Adam Neumann, former founder and CEO of WeWork has a new residential real estate startup called Flow, and it has some serious venture capital (VC) behind it. In their largest check to date, the biggest VC in the U.S., Andreessen Horowitz, invested $350M in Flow at a valuation of $1 billion, according to Rani Molla of Vox. Little is known about Flow, however, it does now own 3,000 apartments that were previously acquired by Neumann, and they are likely to be branded with amenities and may offer opportunities for renters to gain equity. Think WeWork but for apartments.
In discussing their investment, Marc Andreessen highlighted key reasons behind the record investment, citing the housing shortage and the need to bring a community lifestyle back to apartment living.
The demographic trends driving America’s housing market are impossible to ignore: our country is creating households faster than we’re building houses. Structural shortages in available homes for sale push housing prices higher, while young people are staying single for longer and increasingly concentrating in highly desirable urban centers…The residential real estate world needs to address these changing dynamics. And yet virtually no aspect of the modern housing market is ready for these changes. And so, we are excited to partner with Adam Neumann and his colleagues on Flow, which is a direct strike on precisely this problem.
According to Andrew Ross Sorkin of The New York Times (subscription required), Flow will launch in 2023 with 3,000 apartments in Miami, Fort Lauderdale, Atlanta, and Nashville. Flow aims to “rethink the housing rental market by creating a branded product with consistent service and community features.” Marc Andreessen will also be joining Flow’s board.
For a more cynical take on the above, see Business Insider’s Jordan Parker Erb’s article titled, Andreessen Horowitz’s investment into Adam Neumann’s new real estate company shows the industry is doomed.
New data from the U.S. Census Bureau shows that privately-owned housing starts in July sat at an annual rate of 1.446 million, a 9.6% month-over-month decrease and a drop of 8.1% year-over-year.
Source: U.S. Census Bureau (August 2022)
This data highlights the ongoing struggle builders are having with material shortages and high interest rates. According to Logan Mohtashami of Housing Wire, this data shows that:
[H]omebuilders are going to be done with single-family construction until mortgage rates fall. Housing completion data is still struggling to get some traction, but in the coming months, builders should be able to get more housing completions done while housing permits and starts for single-family homes are in decline. If it wasn’t for solid rental demand boosting multifamily construction this year — 18% year to date —this data line would have looked much worse.
Expect this downward trend to continue. Candyd Mendoza of MPA quotes Kelly Mangold, principal at RCLCO Real Estate Consulting, who comments that “[d]espite these challenges, the housing market continues to be undersupplied, which should alleviate concerns of any type of market crash – and there is starting to be evidence that pricing may be adjusting somewhat in light of market conditions.”
Lawrence Yun of the National Association of Realtors (NAR) comments on the data, noting that in addition to the low start data, demographic trends point to a longer-term housing shortage. That said, supply chain issues are easing which will give builders a boost, and completed homes are being sold within 3 months which shows the robustness of the housing market.
Reade Pickert of Bloomberg reports on the increase in canceled deals, where around 63,000 agreements to purchase were canceled last month, about 16% of total properties under contract. “While deals fall through for a range of reasons in normal times, the percentage of cancellations has been ticking up as sales slow down and borrowing costs rise.”
The increase in supply has led to a shift in the market, giving buyers more control than they’ve had in years. A new Zillow report outlines that home values fell 0.1% month-over-month in July, the first such decline since 2012.
Further, it took a total of 10 days for a listing to go to contract in July, a two day month-over-month jump. Here is the current total housing inventory including the month-over-month increase and decrease in inventory.
Source: Zillow (August 2022)
Diana Olick of CNBC reports that home sales fell 6% month-over-month in July, with a bigger 20% decrease year-over-year. That said, “[w]hile demand is falling off due to weaker affordability, prices remain stubbornly high. The median price of a home sold in July was $403,800, an increase of 10.8% year over year. Price gains are now moderating, though, as this is the smallest annual rise since July 2020.”
Source: Realtor.com (August 2022)
What isn’t in favor of buyers is that home prices remain stubbornly high according to Danielle Hale of Realtor.com.
“The median home sales price continued to climb, but at a slower pace for the fifth consecutive month. Decelerating prices shine a light on how downshifting buyer demand is moving the housing market back toward a more normal pace of activity. The national median home sales price rose 10.8% to $403,800, down $10,000 from June’s seasonal peak sales price.”