal for the next 12 months, having a clear understanding of the trends can help average Americans and investors make informed decisions. For instance, accredited or high net worth investors can invest passively in real estate through private funds like PPR Capital Management, while those looking to get started with no money down can explore options like Rent to Retirement. Meanwhile, for those in the market for a mortgage, Host Financial offers a simpler and faster qualification process. As for rental trends, Anth Georgiades believes that while rents may continue to modestly increase, the impact on individual landlords' P&Ls may vary depending on the market and property type. Overall, the return to a more predictable rental market could bring welcome stability for many investors.
Real Estate Market Stability: The real estate market is transitioning back to more predictable conditions after the pandemic with rent expected to slightly outpace inflation, but not by a large margin.
The real estate market, specifically for small landlords, is transitioning back to more predictable conditions after the unprecedented changes during the pandemic. The historic median occupancy rate in the US oscillates around 94-96%, and we are currently around 6%, which is within a standard deviation of the average. This means we are no longer seeing vacancy rates as low as 2% and occupancy rates as high as 98%, which was an impossibly unlikely outcome. Before the pandemic, rent growth was slightly above inflation, but during the pandemic, rent grew at a median of 13%, outpacing inflation. Going forward, it is expected that rent will still be slightly ahead of CPI, but not by a large margin. Shelter, which includes rent and owner's equivalent rent, makes up over 40% of the Consumer Price Index (CPI), making it the biggest driver of inflation. However, there is a lag effect in the CPI's reflection of rent changes, and we have seen a downward pressure from rents in the last six months that will likely continue for the next six months. In summary, we are returning to more stable and predictable market conditions for real estate, which is a positive sign for small landlords.
Fed's lag in CPI calculation for rent data: The Fed's Consumer Price Index (CPI) calculation for rent data lags behind real-time data from private sources, potentially leading to an underestimation of inflation and rent costs. This lag can impact the Fed's decision-making and understanding of overall inflation trends.
The Federal Reserve's Consumer Price Index (CPI) calculation for rent data lags behind real-time data from private sources like Zumper. This means that the Fed may not fully understand the direction of inflation and rent costs as they happen. The Fed acknowledges this lag and the limitations of their CPI calculation, which includes a homeowner's estimate of the equivalent rent of their unit if rented out. The Fed's underestimation of the impact of housing on inflation during the pandemic is an example of this lag. Despite this, it is assumed that the Fed is factoring in this information in their decision-making, as it is widely known in specific economic circles. Overall, understanding the role of rent and housing in overall inflation numbers is crucial for individuals and investors.
Workplace environment impact: Stylish workspaces, daily breakfast, endless coffees, and networking opportunities in coworking spaces can boost productivity and motivation, while renting on Airbnb can provide extra income and financial freedom.
The workplace environment significantly impacts productivity and inspiration. Industrious, a coworking space, offers high-speed internet, stylish workspaces, daily breakfast, endless coffees, and opportunities to network with driven professionals. This can lead to increased focus, creativity, and motivation. Similarly, renting out a property on Airbnb can provide extra income and financial freedom, making it an attractive option for many. However, the trend towards renting rather than buying homes is more complex. While some renters prefer the flexibility and accessibility of renting, others cannot afford to buy a home due to rising interest rates and mortgage costs. This shift towards renting has led to an increase in demand for multi-family rental properties.
Homeownership trend impact on real estate: The shift towards renting among millennials and the uncertainty of long-term renting is leading to an increase in demand for no frills rentals, longer leases, and flexible lease options in the real estate industry.
The changing sentiment towards homeownership and the American dream could significantly impact the real estate industry. The trend of millennials preferring to rent rather than buy has led to an increase in demand for single family rentals. Landlords are meeting this demand by offering no frills rentals with added costs baked into the rent. However, the uncertainty of long-term renting is a concern for renters, leading to a potential shift towards longer or inflation-linked leases. Additionally, the pandemic brought about the popularity of flexible leases, which still persists in some markets. These trends could have major implications for the real estate market, and it will be interesting to see how property owners and landlords adapt to meet the evolving needs and preferences of renters.
Real-time data trends in real estate: Stay updated with real-time data trends in real estate through websites like Zumper and Zillow for an edge over competitors. Paying attention to early data trends during crises like COVID-19 can lead to significant financial gains.
Staying informed about real-time data in the real estate market can give small-time investors and aspiring investors an edge over their competitors. Websites like Zumper and Zillow offer free resources such as blogs and city pages that provide data on occupancy rates and rent trends. By keeping an eye on these trends, investors can make informed decisions before larger institutions do. In fact, during the COVID-19 pandemic, those who paid attention to early data trends in cities like San Francisco could have made significant financial gains. So, the advice is to become a data expert in your market and industry, as most competitors likely aren't doing it to the same extent. Tune in to our bigger pockets news show every Friday for more data-driven insights from experts like Anthony.