Mainstream stock investors’ fears have pivoted from inflation to recession. Year-to-date, the S&P 500 is down 20%. The NASDAQ is down 33%.
Real estate investors? Prices are stable and the elevated rent just keeps flowing in.
But home prices are up nearly 2x more than apartment rents since COVID hit in March 2020 (~40% vs ~20%).
This is despite similar supply and demand dynamics.
Individual home sellers benefitted from a bidding process that captured the highest possible price.
Rents move more slowly. There’s rarely a rent bidding process and long leases take time to expire.
When will rents catch up?
Now.
National home prices are steady. Though rent growth has slowed, rents are still up big year-over-year:
- Single-family rents are up 10.2% through Q3.
- Apartment rents are up 7 to 8% through November, depending on type.
This strengthens the most basic profitability measure for real estate investors:
Simple. There’s nothing profound or esoteric about it.
Of course, trajectory of rates will play a role in 2023 too.
Fed Chair Jerome Powell raved about the strong labor market in early December.
But now that inflation is cooling, he plans to “move at a slower pace” with future rate increases.
Sure, everyone jokes about last year’s big Fed miss on inflation being “transitory”.
Half of Wall Street finance bros follow Powell and his speeches so closely that I believe they’re monitoring his sleeping patterns.
Look. Here’s what no one talks about.
Just one year ago, on December 22, 2021, the Fed expected that in one year (now), the Federal Funds Rate would be 0.9%.
It’s now about 4.5%.
So when the Fed makes predictions, realize that they’ve been… well… about as successful as your 2022 reading goal.
Mortgage interest rates have neared three month lows. But future Fed rate hikes can apply upward pressure on them again.
POLL RESULT
As a geography enthusiast, America’s regional flavors and dialects intrigue me.
I’ve noticed that Floridians and Georgians often call a fourplex a “quadruplex”. Then Aundrea told me that the Georgia MLS even calls them quadruplexes.
A poll across our social media asked:
What do you call a building that houses four families?
Here are the results from 118 respondents:
- 58% fourplex
- 19% quadplex
- 19% four-unit building
- 5% quadruplex
After significant mental processing time, I guess I can deal with “quadruplex”. But if anyone calls a single-family a “uniplex”, they’ll need to pay a point at closing.
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