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Speed of home sales slows in October 2021

Speed of home sales slows in October 2021
by Brad Cartier, posted in Newsletter

According to a recent Redfin report, a third of sold homes in the past month went under contract within seven days of listing. This pace has been increasing, during a time when home sales speed typically slows according to Redfin:

“It’s likely that the market is speeding up now because homebuyer demand is holding steady and strong; home tours are up twice as much from January as they were at this time in 2019. Yet homes for sale remain few and far between.”

The supply of listed homes for sale is down substantially from 2020.

Active listings down substantially - Redfin

Source: Redfin (Oct. 2021)

Brooklee Han of Housing Wire reports on National Association of Realtors (NAR) data showing that pending home sales fell 2.3% in September month-over-month after rising 8% in August. That said:

“By the end of 2021, the NAR expects home sales to have risen by 6.4%, but due to higher anticipated mortgage rates, the NAR predicts that sales will decline by 1.7% in 2022. As a result, [Lawrence Yun, NAR’s chief economist,] predicts that home prices will grow only 2.8% in 2022.”

In commenting on the NAR data, Diana Olick of CNBC reports that sales likely dropped due to higher interest rates and that low inventory will continue to be a challenge for would-be homebuyers.

“Regionally, pending sales in the Northeast fell 3.2% month over month and were down 18.5% from a year ago. In the Midwest, sales dropped 3.5% for the month and 5.8% annually. Sales transactions in the South decreased 1.8% for the month and 5.8% from September 2020. In the West sales fell 1.4% monthly and 7.2% from a year ago.”

National rents

Apartment List released its monthly rent report, and there were a few key highlights that investors should note.

  • National month-over-month rent increased by 0.8% between September and October, the slowest growth rate since February.
  • Since January 2021, the national median rent has jumped 16.4%.
  • 22 of the 100 largest cities saw rents fall in October.
  • Tampa, FL: Rents are up an astonishing 36% compared to March 2020.
  • The largest rent decreases since March 2020 were in San Francisco (-12%) and Oakland (-8%).

Month over month rent growth nationally - Apartment List

Source: Apartment List (Nov. 2021)

“Although the pandemic created some softness in the rental market last year, 2021 has brought the fastest rent growth we have on record in our data. Nationally, and in nearly all individual cities across the country, rent growth in 2021 has exceeded average growth rates from pre-pandemic years. This month however, that record-setting growth is finally showing signs of a meaningful slowdown.”

Also of note, Apartment List reported that vacancy rates have been hovering just below 4%, which is a significant decrease from the typical 6% rate we saw pre-pandemic.

Vacancy rates dropping - Apartment List

Source: Apartment List (Nov. 2021)

Last week, released their rental report for September, giving the following data points:

  • In the 50 largest metros, median rent sat at $1,654, up 13.6% year-over-year.
  • This is an additional $198 per month for renters.
  • Compared to September 2019, the median rent increased 15.5% ($222).
  • Rents by unit type: Studio: $1,351, up 11.3% ($137) year-over-year; 1-bed: $1,542, up 13.7% ($185); 2-bed: $1,855, up 14.4% ($233).

Rent growth by unit type -

Source: (Oct. 2021)

Annie Nova of CNBC comments on the reality of rising rents, noting that renters should be almost always negotiating with their landlords. “While it’s true that most tenants in the U.S. aren’t protected by rent control policies, some are. Meanwhile, others are helped by requirements they be given a certain amount of notice before their rent is raised. And, in almost all cases, it’s worth trying to negotiate with your landlord for a better rate, experts say.”

iBuying update

iBuying platform Zillow has been in the news recently with commentary on the halting of its purchasing program. Patrick Clark and Noah Buhayar of Bloomberg report on the underlying story succinctly:

“Faced with the fastest-rising real estate prices in U.S. history, Zillow Group Inc. tweaked the algorithms that power its home-flipping operation to make higher offers. It ended up with so many winning bids that it had to stop making new offers on properties. Now, after buying more homes in the third quarter than it ever has before, the company is working through a backlog of houses that need to be fixed up and sold while facing an unpleasant reality: Slowing price appreciation means it will sell many homes at a loss.” 

Business Insider reports on the platform purchasing thousands of homes over the past year, but abruptly halting this program mid-October, sending Zillow stock prices lower.

“[T]he majority of its homes in its five biggest markets, in places like Atlanta, Phoenix, and Houston, were listed for less than what Zillow paid to purchase the homes. The numbers were particularly striking in Phoenix, where it’s listing more than 90% of the properties for less than it paid.” 

Zillow is seeking to sell around 7,000 homes according to the above report, representing a value of approximately $2.8 billion.

In a second Business Insider article, the authors analyzed Zillow owned listings in Atlanta, Phoenix, Dallas, Houston, and Minneapolis, finding that 64% of them were listed for below the original purchase price.

This is particularly concerning given that most major markets currently favor sellers, and home values have been increasing.

Tom McKay of Gizmodo reports that in just August, “Zillow raised $450 million from a bond backed by houses it had hired but not yet sold, and CEO Rich Barton said the company was on track to buy 5,000 houses a month by 2024.” The algorithm-led iBuying program flopping like this spells serious questions for this aspect of Zillow’s predicted revenue stream.

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