June Housing Market Update
Welcome to the Darwin Investor Briefing - a recap and our analysis on recent economic and real estate news that impacts our clients.
1) Lack of "Trickle Down Economics" will likely hurt service sector workers for quite some time. In a recent analysis of economic activity by zip code, consumer spending dropped quickest in zip codes with the highest income levels, and have not recovered as fast as middle and lower income zip codes. ~70% of the US economy is driven by consumer spending. Because of that, what is often a logical personal choice (decrease consumption to increase financial reserves during a time of uncertainly) is problematic on a macroeconomic level (if none of us go out and spend, unemployment will rise, creating more fear and savings...).
Those at the upper end of the income spectrum have greater discretionary spending, which when going full steam, drives jobs and income in the service sectors.
What does this mean for a real estate investor? Collections will continue to be a challenge in Class B/C housing, and property types that are over-indexed with service sector employees. New investment dollars will continue to flow to safer asset classes, such as single family rentals.
2) May home sales in Austin remain strong (tune in next week for updates on the other markets, as data is released). The biggest news is not new, but a continuation and further exacerbation of a pre-COVID trend - lack of inventory. We had a 35.3% reduction vs. last May in closed sales. New listings in May improved (only down 16.2%, an improvement from April), but we still have only 2.6 months of inventory (a balance market would be 6-6.5 months).
Prices are still rising steadily - median sales price was up 1.7% vs. YAGO, and average & median sales prices per square foot also increased ~3%.
It's a competitive market out there for buyers, especially those looking for investable/rentable homes. Given reduced levels of new inventory coming on the market, and low interest rates, we don't anticipate that changing in the near future.