Real Estate Check-Up

Dec 14, 2022 | Macro Insights, No Bull Economics

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It’s still a good time to be a homeowner or landlord given a housing shortage that more than offsets the effect of higher mortgage rates (which are beginning to moderate).

While home prices are starting to cool off, annual price increases remain in the double-digit range as supply remains constrained. According to Fannie Mae, fewer new homes were built in the 10 years ended 2018 than in any decade since the 1960s. By 2019, a good estimate of the housing unit shortage (for sale or rent) was 3.8MM. The covid-induced materials and labor shortage exacerbated the trend as evidenced by the 2021 surge in rents & home prices.

Zillow Home Prices Graph
Zillow Home Prices Graph

While recent mortgage rate hikes helped moderate housing price increases, rates are beginning to ease. However, new housing starts (supply) are trending higher although it is notable that builders often moderate new starts to support the value of their inventory.    

Mortgage Rates Graph
Mortgage Rates Graph

Rents are another story, with annual increases slowing dramatically during covid as lockdowns left tenants with less disposable income while the government’s rent & eviction moratorium scared landlords into abstaining from rent hikes. After the moratoriums ended, landlords were able to capitalize on significant house purchase price inflation and a housing shortage to pass-through substantial rent hikes. While annual rent increases are moderating, they remain ~2x 2019 levels.     

Zillow Rents Graph
Zillow Rents Graph

In any case, the average monthly rent of $2,008 is closely in-line with the $2,053 monthly P&I mortgage payment for a home costing $357k (Zillow’s national average) – revealing the market’s efficiency.

Rent and Mortgage Chart
Rent and Mortgage Chart
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