The demand for office space continues to remain in negative territory on the aggregate, as high to substantial transmission¹ of the coronavirus delta variant continues to sustain a work-from-home approach, increasing the likelihood that a hybrid workstyle will become the dominant option in the future.

Since 2020 Q2 through September 19, 144 million square feet of office space has been released back to the market (negative net absorption), according to CoStar® market data. The office vacancy rate has increased to 12.4% (9.8% in 2020 Q1) and the average asking rent has declined year-over-year, at -0.4%. However, the headline figures mask the resiliency and recovery in secondary markets which are more numerous but which account for a lesser share of the office square footage that primary/gateway markets account for.

Gateway cities still struggling to recover lost office space, but secondary markets are thriving

As of September 10, New York, Washington D.C., Los Angeles, Chicago, San Francisco, Boston, Philadelphia, Denver, Seattle, and Northern New Jersey have suffered the largest declines in occupancy over a 12-month period. Twenty-six of 390 markets have lost over 1 million square feet in office occupancy on a net basis over the past 12 months ending September 19.

However, secondary markets are experiencing rising occupancy, with the largest increases in Palm Beach, Durham, Austin, Boise, Pensacola, Provo, Salt Lake City, New Haven, Miami, Fargo, San Antonio, and Oklahoma, each of which absorbed at least 500,000 square feet of office space.

Florida is emerging as the “it” state when it comes to the office market, with several markets having positive net absorption: Palm Beach, Pensacola, Miami, Fort Myers, Naples, Port St. Lucie, Sarasota, Daytona Beach, Orlando, Lakeland, Tampa, Melbourne, Punta Gorda, and Sebring.

Asking rents still down nationally, but rising in many smaller markets

With falling occupancy and rising office vacancy rates, asking rents remained below the level recorded one year ago, down by 0.4% as of September 19, 2021. The national average rent growth is being pulled down by the rent declines in the large markets of San Francisco (-4.4%), New York (-2.8%), Orange County (-2%), East Bay (-1.6%), Washington, D.C. (-1.2%) and Denver (-1.1%).

However, office rents are up on a year-over-year basis in 365 out of 380 metro areas tracked by CoStar®. Secondary/tertiary metro areas are experiencing high rent growth, led by Tucson, Arizona (6.2%), Providence, Rhode Island (6%), Naples, Florida (5.6%), and Fort Myers, Florida (5.3%), and Las Vegas (4.9%). 

Outlook: Office vacancy rates to remain above 10% in 2022

As of the second quarter of 2021, 144.3 million square feet of office space is under construction, equivalent to about 2% of the existing office space. If the space being constructed is mostly speculative, it will add to the already-elevated vacant inventory and will continue to depress rents in the primary markets until the office space is absorbed.

The largest construction projects are still happening in metro areas that are currently still suffering from declining occupancy: New York, Boston, Seattle, Washington D.C., San Jose, Dallas, Austin, and Los Angeles. In San Jose and Austin, the incoming supply amounts to about 6% of office space.

With the huge losses in office occupancy in these markets and the ongoing construction, office vacancy rates will likely remain above 10% in the next two years.

---

¹ CDC reported as high to substantial transmission rates in 97% of counties as of the week of September 19, but that has gone down to 76% as of September 24. See https://covid.cdc.gov/covid-data-tracker/#county-view

View Source

>>> Don’t Miss Today’s BEST Amazon Deals! <<<<

The intense multi-bidding seen during the summer is simmering down, due in part to a seasonal decline, but also because first-time buyers are stepping away due to the lack of affordable homes. The share of first-time buyers declined to 29% in August, and the number of offers on homes that sold (closed) in August decreased to an average of 4 offers per home, according to the August REALTORS® Confidence Index report, a monthly national survey of transactions of REALTORS®.

Roughly four offers on average per home sold in August

In August, there were, on average, 3.8 offers on homes that sold during the month, down from 5.1 offers in May. But even as the number of offers has been declining, competition is still more intense than during the pre-pandemic period when the average number of offers on homes ranged from an average of 2 to 3 offers.

The charts below show the average number of offers on homes sold for selected states.¹ At the state-level, one can see a more significant spike in the number of offers during the summer. The largest surge in home offers on average were in Michigan (8.7), New Jersey (8.1), and Arizona (8.8), followed by California (6.8), New York (6.3), Florida (6.3), and then by Texas (5.9), North Carolina (5.8), Massachusetts (5.6), Ohio (5.4), Pennsylvania (4.9), and Illinois (4.6).

As of August 2021, large population states with the highest average number of offers included Georgia (5.5), California (4.7), Colorado (4.5), Texas (4.2), and Florida (4.8).

Demand for vacation homes rises to 6% of market

The uptick in offers during the summer could be associated with the demand for people seeking second or vacation homes that offer the opportunity to work from home. Since July 2020, the share of vacation home sales has been trending at around 6%, compared to the average of 5.6% in 2020 and 5.2% in 2019. NAR’s 2021 Vacation Home Counties Report shows stronger demand for housing in vacation home counties compared to non-vacation home counties.

First-time buyer share declines to 29%

The share of first-time buyers to the total existing-home sales market declined to 29% in August 2021 from 33% in the same month in 2020. During the first eight months of 2021, the first-time buyer share averaged just 31% compared to 33% in 2020 and 32% in 2019 (pre-pandemic).

A variety of factors are causing buyers to step away: lack of affordable homes, especially at price points below $250,000 (single-family homes priced at $250,000 and below made up 29% of single-family existing-home sales in 2021 compared to 38% in 2020), lack of financial resources to meet the down payment requirements ($52,000 for a 10% down payment and 5% closing cost on a $350,000 home), and competition with cash buyers (cash sales accounted for 22% of existing-home sales compared to 18% in the same period one year ago). Among buyers, 25% also waived the appraisal contract contingency, which indicates that these buyers are not obtaining mortgage financing. In a tight market, sellers tend to prefer cash because they also need cash to make a down payment and to sell quickly so they can close quickly.

Outlook: Multi-bidding to cool as mortgage rates rise in 2022

The intense multi-bidding seen in the summer will likely continue to cool in the remaining months of 2021 and in 2022, due to rising mortgage rates. This cooling off is good for the long-term health of the market because the multi-bidding frenzy can only further erode home affordability and push buyers out of the market.

NAR forecasts the 30-year fixed mortgage rate to rise from 3% in 2021 to 3.6% in 2022, with the Federal Reserve Board likely to start cutting back on its purchases of mortgage-backed securities in 2022 to control inflation (5.3% in August) while achieving full employment (5.2% unemployment rate in August). Rising mortgage rates will lead to a small decrease in home sales and a modest increase in home prices. Home sales are expected to decrease slightly to 5.99 million in 2022 from 6 million in 2021 while the median existing-home sales price is expected to increase to just 4.4%, a modest increase compared to the current double-digit price growth.

---

¹ These states typically have at least 25 respondents.

View Source

>>> Don’t Miss Today’s BEST Amazon Deals! <<<<

Utilizing a composite model, the U.S. Census Bureau has released a new experimental Monthly State Retail Sales (MSRS) data product that combines monthly retail trade survey data, administrative data, and third-party data that features modeled state-level retail sales.

The MSRS represents year-over-year percent changes for each state and the District of Columbia for total retail sales with the exclusion of nonstore retailers as well as 11 North American Industry Classification System (NAICS) retail subsectors back to January 2019 and provides data by state and NAICS code. State-level data is not adjusted for seasonal variation, trading-day differences, moving holidays or price changes.

View Source

>>> Don’t Miss Today’s BEST Amazon Deals! <<<<

NAR released a summary of existing-home sales data showing that housing market activity this August declined 2.0% from July 2021. August’s existing-home sales reached a 5.88 million seasonally adjusted annual rate. August’s sales of existing homes weakened 1.5% from August 2020.

The national median existing-home price for all housing types rose to $356,700 in August, up 14.9% from a year ago. Home prices have continued to rise, and this marks the 114th consecutive month of year-over-year gains.

Regionally, all four regions showed double-digit price growth from a year ago. The Northeast had the largest gain of 16.8%, followed by the South with an increase of 12.8%. The West showed an increase of 11.4%, and the Midwest had the smallest price gain of 10.5% from August 2020.

August’s inventory declined 1.5% from last month, standing at 1.29 million homes for sale, falling from the previous two months of gains. Compared with August of 2020, inventory levels are 13.4% lower. This would mark 27 straight months of year-over-year declines. It will take 2.6 months to move the current level of inventory at the current sales pace, well below the desired pace of 6 months.

Demand remains strong as home buyers are snatching listings quickly off the MLS and it takes approximately 17 days for a home to go from listing to a contract in the current housing market. A year ago, it took 22 days.

From July 2021, all four regions had declines in sales. The South had the biggest dip of 3.0%. The Northeast and the Midwest both had a fall of 1.4%, followed by the West with the smallest decline in sales of 0.8%.

From a year ago, all of the four regions weakened in sales. The Northeast region had the largest decline of 2.7%, followed by the Midwest with a dip of 2.1%. The West fell 1.6%, followed by the South with the smallest decline of 0.8%.

The South led all regions in percentage of national sales, accounting for 43.4% of the total, while the Northeast had the smallest share at 12.4%.

In August, single-family sales decreased 1.9% and condominiums sales were down 2.8% compared to last month. Single-family home sales were down 2.8%, while condominium sales were up 9.5% compared to a year ago. The median sales price of single-family homes rose to 15.6% at $363,800 from August 2020, while the median sales price of condominiums rose 10.8% at $302,800.

View Source

>>> Don’t Miss Today’s BEST Amazon Deals! <<<<

Homeownership is a key pathway to building wealth and narrowing the racial income and wealth inequality gap. Housing wealth (equity) accumulation takes time, and is built up by price appreciation and paying off the mortgage. Homeowners who purchased a typical single-family existing-home 30 years ago at the median sales price of $103,333 with a 10% down payment loan and who sold the property at the median sales price of $357,700 in 2021 Q2 accumulated housing wealth of $349,258, of which 73% is due to price appreciation.

Out of 182 metro areas, there were 21 metro areas with a typical housing wealth gain over a 30-year period of at least $500,000. Eleven of these metro areas are in the West region states of California (San Jose, San Francisco, Anaheim, San Diego), Hawaii (Honolulu), Colorado (Boulder, Denver), Washington and Oregon (Seattle, Portland), and Nevada (Reno). In the three metro areas ― San Francisco, San Jose, and Anaheim ― the typical housing wealth gain was over $1 million, which was primarily from the price appreciation. Seven metro areas are in the Northeast region states of New York and New Jersey (Nassau County, New York-Newark-Jersey City, Newark, New York-Jersey City-White Plains), Connecticut (Bridgeport), and Massachusetts (Boston, Barnstable), and three in the South region states of Florida (Naples), Texas (Austin) and the Washington DC-Arlington-Alexandria metro area.

Rising home values benefit existing homeowners, but home prices need to rise in line with income growth so homes remain affordable and more households are able to reap the benefits of homeownership. As seen in the table above, over the past five years, the median single-family existing-home sales price increased by 8.2% compared to the annual growth of 3.5% in average weekly wages. It is therefore critical to improve the supply of housing to enable more families to participate in the benefits of homeownership.

Homeownership: Less Risky Investment than a Stock Market Investment

While home prices can fall, they tend to recover and rise over a long-term period. Over a 30-year period through the second quarter of 2021, the median single-family existing home prices have increased at an annual pace of 4.6%. Most homebuyers purchase a home as a primary residence, but some buyers purchase properties as an investment. Over a 30-year period, an investment in a stock market yielded a higher return of 8.9% based on the S&P 500 index, but the returns are also more volatile, with a risk-to-return ratio of nearly 1.8 compared to 1.3 on an investment in a single-family existing home.

Homeownership: Major Source of Wealth Among Families

Among all families, the value of the primary residence typically accounts for about ten times the median value of any financial asset, according to the 2019 Survey of Consumer Finances of the Federal Reserve Board.

Uses of Home Equity

Housing wealth benefits homeowners because homeowners are able to tap into their home equity to preserve the value of the home and to improve their level of income and their children’s, through uses of the home equity to invest in a business, for education, to pay off debt, and for unexpected needs such as medical expenses.

According to NAR’s tabulation of the 2019 Survey of Consumer Finances, 43% of homeowners who had a home equity line of credit used the home equity for home improvement and repair. This is important because home improvement and repair helps maintain the value of the home arising from depreciation and aging. Paying off taxes and loans and general expenses accounted for 18% of the uses of a home equity line of credit. About 9% of homeowners who obtained a home equity line of credit used the equity to invest in a business, stock, or build up a cash reserve. Homeowners also used the home equity line of credit to buy a second home. Paying for major expenses like health, medical, or educational expenses were other uses of the home equity line of credit.

For more, read the full report.

View Source

>>> Don’t Miss Today’s BEST Amazon Deals! <<<<

U.S. advance estimates of retail and food service sales for August 2021 increased from the prior month. Retail sales recorded a seasonally adjusted total of $618.7 billion in August, a 0.7% increase from July. Retail sales in August increased after a contraction in July despite ongoing supply chain disruptions. Supply chain disruptions weren’t the only issue affecting retail sales as the Delta variant, inflation, and other variables came into play. Although consumer confidence declined in August to its lowest level since February 2021 with concerns over current economic conditions, short-term growth, and COVID, consumers did not curtail their spending in August. Despite these headwinds, consumer demand prevailed.

The increase in retail spending in August reflects the continued strength and perseverance of retailers and the U.S. consumer, as consumers continue to be the driving force behind a continued recovery despite diminished government stimulus. Sales in August increased adjacent to an unconventional back-to-school shopping season where some school districts have in-person learning, while others remain virtual or delayed until further notice.

On a year-over-year basis, overall retail sales were up 15.1% from year-ago levels. Furthermore, retail and food service sales have increased year-over-year every month since June 2020, although there were some month-over-month declines realized throughout that same period of time. Total sales over the past three-month period were up 16.3% over the same period a year ago.

Retail sales for August were up in all but three retail categories on a month-over-month basis: motor vehicle and parts dealers; electronics and appliance stores and sporting goods; hobby, musical instrument, and bookstores; these were at -3.5%, -3.05%, and -2.7%, respectively. Despite those three retail categories experiencing a decline on a month-over-month basis, sales on a year-over-year basis were up in every category, led by increases in clothing and clothing accessory stores, gasoline stations, and food services and drinking places at 38.8%, 35.7%, and 31.9%, respectively.

View Source

>>> Don’t Miss Today’s BEST Amazon Deals! <<<<

U.S. consumers have been the driving force behind the continued recovery that took place in Q2 2021, which saw demand for retail space increase.

COVID-19 vaccinations coupled with the easing of pandemic measures and fiscal stimulus brought consumers out, with some returning to the office and participating in pre-pandemic activities such as eating out and sporting events. As of September 13, the CDC reported that more than 380 million COVID-19 vaccine doses have been administered across the U.S. and more than 178 million people are considered fully vaccinated. Fiscal stimulus by way of direct checks issued to millions of consumers in addition to extended and increased unemployment benefits has result in increased income over the first six months of 2021. Motivated by the increase in income, consumer spending increased.

Total retail sales continued to steadily increase from the beginning of the pandemic through Q2 2021 as sales increased from $1.3 trillion in Q2 2020 to $1.6 trillion in Q2 2021, for a year-over-year growth rate of 28.2%. The improvement in sales has come at the expense of e-commerce which saw its percentage of total retail sales decrease from 15.7% in Q2 2020 to 13.3% in Q2 2021.

The increase in retail sales is more than welcome, as retailers across the spectrum have benefited. Along with increasing retail sales, the number of retail store closings have decreased, elevating demand for retail space. More than 8,736 retail stores closed last year according to Coresight Research and the pace has been slower thus far in 2021. As of September, more than 4,748 stores are set to close in comparison to 4,616 openings which results in a 3% difference for closures, in comparison to a nearly 143% difference over the same period a year ago. Currently, U.S. store openings are ahead of the pace recorded for both 2018 and 2019.

Demand for Retail Space Increases

During the past three months ending September 13, there was a net absorption gain of 19,070,298 sf. Of the six categories of retail assets covered in this report, absorption for the past three months was negative in malls (-1 million sf) and other (-463,697 sf), which is more than offset by the increases in general retail, neighborhood centers, power centers, and strip centers.

The past three-month net absorption gain is substantially more than the 12-month net absorption recorded in Q1 2021 (-17.4 million sf), Q4 2020 (-24.6 million sf), and Q3 2020 (-17.5 million sf). Twelve-month net absorption for retail space eventually turned positive in the Q2 2021 with net absorption totaling 11.6 million. While demand for retail space decreased amidst the pandemic, the retail property market pivoted in Q4 2020 with total positive net absorption reaching nearly 28 million sf through Q2 2021.

Another indicator of increasing demand is leasing volume. According to NAR’s analysis of CoStar® data on 390 metro areas, leasing totaled 65,144,289 sf in Q2 2021. This level of demand is substantially higher than the 44,924,273 sf recorded in Q2 2020 at the peak of the pandemic and higher than the 60,598,011 sf recorded in Q1 2021.

Nationally, the retail vacancy rate stood at 5% in Q2 2021, which was marginally higher than the 4.6% in Q1 2020 as rates have remained relatively stable over the year thus far. Across the retail property categories, the vacancy rate was highest in neighborhood centers (7.7%) while malls, strip centers, other, power centers, and general retail were 7.4%, 6.0%, 5.9%, 5.7%, and 3.1% respectively. Strip centers are anchorless or have a smaller convenience store anchors such as a mini-mart, and these properties have performed favorably in fulfilling consumer needs.

Although vacancy rates are slightly increasing in the majority of markets and across some retail properties, retail vacancy rates on-the-whole are significantly below that of the majority of the past 10 years. As such, rents have faced little pressure, but they are trending slightly higher. Rents rose over the past three months ending September 13 to .9%, up from Q1 2020 (.4%) and Q2 2020 (.2%). The year-over-year percent change in rent growth for retail was 1.2% in Q2 2021.

Outlook

Consumers not only have more funds to deploy, but they are also more confident than they were a year ago. Despite consumer confidence decreasing in August to February 2021 levels, consumers have some confidence but have concerns with respect to the Delta variant and inflation, and as a result total retail and food service spending cooled in July. Despite the decrease in spending in July, more consumers are becoming fully vaccinated and are returning to pre-pandemic activities; these activities have seen significant spending increases as consumers were unable to participate in them within the past year. Activities range from sporting events to the traditional dine-in experience. As the economy and commercial real estate continues to return to normal, retailers will as well. As opposed to shuttering retail locations, retailers will pursue the growth opportunities they had pre-pandemic with an emphasis on e-commerce. The omnichannel is no longer a distant goal but one that is a necessity today considering consumer spending habits highlighted and accelerated by the pandemic. Expect e-commerce and physical retail sales to continue to increase and as a result, so will the demand for retail space.

View Source

>>> Don’t Miss Today’s BEST Amazon Deals! <<<<

One major impact of the coronavirus pandemic is on where people are deciding to live, work, and play. Housing affordability, the desire to live in less dense areas, and in larger homes with the opportunity to work from home, and the demand from millennials as they start to form households and raise families are important factors that play into the decision of where to live and buy a home.

As of August 2021, housing market indicators show outlying counties of metropolitan or micropolitan areas are experiencing more robust housing demand compared to central counties, an indication that housing demand is dispersing outwards from the central counties of metropolitan or micropolitan areas to outlying counties.

Market statistics in outlying and central counties of metropolitan areas

As of August 2021, home listings data on realtor.com® in 883 central counties and 114 outlying counties indicate stronger demand for housing in outlying counties than in the central counties of metropolitan areas. However, both outlying and central counties are performing remarkably well compared to pre-pandemic conditions (February 2020).

Faster price appreciation in outlying counties

In August, the median listing price in outlying counties rose 10% from one year ago, while the median listing price in central counties rose at a slower pace of 6.7%. In fact, the median listing price in the outlying counties was slightly higher at $311,225 compared to the median listing price of $299,450 in central counties. The median listing price per square foot is also higher in the outlying counties, at $154/sf compared to $148/sf in the central counties.

Faster days on market in outlying counties

Properties are selling faster in outlying counties, at 35 days, compared to 37 days in central counties. Days on market have decreased in both central and outlying counties; properties sold in 53 days in central counties and 52 days in outlying counties one year ago.

Higher ratio of pending listings to active listings in outlying counties

The ratio of pending listings to active listings is another indicator of demand relative to supply. In outlying counties, there were 1.4 pending listings per active listing compared to 1.2 pending listings per active listing in central counties.

Active listings are down in both central and outlying counties

Supply is running below year-ago levels in both outlying and central counties, with a stronger decline of 23% year-over-year in central counties compared to a 20% year-over-year decline in outlying counties.

Bigger square footage in outlying counties

One reason for the preference of a home in outlying counties is the availability of bigger homes and more yard space. In terms of home square footage, the median square footage of homes listed in outlying counties was 1,877 square feet, which is 40 square feet larger than the median square footage of 1,837 square feet in central counties. That 40 square feet gives extra storage space or can serve as a work area.

Median listing prices in selected metro areas

Affordability is clearly a driver of the demand for homes in outlying areas. Homes in outlying counties have been generally less expensive than in central counties. In August, the median list price in outlying counties has increased at a faster pace than in central counties, except in the metro area of Chicago.

Drilling down into the major metro areas for which there is at least one outlying or central county tracked by realtor.com®, median listing prices are rising at a faster pace in the outlying counties compared to the central counties.

In the New York-Newark-Jersey City area, the median list price in the central counties is down 1.7% year-over-year as of August 2021 due to price declines in central counties like Hudson (-11.9%), Kings (-11.8%), and Queens (-5%). However, prices are rising strongly in the central counties like Suffolk (12.3%), Sussex (11.9%), and Ocean, New Jersey (9.5%). The only outlying county for this metro area that is tracked by realtor.com® is Pike, Pennsylvania, where the median list price rose 18.7% year-over-year, the highest price growth in this metro area.

In the Washington-Arlington-Alexandria metro area, list prices in August 2021 were down in the District of Columbia (-14.3%) and the central counties of Fairfax (-14.5%) and Montgomery (-9.3%). However, list prices are rising strongly in the outlying counties of Stafford, Virginia (15.8%); Frederick, Maryland (11.4%); Spotsylvania (8.1%), and Jefferson (7.2%).

The Chicago-Naperville-Elgin metro area is bucking the trend where the median listing price has fallen in the outlying counties by 9.5% while the median list price among central counties is slightly up by 1.2% due to rising list prices in central counties such as Kendall (11.8%), Lake (11%), and Will (6.5%). However, in Cook County, where Chicago is, the median listing price is down 5.8%.

In the San Francisco-Oakland-Berkeley metro area, the median list price in outlying counties is up 11.4%, which is due to Contra Costa (11.4%). In San Francisco, the median list price is down (-7.4%) as well as in Marin (-6.4%). San Francisco is a county that has been taking a long time to recover because its workforce is heavily concentrated in technology jobs. Nationally, 50% of computer/mathematical workers are teleworking as of June 2021 compared to 14% among all occupations. However, the central counties of Alameda (8.4%) and San Mateo (2.6%), which are contiguous to San Francisco county, had higher median list prices as of August compared to one year ago.

In the Boston-Cambridge-Newton metro area, the median list price is down 3.3% year-over-year in the central counties, including in Suffolk County where Boston is located (-6%). The median list price is up 20.9% in the outlying county of Strafford, New Hampshire.

In the Dallas-Fort Worth-Arlington metro area, the median list price in central counties is up 14.6% while the median list price in outlying counties is up 18.4%. In the central county of Dallas, the median list price is down (-4.6%), while the median list price is up year-over-year in all other central and outlying counties.

Methodology and data source (realtor.com®)

For this analysis, I used realtor.com® home listings summary statistics in 1,000 counties, of which 883 are central counties and 114 counties are outlying counties of a metropolitan or micropolitan area based on the U.S. Census Bureau March 2020 delineation.¹ According to the US Census Bureau, “a central county is a county or counties of a Core Based Statistical Area (metropolitan statistical area or micropolitan statistical area) containing a substantial portion of an urbanized area or urban cluster or both, and to and from which commuting is measured to determine qualification of outlying counties. An outlying county is a county that qualifies for inclusion in a core-based statistical area on the basis of commuting ties with the CBSA’s central county or counties.”²

---

¹ I categorized the realtor.com® 1,000 metro areas as central or outlying counties based on the March 2020 US Office of Management and Budget Bulletin delineation; https://www.census.gov/geographies/reference-files/time-series/demo/metro-micro/delineation-files.html. The three counties that realtor.com® tracks that are not in the March 2020 OMB Bulletin and could not therefore be classified into central our outlying counties are Van Buren, Michigan; Barry, Michigan; and Le Flore, Oklahoma.

A central county is a county or counties of a Core Based Statistical Area containing a substantial portion of an urbanized area or urban cluster or both, and to and from which commuting is measured to determine qualification of outlying counties. An outlying county is a county that qualifies for inclusion in a Core Based Statistical Area on the basis of commuting ties with the Core Based Statistical Area’s central county or counties. A county qualifies as outlying under the following circumstances: (1) one-quarter or more of the employed residents work in the central counties of the metropolitan or micropolitan statistical area, or (2) one-quarter or more of the employment is composed of workers who live in the central counties. Furthermore, outlying counties also include the counties of any smaller metropolitan or micropolitan statistical area that are adjacent to the metropolitan or micropolitan statistical area and merge with it. https://www.census.gov/programs-surveys/metro-micro/about/glossary.html

² To note, outlying counties are not the same as “suburbs” which are popularly considered as places that border the cities or towns and have strong economic relationship (people live there but work in the city). For example, in the case of the Washington- Arlington-Alexandria metro area, both Fairfax County and the District of Columbia are considered central counties, although the popular notion is to consider Fairfax County as a suburb of Washington, DC.

View Source

>>> Don’t Miss Today’s BEST Amazon Deals! <<<<

“Mortgage rates continued to remain below 2.9% for the last nine straight weeks. Specifically, according to the finance mortgage provider Freddie Mac, the 30-year fixed mortgage rate rose slightly to 2.88% from 2.87% the previous week.

With most children and students back in the classrooms, “seasonal patterns” will also be back in the real estate market. While 30% of the households have a child under 18 in their house, these buyers and sellers typically do not want to move their family in the middle of the school year and they usually wait until its end so they have more free time for moving. Thus, among other factors, every year, transactions and prices tend to be above-trend in the summer while activity typically slows down in the winter. Specifically, sales activity between February and March typically increases by 33% while prices rise by 3%. Sales continue moving upward in the following months, but it is interesting to see that the busiest home selling months are May, June, July, and August, with activity to peak in June. The average number of transactions during this four-month period is 2.1 million home sales and accounts for 40% of the annual sales volume. Then, sales typically drop by 15% between August and September. The slowest months of selling activity are November, December, January, and February. For instance, in June, we sell about 555,000 existing homes while activity falls by 83% to nearly 300,000 home sales in January.

Thus, even with historically low rates, it’s normal to see the market cooling off in the following months. The National Association of REALTORS® forecasts existing home sales to drop by 10% in the last quarter of 2021.”

View Source

>>> Don’t Miss Today’s BEST Amazon Deals! <<<<

The demand for apartments continues to heat up, marked by record-high absorption and rent growth and low vacancy rate. During the past three months ending September 7, there was a net occupancy gain in 666,255 apartment units (net absorption), which is double the 12-month net absorption prior to the pandemic (2020 Q1) of 304,623 units. With demand for apartments soaring, the vacancy rate has dropped to 5% from 6.7% in 2020 Q1. With falling vacancy rates, average asking rents during the 3-month rolling period ending September 7 rose 10.6% year-over-year, up from just 1.6% prior to the pandemic (2020 Q1). 

Rent growth has surged due to the massive increase in net absorption while construction activity has declined compared to pre-pandemic levels. As of 2021 Q2, CoStar reported 597,137 multifamily units under construction, or 111,901 fewer units compared to 709,038 units prior to the pandemic.

Stronger Demand for Apartments in Metros with  Population of Over 1 Million

Metro areas with population of over 1 million are exhibiting stronger demand than metros with smaller populations based on analysis of the CoStar market data by population sizes of the metro areas. The table below shows that the median of the average year-over-year asking rent growth in metro areas with population of over 1 million was 10.6% as of the 3-month rolling period ending September 7. Rents in metro areas with population sizes of over 500,000 to 1 million were growing at a slightly smaller pace of 10.4%, while metro areas with up to 250,000 had rent growth of 4% to 5%. Vacancy rates were tight across all market sizes although metros with 100,000 to 500,000 people had the lowest vacancy rates.

Among the top 10 metro areas with populations of over 1 million, five of the 10 metro areas with the strongest rent growth were in Florida, with rent growth of at least 20% (Palm Beach, Tampa, Orlando, Jacksonville, and Fort Lauderdale). In San Francisco, where rents fell the most by 11% in 2020, rents are now up 7% year-over-year. In New York, rents are also up 3.9% year-over-year.

Among the top 10 metro areas with a population of over 500,000 to 1 million, Florida again has 5 of the top 10 metros, with rent growth of 16% to 33% (Sarasota, Port St. Lucie, Fort Myers, Melbourne, Pensacola) as well as Daytona Beach and Lakeland.

Among the top 10 metro areas with population of over 250,000 to 500,000, Florida again has 3 of the top 10 metros, with rent growth of 14% to 37% (Naples, Fort Walton, Ocala).

Among the top 10 metro areas with population of 250,000 or less, Punta Gorda had the highest rent growth at 34%. 

Overall, five Florida metros landed in the top 10 commercial markets with the strongest overall market conditions due to strong domestic migration, job growth, and generous tax incentives to attract high-tech businesses as discussed in a prior blog post.

Where is it Cheaper to Own than Rent?

Renting is an alternative to owning, so the decision to own or rent depends to a great extent on whether it is cheaper to own than to rent. The mortgage payment to rent ratio is one indicator of the comparative affordability of renting versus owning for households that are income-constrained or wealth-constrained with not enough savings to put down for a down payment. Owning has the great benefit of providing the owner with price appreciation gains that can offset the higher mortgage payment, but wealth-constrained renters won’t have the down payment to buy a home and reap the price appreciation gains.

I compared the mortgage payment on a single-family home purchased at the median sales price as of 2021 Q2 with a 10% down payment to the monthly rent on an apartment unit. Because of the low mortgage rates and due to the steep growth in rents, the mortgage payment is higher than the average rent in 57 out of 179 metro areas. So, it is cheaper now to own in more metro areas (122 metros) than to rent.

The most expensive metro areas to own a home relative to renting are metro areas in California (San Jose, Orange County, San Diego, and Los Angeles). It’s a toss-up in Sacramento, Fresno, and the Inland Empire, where owning is just slightly more expensive than renting.  Other areas more expensive to own than rent are metro areas in the state of Washington (Seattle, Yakima) although it’s a toss-up in Kennewick, where owning is just slightly more expensive than renting. It’s also more expensive to own than rent in some metro areas in Colorado (Denver, Fort Collins), Oregon (Portland, Salem, Eugene), and the booming areas of Salt Lake City and Boise.  

Outlook for Apartment Rent Growth

With home prices rising at double-digit pace and with some increase in mortgage rates in the offing, there is still pressure to rent than to own. Moreover, it is difficult for wealth-constrained renters to afford the down payment. Only about 30% of renter households can afford to put down a 3.5% percent down payment. 

As earlier discussed, fewer apartments under construction compared to the pre-pandemic level will also push up rent growth.

Rents will also likely increase in the smaller metros and metros where rents have not yet increased at the rate that rents are rising in the large metro areas (over 1 million).

Builders are also focusing their attention the more expensive single-family rentals.

So, expect rents to remain elevated in the next 12 months, with rent growth hovering at 10%.

View Source

>>> Don’t Miss Today’s BEST Amazon Deals! <<<<