Signals 🧪

In today’s edition:

• The Fed presses pause with additional increases in sight
• Pretium makes a big splash in BTR
• Rent rates soften while the supply story improves

🎯 What's Stirring

The industry is constantly looking for signals. Unemployment ticked up to 3.7% and inflation eased to 4% - will the Fed stop increasing rates? Pretium and Lafayette are buying communities - is Institutional SFR “back, baby?” Construction added a ton of jobs, existing home inventory increased and multi-family construction is exploding - is the supply shortage solved? Are the anticipated mortgage defaults in the office sector a sign of trouble for other verticals of real estate?

According to the National Federation of Independent Business (NFIB), “Indicators that have historically been very accurate predictors of recessions have been sending very clear recession signals all year, but the economy has refused to cooperate and corroborate.” The preliminary results of the Consumer Sentiment survey conducted by the University of Michigan show a MoM increase of 8% in June after sliding 7% in May, but the index is down 34% compared to June 2019. Which signal should we rely on? Which signal tells the story?

I can’t help but think of the most quoted phrase in all of SFR, “The fundamentals remain strong.” Let’s stick with that for now.

• The Fed held their target rate range steady for the first time since last January at 5% to 5.25% during their June meeting. They indicated an increase of half a percentage point by the end of the year with some analysts predicting this will be spread out over two increases. The nugget? Once the key economic indicators show that inflation has sufficiently cooled, the Fed is signaling that it won’t decrease the rates all that much with some projections showing 4.5-4.75% at the end of next year. It appears that investors need to brace for a “higher-for-longer” strategy.
• Pretium makes headlines with the purchase of 4,000 new construction homes from DR Horton as it expands its Build to Rent platform. On the investment side, it appears Pretium is betting that the gap between borrowing costs and weakening rents has reached its largest point. On the builder side, DR Horton is proving it can scale its BTR product. This deal has many analysts wondering if this is a signal that investment in single-family rental homes will resume, or if it is simply an outlier.
• Nationwide rents declined 1% year-over-year, the largest annual decline since March 2020. Why? Well, there is always the caveat that the comparison number is a near-record 16.5% increase last May, so that can’t be dismissed. There is also a rental supply story with two sides. First, more homeowners are opting to rent their previous home instead of selling it so they can hang on to their historically low mortgage rate. Second, completions for new Multi-Family buildings are up 24% year-over-year, and “under construction” Multi-Family buildings are up 17%.
• Nearly $1.5 trillion in commercial mortgages are coming due over the next three years and interest-only loans as a share of new commercial mortgage-backed securities increased to 88% in 2021, up from 51% in 2013. With an increase in borrowing costs and a decrease in demand due to remote work, commercial real estate is facing some serious challenges. “What we’re seeing is the unfortunate collision of the most rapid increase in interest rates in a one-year period and the realities of how people work,” said Gregg Williams from Trident Pacific. Interest-only loans are great when interest rates are low and property values continue increasing, but now analysts expect to see a rapid rise in mortgage defaults from the office sector.

📊 PlanOlabs Insights

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

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

 

The PlanOlabs team did a deep dive into the Indianapolis market to study the use of quality photography. The discrepancy was substantial. 80% of listings managed by Institutional Operators used quality photography compared with only 30% of listings managed by mid-market Property Managers.

We see this as an easy opportunity for Property Managers to stand out. To see more details on the study, read the blog post here.

For more PlanOlabs Insights, click here.

 

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

All the relevant data releases from the past month

• CPI increased 4.0% over the last 12 months down from 4.9% in April. This was the smallest 12-month increase since the period ending March 2021.
• In May, construction added 25,000 jobs. Over the prior 12 months, construction had added an average of 17,000 jobs per month.
• Single-Family Starts are up 18% MoM and Multi-Family “under construction” is up for the 12th consecutive month at 17% YoY.

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

• Zillow launches new marketing campaign broadening its scope beyond search
• Ownify receives $7 Million in seed funding
• Lafayette RE LLC acquires four new communities
• Poplar Homes acquires venture REI's single-family property management business
• Starwood Capital Group looks to sell 2,000 homes
• Second Avenue announces partnership with Sculptor Real Estate

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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