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New Western Market Report – August 2023

New Western Market Report – August 2023

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It’s August 2023. What do real estate investors, wholesalers, and real estate agents need to know about the current market?

As of August, U.S. home prices are up 3% year-over-year despite limited supply and low demand. Homebuyers are looking for deals as mortgage rates remain high. Starter homes and those in the middle-income range are selling fast with multiple offers. There aren’t enough homes to buy even though there are 4.3 million vacant and uninhabitable homes in need of renovation. 

What does this mean for investors? 

In our June survey of 1358 New Western investors, 93% of New Western investors said they plan to purchase a property in 2023 even though inventory remains low. In fact, they report that their businesses are strong and growing as they are able to deliver inventory even with the housing shortage.

Where are these investors primarily doing business as of August 2023?

Month-over-month, these are the current, top five markets New Western is seeing the most investor activity:

  1. Salt Lake City, Utah

  2. Las Vegas, Nevada

  3. Greensboro, North Carolina

  4. Pittsburgh, Pennsylvania

  5. Boston, Massachusetts

Investor activity equals opportunity. Fellow investors are entering markets and creating comparable properties by rehabbing uninhabitable homes in neighborhoods in need of inventory. Established comps mean that an investor can go into a competitive market with a proof of concept for buying and flipping or buying and holding a property.

Let’s take a look at the stats on the current housing market:

Existing Home Sales

Existing-home sales dropped 3.3% in June and sales trailed off by 18.9% from one year ago. Unsold inventory sits at 3.1-month supply at the current sales pace, up from 3.0 months in May and 2.9 months in June 2022. Homes remained on the market for 18 days in June, identical to May but up from 14 days in June 2022. Seventy-six percent of homes sold in June were on the market for less than a month.

There is more inventory but less sales. An interesting conundrum.

And the median existing-home sale price reached a record high in June at $410,200. This is the second-highest median sales price ever recorded since January 1999, according to the National Association of REALTORS®.

“There are simply not enough homes for sale,” NAR Chief Economist Lawrence Yun added. “The market can easily absorb a doubling of inventory.”

This quote is worth repeating if you’re on the fence about jumping into this market as an investor:

The current real estate market can “easily absorb a DOUBLING OF INVENTORY”.

Pending Home Sales

Pending home sales registered a modest increase of 0.3% in June from the previous month – the first increase since February – according to the National Association of REALTORS®.

While pending transactions fell by 15.6% year-over-year, contract signings increased in the Northeast and Midwest but decreased in the South and West.

Pending home sales are a forward-looking indicator of future home sales and in this case, the outlook for next month could be more optimistic, at least for the housing market.  

“The recovery has not taken place, but the housing recession is over,” said NAR Chief Economist Lawrence Yun, “The presence of multiple offers implies that housing demand is not being satisfied due to lack of supply.”

What about new home sales? 

At the end of June 2023, the median sales price of new houses sold was $415,400 with an average price of $494,700. There is a 7.4-month supply of new homes and 432,000 new homes for sale in June 2023.

New construction is an important factor contributing to the housing shortage but it isn’t the only solution. 

“While builders continue to face a number of affordability challenges, including a shortage of distribution transformers, elevated construction costs and a lack of skilled workers, they remain cautiously optimistic about market conditions,” said NAHB Chairman Alicia Huey. “A lack of existing inventory is fueling demand for new construction, and mortgage rates are expected to stabilize in the weeks and months ahead as the Federal Reserve nears the end of its tightening cycle.”

Who are the buyers in the market according to the June and July data release?

First-time buyers were responsible for 27% of sales in June, down from 28% in May and 30% in June 2022. 

And according to Fannie Mae’s National Housing Survey, the perception of homebuyers in the market is that July was not the month to buy a home. 

Only 18 percent surveyed in July said it was a good time to buy a home, down from 22 percent in June, with the share who said it was a bad time to buy increasing to 82 percent.

Individual investors or second-home buyers, who make up many cash sales, purchased 18% of homes in June, up from 15% in May and 16% the previous year.

Distressed sales – foreclosures and short sales – represented 2% of sales in June, virtually unchanged from last month and the prior year.

All-cash sales accounted for 26% of transactions in June, up from 25% in both May 2023 and June 2022.

What about those mortgage rates?

The mortgage rate shift is a week-to-week game, if not day-to-day but current rates are now just shy of 7%. For historical reference, and potentially to ease some angst around interest rates, twenty years ago, mortgage rates were 6.34% in August 2003.

“There is no doubt continued high rates will prolong affordability challenges longer than expected, particularly with home prices on the rise again,” said Sam Khater, Freddie Mac’s chief economist. “However, upward pressure on rates is the product of a resilient economy with low unemployment and strong wage growth, which historically has kept purchase demand solid.”

Lending standards also tightened in July to the lowest level since 2013 according to the Mortgage Banker Association’s credit availability index.

Joel Kan, MBA’s vice president and deputy chief economist said, “Declining origination volumes have led to lower profitability for many lenders, resulting in narrower loan product offerings to reduce operational costs. One key driver of this month’s decline was a drop in cash-out refinance loan programs.” Kan continues, “The 30-year fixed mortgage rate averaged 6.94 percent in July, more than a percentage point higher than July 2022, and this has significantly discouraged cash-out refinance activity, as borrowers turn to home equity and consumer loans instead.”

Where are rental rates headed? 

Median rent was $2038 in July, just $16 below the record high that was set in August 2022. Rent prices might be high but rent growth remains sluggish. 

The median asking rent was up just 0.3% from a year earlier in July, compared with a 13.6% annual gain in July 2022.

“While rents are flattening out, it’s too early to say whether rent growth has bottomed,” said Redfin Deputy Chief Economist Taylor Marr. “A strong job market, cooling inflation and increasing consumer spending—which have decreased the likelihood of a recession—point to resilient renter demand. But there are still a lot of newly built apartments that have yet to hit the market, meaning rents may still have room to fall as landlords grapple with rising vacancies.”

Rents fell in the west but rose in the midwest and northeast. 

In the West, the median asking rent fell 1.1% year over year to $2,451 in July. And in the South, it rose 0.3% to $1,674—the smallest increase since 2020. By comparison, asking rents rose 4.6% to a record $2,533 in the Northeast and climbed 4.3% to a record $1,416 in the Midwest.

New Opportunity. New Western.

There is no time like the present for real estate investors to capitalize on timely opportunities. With an ever-changing market, it’s critical to have a pro in your corner who can uncover the right deals to fit your investment strategy. 

New Western agents are constantly identifying value-rich opportunities for our clients. Let us help you discover the one that fits your strategy.

Contact us to see if you qualify for access to our exclusive inventory.

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