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"The house you looked at today and wanted to think about until tomorrow may be the same house someone looked at yesterday and will buy today." - Koki Adasi

Market Data Update

What’s Going On?

Let’s get to it

• The consumer price index rose 4.9% in April 2023, the smallest increase in two years.

• Mortgage applications increased 6.3% from one week earlier.

• The rental vacancy rate has ticked up to 6.4%, which is its highest level since the past two years.

• According to Redfin, the median home sale price was $370,625, down 2.7% from a year earlier.

The Breakdown

The CPI came in at an annualized rate of 4.9% in April compared to 5.0% in March, indicating signs of cooling inflation. Although the CPI doesn’t directly account for the rise or fall in home prices, the shelter index (a component of CPI) measures the following: rent of primary residence, owners’ equivalent rent, lodging away from home, and tenant/homeowners’ insurance costs.

Owners’ equivalent rent specifically measures how much money a property owner would have to pay in rent to be equivalent to their cost of ownership. As such, Owners’ equivalent rent is an indirect measure of housing affordability. There are two variables when determining housing affordability: Home prices and interest rates. Home prices could be half of what they are today, but if interest rates are 15% then houses would still be unaffordable to many people.

Interestingly enough, the shelter index rose 8.1% over the last year, accounting for 60% of the total increase in CPI less food and energy costs (i.e., Core CPI). This begs the question – If the Fed cuts interest rates, will that increase or decrease home prices?

Lowering interest rates will ease affordability and increase demand. Inventory is higher than last year, but it would not sustain the boost in demand, causing home prices to skyrocket. But let’s not forget, most homeowners right now have an interest rate lower than 4%. And many potential sellers are not listing their house because they would have to buy another house with a higher interest rate. So, if interest rates drop, these potential sellers might enter the market and raise the amount of inventory.

Inventory will rise, but I don’t believe it will rise to pre-pandemic levels. So rather than push down home prices, rising demand with higher inventory could help boost home prices towards the end of the year and into next year.

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

Investing Tip Of The Week:

Tips for Evaluating a Good Deal

Evaluating a good deal is crucial for successful real estate investing. The first step is to research the local market to determine the average home or condo price and rental rates in the area. This will give you a baseline for what to expect in terms of your initial investment amount and potential income.

Next, it’s important to consider the location of the property. Is it in a desirable neighborhood with high rental demand? Are there schools, parks, and other amenities nearby? These factors can impact the property’s long-term appreciation and rental income potential.

Additionally, it’s important to analyze the property’s financials. This includes looking at the asking price, property taxes, insurance, HOA fees and any other expenses associated with the property. You’ll also want to calculate the potential rental income and compare it to the expenses to determine if the property will cash flow or at least break-even.

Another key factor to consider is the condition of the property. Instead of just looking at the carpet and countertops, you will want to hire an inspector for the big-ticket items including foundation, roof, plumbing, electrical, and HVAC systems. If there are any major repairs needed, you’ll need to factor those costs into your analysis.

Furthermore, you should research the property’s history. How long has it been on the market? Has it been sold multiple times in the past few years? These factors can provide insights into the property’s potential profitability and any potential issues that may arise.

Ultimately, the key to evaluating a good property deal is to conduct thorough research and analysis. By considering factors such as market conditions, location, financials, condition, and history, you’ll be able to make informed decisions and identify potentially profitable investment opportunities.

Pro Tip – Find a good real estate agent in your area. They can be very helpful in determining which properties meet all the factors mentioned above. Real estate agents who are also investors will already have these strategies in mind when looking for your next deal!