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"Real estate is an imperishable asset, ever increasing in value. It is the most solid security that human ingenuity has devised." - Russell Sage

Market Data Update

What’s Going On?

Let’s get to it

• New home sales increased by 1.1% in February compared to January, according to the US Census Bureau.

• Pending home sales rose 0.8% in February compared to January, according to the National Association of Realtors.

• Mortgage applications increased for the fourth consecutive week, rising by 2.9% from the prior week, reflecting continued growth in mortgage demand.

• The S&P CoreLogic Case-Shiller Index, which measures home prices across the country, fell by 0.2% in January compared to December, marking the seventh straight monthly decline in home prices.

• Fannie Mae’s ESR Group predicts a modest recession starting in the second half of 2023 and expects home sales to remain subdued due to ongoing affordability constraints.

• Zillow revised its outlook on home values upward due to a recent surge in buyer demand but anticipates declining home sales over the next 12 months.

• Realtor.com reported that the median asking rent decreased to $1,716 in February, down by $48 from its peak.

The Breakdown

New home sales have increased by 1.1% month over month. We have to keep in mind that the current housing market activity is still lower compared to one year ago, but there is definitely some pent-up demand. The new home sales statistic is based on contracts being signed for under-construction homes, which also reflects homes that have not begun construction. Basically, it does not mean that the house has been closed on, rather is an indicator of “pending” home sales. To be precise, 65% of the new homes sold in the US Census Bureau’s February report are homes that have not yet been started or are still under construction. As such, this statistic leaves out the potential of buyers canceling their contracts.

Previously, we discussed that buyer cancellations would increase due to people entering into contracts when mortgage rates were below 6% but facing 7% or higher rates when it came time to close on their homes. Due to the recent banking instability, mortgage rates have decreased, giving less cause for concern for those cancellations happening. What does this mean for home buyers? The sticker shock of 7% mortgage rates in late February has home buyers believing that the current 6% mortgage rates are much better, and that is helping fuel the demand we are witnessing.

Of course, home builders like Lennar and KB Home are also offering a bunch of incentives for buyers to keep buying, including mortgage rate buydowns. This is technically not good for home buyers because it allows them to potentially qualify for a home today that they may not have been able to afford without the incentive in the first place. When those mortgage rate buydowns expire or stop assisting the homeowner in their monthly payments, that homeowner could face hardship. Remember 2008? I hope this time is different.

And I believe that this time is different. Mortgage credit availability has significantly tightened. In fact, the Mortgage Bankers Association’s index for credit availability is at its lowest point since 2013. This definitely helps the Federal Reserve meet its goal to tame inflation as tightened financial markets reduce access to liquidity and cool down the economy. But more importantly, this means that the people purchasing homes right now are extremely well qualified and financially stronger. If inflation keeps cool while home buyer demand continues, the real estate market may do just fine.

_{Important Note: The above passage is our commentary and opinions about the real estate market, NOT financial advice.} 

Investing Tip Of The Week:

How Real Estate Creates Millionaires

Real estate has long been considered one of the most lucrative investment options for individuals looking to build wealth. In fact, it's estimated that real estate has created more millionaires than any other asset class.

The reason for this is that real estate investments offer multiple avenues for generating wealth. For instance, rental properties can provide a steady stream of passive income in the form of rent payments. Over time, rental income can increase as property values appreciate, and mortgage payments are paid off. This can create a significant amount of wealth for investors.

In addition, real estate can provide significant tax benefits for investors, including deductions for mortgage interest, property taxes, and depreciation. These benefits can help to offset the costs of owning and maintaining a property, making real estate investments more profitable.

Moreover, real estate is a tangible asset that can be leveraged to obtain financing for additional investments. For example, an investor can use the equity in their property to purchase additional real estate or other investments. Finally, real estate investments can provide a hedge against inflation. As inflation increases, the value of real estate tends to increase as well, making it a valuable long-term investment strategy.

In short, real estate offers a range of benefits for investors seeking to build wealth. While it requires some upfront capital and can be time-consuming to manage, the potential returns are significant, and it has created more millionaires than any other investment asset.