💼 Limiting Wall Street
briefcase | invest smarter
WALL STREET LIMITS
Congress is stirring the pot in the real estate world with a spicy new proposal – the End Hedge Fund Control of American Homes Act of 2023. It's not just a mouthful; it could be a game-changer!
This bill is rolling out the unwelcome mat for hedge funds in the single-family home market. The big question on everyone's mind: How will this shake up the cozy nest of the U.S. housing market?
Let's dive in and dissect this potential real estate game-changer.
🎯 Hedge Funds in the Housing Crosshairs: Picture this: hedge funds and their Wall Street buddies are being shown the door. If passed, this act will ban new buys and force these firms to sell off their existing single-family homes over a decade. And here's the zinger – hefty tax penalties during this period, with the cash funneling into down-payment aids for us average Joes and Janes.
💦 Ripple Effects in the Real Estate Pond: Consider this potentially tossing a pebble into the housing market pond. The ripples? More homes will be up for grabs for individual investors and homeowners, possibly cooling down those sizzling prices. It would be like a housing market detox, trying to flush out the big fish and restock the pond with the locals.
🧟 The Legislative Labyrinth: Let's not get ahead of ourselves. With Congress split like a bad hair day, the bill's journey to lawhood is like a hedge (fund) maze. And it's got company – the American Neighborhoods Protection Act is tagging along, proposing a hefty annual fee on corporate bigwigs owning more than 75 homes.
These bills stir the pot, sparking fiery debates about corporate giants and the American dream of owning a home.
But what do the experts say? In a recent Urban Institute paper titled A Profile of Institutional Investor–Owned Single-Family Rental Properties, people way smarter than us found that institutional investors hold a modest 3.8% of the US's single-family rentals, with a major focus on newer, larger homes.
Mega investors, owning over 1,000 properties each, dominate this scene, with their properties constituting 78% of institutional holdings.
🔍 3 Takeaways:
Geographical Goldmine: These investors zoom in on fast-growing metros, where rent hikes are as predictable as a morning coffee. Top cities like Atlanta, Phoenix, and Dallas are investor hotspots, with Atlanta alone boasting 72,000 mega-investor properties.
Picking the Pricier Pads: We're talking newer, swankier homes here. Mega investors often snap up properties needing some TLC, leveraging their scale for cost-efficient renovations. This results in larger, newer holdings located in higher-income tracts than the average rental.
Diversity Dynamics: While not disproportionately concentrated in minority-dominated tracts, institutional properties do have a slight overrepresentation in areas with higher Black populations. However, they're less prevalent in tracts with a significant Latino demographic.
So, what's the TLDR here? These legislative moves are like a shot across the bow of institutional investors. As we enter 2024, this is a storyline worth following. Will it be a wave of change or a ripple in the pond?
Only time will tell, but one thing's certain – the conversation around homeownership and the balance of power in real estate is getting much more interesting!
HEADLINES
Balanced Growth for STRs in 2024: The AirDNA 2024 Outlook Report forecasts a period of balanced growth for the U.S. short-term rental (STR) industry, with demand expected to rise by 10.7% year-over-year, exceeding the 6.7% increase in 2023. This growth is supported by a stable economic environment and an anticipated 10.9% slower supply expansion. Despite a record-breaking July with 24.1 million nights booked, the industry experienced its first Revenue per Available Rental (RevPAR) drop of 4.9%. The report also highlights an expected gradual decline in inflation and a stable economic outlook for 2024, which are likely to positively impact STR market dynamics, with average rates rising by 2.1% and RevPAR increasing by 1.9%. Occupancy rates are predicted to stabilize at around 54.7%, aligning with 2023 levels and indicating a healthier, more sustainable market dynamic. (AirDNA)
Recession Impression: Fannie Mae and MBA economists predict a mild U.S. recession in 2024, despite improved conditions for the real estate market. With home sales likely bottoming out in Q4 2023, mortgage rates are expected to decrease significantly next year. Fannie Mae forecasts modest growth in home sales, hindered by affordability and low inventories. Conversely, MBA forecasters are more optimistic, predicting a 6.5% surge in home sales. Both organizations agree on the continued impact of Federal Reserve rate hikes and the "lock-in effect" limiting home inventories, with Fannie Mae anticipating a GDP contraction in Q2 and Q3 of 2024. (Inman)
Multifamily Madness: After two years of robust growth, the U.S. multifamily market faced a slowdown in 2023, with national rent growth decelerating to 0.4% year-over-year by November, a significant drop from the combined 23.5% in 2021 and 2022. The 2024 outlook by Yardi Matrix predicts further challenges, including subdued rent growth, estimated at only 1.5% nationally, due to factors like slower job growth, an increase in supply, and reduced affordability in some markets. Midwest metros are expected to lead rent growth, while the Sunbelt and West markets may see continued in-migration. However, multifamily sales will likely remain slow in 2024, affected by high-interest rates and pricing uncertainties. (Yardi Matrix)
BY THE NUMBERS
42%: That’s how much proptech funding is down in 2023. After a period of booming investment, funding has plummeted by 42%, leaving many companies struggling for survival. High-profile cases like WeWork's bankruptcy and others teetering on the brink highlight the sector's challenges. Startups now face a more cautious investment landscape, with investors demanding clear profitability paths, leading to drastic measures like layoffs and debt restructuring. This year marks a stark shift from the previous era of generous funding, ushering in a period of "cautious capitalism" in the proptech world. (Bisnow)
14%: Of all commercial loans appear to be in some form of distress. That number rises to 44% for offices. This is according to a report for the National Bureau of Economic Research. This raises the risk of borrowers defaulting. The fallout could potentially impact hundreds of small regional banks, with U.S. banks holding approximately $2.7 trillion in commercial real estate debt. The decline in commercial property values, accelerated by interest rate hikes and changes in work patterns, has already contributed to significant bank failures and could lead to substantial additional losses if default rates increase. (Bloomberg)
47,758: Is how many multifamily construction starts are expected by Q4 2024 according to CBRE, down from a height of 147,026 in Q2 2022.
