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“When you invest, you are buying a day that you don’t have to work.” Aya Laraya

Market Data Update

What’s Going On?

Let’s get to it

• Home prices rose 0.16% in February after several months of decline, according to Black Knight.

• Redfin's Homebuyer Demand Index surged to its highest level since May 2022.

• Mortgage applications dropped by 4.1% compared to the prior week.

• Housing markets in tech hubs are experiencing a rapid downturn.

• Apartment List notes that national rents have increased by 0.5% during March, but year-over-year rent growth continues to decelerate.

The Breakdown

Although interest rates are high, demand has been strong this season as national home prices experienced a gain in February following several months of decline. In fact, supply is having such a hard time keeping up that mortgage applications are down this week compared to last. A shortage of inventory with high demand will continue to raise home prices – this is obviously good for homeowners but can turn out to be bad if inflation remains persistent.

Even though we focus on the national housing market, real estate is always LOCAL. Different factors impact each city and state that can contribute to variances in the housing market. Right now, the Sun Belt region (e.g., Arizona, Texas, and Florida) is booming compared to the Northeast (e.g., Boston and New York) and West (e.g., California). Bank of America analyzed a few reasons why this may be happening in their article, but I want to focus on what I believe is the main culprit: Work From Home (WFH).

During the pandemic, WFH opportunities gave people a chance to migrate to more affordable cities/states. Although home prices skyrocketed everywhere during the pandemic, mostly due to low interest rates, the Sun Belt region experienced an influx of people due to the WFH migration. Now, we are witnessing states that encouraged WFH policies to have the largest decline in their housing prices from the peak of June 2022. Housing prices have also reacted differently in cities within the same state concerning their WFH policy. For example, home prices in Austin, TX have decreased by 15% but Houston, TX has only decreased by 1% compared to last year.

Furthermore, remote job advertising is not as prevalent today. Most companies have asked for their employees to either come back to the office full-time or follow a hybrid system. People that moved to a different state during the WFH era are more likely to search for job opportunities in their current location rather than uproot their family and move back to a higher cost of living area, especially in this inflationary environment. Given the high availability of job opportunities in the Sun Belt region, places like Florida are still seeing a boom in their housing prices compared to last year.

Overall, it will be interesting to see if regional differences in the housing market continue to grow as inflation hopefully trends down. In my opinion, price corrections are normal and key to rebalancing the real estate market in areas that have previously experienced drastic high growth.

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

Investing Tip Of The Week:

Introduction to REITs

A Real Estate Investment Trust (REIT) is a fund that owns and operates properties. Similar to mutual funds, REITs pool capital from multiple investors to purchase and manage real estate assets such as apartment buildings, office spaces, shopping centers, and hotels.

REITs provide individual investors the opportunity to invest in real estate without having to buy physical property. They are traded on major stock exchanges like other publicly traded stocks and can be bought and sold throughout the day.

One of the primary benefits of investing in a REIT is the potential for regular income in the form of dividends. By law, REITs must distribute at least 90% of their taxable income as dividends to their shareholders. This can provide investors with a steady stream of income, making REITs a popular choice for those seeking passive income streams.

Another benefit of investing in REITs is their potential for capital appreciation. As the underlying real estate asset value increases, the value of the REIT shares can also increase. However, like any investment, REITs do carry risks such as market volatility, interest rate fluctuations, and economic downturns.

Overall, REITs offer investors an accessible way to diversify their investment portfolios with real estate assets and can provide both regular income and long-term growth potential.