October Investor Intel
The U.S. economy has continued its modest growth over the past few weeks, with the labor market remaining in good shape, and housing and consumer spending continuing to be the main driver, according to data released by the Fed in its most recent “Beige Book,” which offers an anecdotal snapshot of current economic conditions. Activity picked up “moderately” in three of 12 regional bank districts: Minneapolis, Dallas and San Francisco. This is a slight downgrade from its previous report, which said the economy expanded moderately in six regions. Nearly all Fed districts reported rising residential home prices and more sales volume since the previous report was issued.
Home prices in 20 U.S. cities rose at a faster pace in the year ended August. The S&P/Case-Shiller index of property values climbed 5.1 percent from August 2014. Portland showed the biggest jump in property values since July. Purchases of existing homes climbed 4.7 percent to a 5.55 million annualized rate in September, due entirely to a jump in purchases of single-family dwellings, according to the National Association of Realtors.
U.S. homebuilders are eager to start breaking ground. Sentiment jumped 3 points in October to a level of 64 on the National Association of Home Builders/Wells Fargo Housing Market Index, which is the highest reading in 10 years. Buyer traffic, however, has stalled at 47, which is considered negative territory.
Unlike the Fed, consumer attitudes appear to be rising along with rebounding stock prices. The Bloomberg Consumer Comfort Index rose to 45.2 in the period that ended Oct. 11 from 44.8. The measure is up 5 points over the past four weeks, the largest increase for any comparable period since May 2009. A measure of Americans’ sentiment about their finances also climbed to the second-highest level since October 2007. Further, the Thomson Reuters/University of Michigan’s consumer sentiment index came in at 92.1 for preliminary October numbers—higher than last month’s reading of 87.2 and Reuters’ estimates for 89.
Does this mean raising rents for 2016 will be easier for tenants to absorb? Perhaps. In what could very well be a parallel trend for the single-family rental market, 88 percent of apartment property managers nationwide raised the rent in the past 12 months, according to a recent Rent.com survey. Of these property managers, 68 percent predict that rental rates will continue to rise in the next year by an average of 8 percent. Unsurprising, given that national vacancy rates in the second quarter of 2015 were 6.8 percent for rental housing, according to the U.S. Census. That’s down nearly a full percentage point from the same time in 2014. The last time vacancy rates dipped below 6.8 percent was the fourth quarter of 1985.
So where are real estate investors putting their money? In PricewaterhouseCoopers and Urban Land Institute’s annual “Emerging Trends in Real Estate 2016” report, top cities were Dallas, Austin, Charlotte, Seattle, Atlanta, Denver and Nashville. In BiggerPockets’ 2015 Real Estate Investment Market Index, top performers for residential returns were Dallas, Denver, Miami, Houston, Atlanta, Tampa and Detroit. The not-so-good? Hartford, Salt Lake City, Louisville and Milwaukee.
As the colder months approach and we enter a seasonal period of housing-activity hibernation, we’ll see if the U.S. economy can hold its modest pace of growth.
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