New Neutral 🧪

In today’s edition:

• The neutral rate might be increasing
• The rent-buy gap widens in favor of renting
• Building permits tick up for single-family homes

🎯 What's Stirring

I am not an economist - I will leave that up to Jay Parsons, Skylar Olsen, Sam Chandan, and all the other great economists in the housing industry. But this new vocabulary term sent me down an economist’s rabbit hole: “The Neutral Rate”. It is not something that can be measured or observed, it can only be inferred. It felt like I was ghost hunting. You can’t put your finger on it but you know it is there, you can feel its presence, and you can sense when it is going up or going down.

I found a 2018 essay by Robert Kaplan, former president of the Federal Reserve in Dallas, where he provides a concise definition: “The short-term real interest rate consistent with the economy maintaining full employment with associated price stability.” So, full employment and price stability - are we there? Something tells me we have a ways to go before we consider anything ‘stable’.

• In their September meeting, the Federal Reserve signaled that interest rates might not fall as much as previously expected. Commentary from Fed officials suggests that rates “might be higher not just for longer, but forever” (WSJ). The notion that rates may have to remain higher on an ongoing basis is based on the presumed increase of the neutral rate. Fed Chair Powell pointed to the resiliency of the economy despite the increased interest rates as evidence that the neutral rate has increased.
• Nearly 1 billion square feet of office space could become vacant by 2030, or 1.5 times the vacant space at the end of 2019 according to a report by Cushman & Wakefield. Cities and building owners are weighing their options for what to do with the vacant office space, which according to Julie Whelan (CBRE) is currently at a 30-year high. One option frequently discussed is converting the vacant space to multifamily residential - some cities are even offering tax incentives for developers to bring forward office-to-resi conversions. However, only 217 such projects are in the immediate pipeline for completion. Why? Jay Parsons details the hurdles in taking on such an ambitious project, including windowless bedrooms, lack of plumbing, and more.
• The buy-rent gap continues to grow significantly in favor of renting in 47 of 50 metros around the country, according to the latest rental report by Realtor.com. While this likely comes as no surprise, the data in this report are notable and a bit sobering. Data Point 1: During the past 12 months, the cost to buy a starter home climbed at an average rate of 21.4%. Data Point 2: Buying a starter home in August 2022 would have cost 36% more than renting, while buying that starter home in August 2023 would cost 64% more than renting. The 3 metros that still favor buying are Memphis, Birmingham, and Pittsburgh, and that buy-rent gap is shrinking quickly. Also, there is an amazing graph in the report showing the components of the buy-rent gap over the last 12 months.
• New real estate startup looks to help counteract the lock-in effect through ‘assumable loans’. Raunaq Singh started Roam this month with the goal of helping buyers get access to the 3-4% mortgage rates that current homeowners are enjoying. Approximately 22% of active mortgages are part of government programs (e.g. FHA, VA) that have assumption features. An assumable loan allows a seller to transfer their mortgage to a buyer, and the buyer is responsible for paying the difference between the home market value and the mortgage balance in cash. While assumable loans have not gained much popularity recently, it will be interesting to watch whether this new venture succeeds.
• As many as 22 million borrowers will resume making student loan repayments in October after a pause of more than three years. The average monthly payment for borrowers amounts to $275. "This will be a major financial shock and additional burden to younger renters or millennials, especially those in the low- and moderate-income group who are rent-burdened," Moody's Analytics said in a new report.

📊 PlanOlabs Insights

Proprietary insights into the SFR industry from our research and consulting team

The PlanOlabs team is constantly trying to wrap our arms around what is happening in the SFR industry, and often it is easier to simply turn to the experts. This month we had a chance to interview Andrea Finger, a Managing Director at Whelan Advisory, to make us smarter with some of the macro trends happening in housing.

Andrea provided commentary on the slowdown in SFR and BTR, including:

• What type of deals are happening right now
• Advantages and disadvantages of BTR
• What’s next for the industry

Read the full interview here.

For more industry insights from PlanOlabs, visit our blog.

🔍 I Like Big Data (Releases) And I Cannot Lie

All the relevant data releases from the past month

• The Consumer Price Index excluding Food & Energy (“Core Inflation”) increased 4.3% over the last 12 months - its slowest pace since September 2021.
• The CoreLogic Single-Family Rent Index posted a 3.1% year-over-year gain in July, the 15th consecutive month of deceleration but in line with pre-pandemic trends.
• Building permits were up 6.9% MoM in August, and single-family permits reached their highest rate since June 2022.

For the rest of the housing and economic indicators we track, check out the full blog post here.

📰 SFR In The News

Everyone knows this stuff and you should too

• ICE acquires Black Knight for $11.9B
• Poplar Homes acquires two property management portfolios
• Pretium hires former Morgan Stanley Executive as President
• AMH named to Newsweek’s World’s Most Trustworthy Companies list
• Amazon launches new affordable homeownership program

The Beaker is a bi-weekly briefing from PlanOmatic on the economy, housing, and the forces shaping both. Have something we should cover? Reply to this email.

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