Happy Friday! Welcome to The Realty Report, your go-to source for the latest news and insights on the real estate market. Whether you're a first-time homebuyer, an experienced investor, or simply interested in keeping up with the market trends, we've got you covered.

"Buy land, they're not making it anymore." - Mark Twain

Market Data Update

What’s Going On?

Let’s get to it

• CoreLogic predicts a 3.1% increase in home prices from Jan 2023 to Jan 2024.

• Homebuyers struggle with home affordability as they face a record-high median monthly housing payment of $2,563 last week.

• Fannie Mae's Home Purchasing Sentiment Index drops by 3.6 points in Feb, nearing its all-time low.

• The annualized inflation rate falls to 6% in Feb from 6.4% in Jan.

• Mortgage interest rates plummet due to massive U.S. bank failures over the last week.

• Mortgage applications to purchase a home increased by 7% for the week.

The Breakdown

Something disastrous happened last weekend – two U.S. banks collapsed: Silicon Valley Bank and Signature Bank. You have probably never heard of these banks before, but they have set off quite a ruckus in the financial markets; enough to worry the Federal Reserve about further interest rate hikes.

Before we dive into why these failed banks are important to the real estate market, let’s touch on the Consumer Price Index (“CPI”) reading for February. The annualized CPI rate came in at 6%, indicating signs of cooling inflation compared to the January reading of 6.4%. This is a good trajectory for the remainder of the year as we try to steer clear of a full-blown recession. While this may encourage the Fed to slow down on their interest rate hikes, it doesn’t mean they will just stop raising interest rates. Inflation is still at 6%, so we must combat it somehow. This is where those failed banks might help out.

Let’s first understand how these banks collapsed. Banks generally lend money or invest in assets like bonds using people’s deposits - they don’t just hold the cash. When the Fed decides to raise interest rates at a significant pace, the value of those loans and bonds decreases. Basically, the banks lose money on their investments. If one person runs to the bank to withdraw their money, the bank will probably be okay. But if multiple people run to withdraw…well now that bank is in trouble. Silicon Valley Bank and Signature Bank failed to properly hedge against their interest rate risk unlike most big banks (e.g., JP Morgan and Bank of America). The commotion caused by this sends a signal to people that their money may be in danger, even if it’s not. In essence, one failed bank can cause panic and lead to multiple failed banks. The Fed has made it very clear that they do not want this to happen by coming to the rescue of both banks and insuring the loss of their depositors.

These events have caused interest rates to plummet as investors feel the Fed may be uncomfortable in pursuing further rate hikes that could potentially cause more banking instability. Due to this, along with cooling inflation, investors are predicting that the Fed will either increase interest rates by 0.25% or not at all in the upcoming Fed meeting on March 22^nd . I suspect that the Fed will still increase rates by 0.25% because inflation has yet to be tamed. Until then, people are continuing to buy homes in the hopes of getting in now before rates get any higher.

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

Investing Tip Of The Week:

Investing in Real Estate with W2 Income

Many of us think that the real estate millionaires out there were able to buy their properties because they started a business, made a bunch of money while being self-employed, and invested through their businesses. That is definitely not the case. A solid W2 income, which refers to the income earned by an individual through an employer, is an excellent start for investing in real estate. Here are some reasons why:

Firstly, W2 income provides a steady stream of cash flow that can be used to fund a down payment, closing costs, and other expenses associated with real estate investing. With a consistent income stream, you can create a budget and set realistic financial goals for your investments.

Secondly, W2 income can help you qualify for mortgages and other forms of financing. Lenders often look at an individual's income and employment history when deciding whether to approve a loan application. A stable W2 income can help you secure financing for your real estate investments and negotiate favorable terms.

Lastly, having a W2 income coupled with real estate investments may provide certain tax benefits. Real estate investors can generally take advantage of tax deductions and credits associated with owning and managing rental properties. These deductions can include expenses related to maintenance, repairs, property management, and more. A knowledgeable tax professional can help you maximize your deductions and potentially offset the tax liability on your W2 tax form.

In conclusion, W2 income is a great source of income to invest in real estate due to its reliability, financing advantages, and tax benefits. With careful planning and a sound investment strategy, you can use your W2 income to build wealth and achieve financial freedom through real estate investing.