Location Strategy Chartbook 092024

Chair Jerome Powell used “recalibration” about 10 times in his press briefing — in other words, policymakers had to start taking interest rates down to a “more neutral rather than restrictive” level.

By cutting rates 50 basis points, Powell and all but one of his colleagues voted to go bigger than almost all economists forecast. The danger with that was that it might spook investors and the broader public into worrying that the US central bank was now worried about a looming recession.

But Powell threaded that needle, according to former New York Fed President William Dudley. He did that by highlighting that the slowdown in inflation gave policymakers the space to kick off the normalization of interest-rate settings with a bigger move.

The Federal Reserve’s rate cut is likely to be an overall positive for the stock market, at least over time. Based on the last nine major easing campaigns since the 1970s, the S&P 500 has generated 12-month average returns of 5.5% following the first cut, according to LPL Financial.

Global growth is on track to repeat last year’s performance, due to the US

It remains to be seen how the bond market will respond but as of Thursday am, the 10Y Treasury yield was up in response to the Fed Funds rate cut

The yield curve continues to steepen, with the 2-10 year spread at its widest since June 2022.

30Y Mortgage rates Friday were higher than Tuesday, pre Fed action. There is no parity / normalization in rate surveys so some lenders are quoting at .5 pt, others at .325

“Although mortgage rates have fallen considerably in recent weeks, we've not seen evidence of a corresponding increase in loan application activity, nor has there been an improvement in consumer homebuying sentiment. We think it's likely that many would-be borrowers are waiting for affordability to improve even further, and that some may be anticipating additional declines in mortgage rates given expectations that the Fed will lower the federal funds target rate. Others may be waiting for household incomes to improve further to offset some of the recent home price growth, or they may be thinking that future supply growth will ease affordability. Regardless of the lever, we expect affordability to remain the primary constraint on housing activity for the foreseeable future, and we now think full-year 2024 will produce the fewest existing home sales since 1995,” wrote Doug Duncan, Fannie Mae's chief economist, on Wednesday.

U.S. home sales fell last month, as the recent decline in mortgage rates failed to offset home prices that remain near record highs. That marked the fifth time sales have declined over the past six months.

Fannie Mae's chief economist Doug Duncan is ready call it : "Full-year 2024 will produce the fewest existing home sales since 1995" Duncan said on Wednesday

Sales of these single-family, condo and cooperative homes dipped 2.5% from the previous month, the National Association of Realtors said. The number of existing houses sold, seasonally adjusted on an annual basis, was 3.86 million in August, the lowest for that month since 2010.

Goldman Sachs Research raised its forecast for US home price appreciation to 4.5% this year and 4.4% in 2025, up from previous estimates of 4.2% and 3.2% respectively in April. The revised outlook has much to do with the loosening in the labor market, which our analysts believe will give the Fed additional clearance to cut rates.

The strongest growth in home prices, in the year to date, has occurred primarily in three parts of the US: the midwest, including cities like Chicago and Cleveland; the northeast, including New York and Boston; and California, especially San Diego. Our researchers expect California home prices to increase substantially over the next two years, with some cities like San Jose rising as much as 10% over the next 12 months.

The convergence of a slowdown in new supply and strong renter demand has led to rent increases over the past year in Abilene, Texas.

The metropolitan area’s average asking rent rose from $960 per month in the third quarter of 2023 to $990 per month in the third quarter of 2024, equivalent to a 3.4% increase.

Demand has been robust in 2024, with renters seeking out both high-end and mid-priced units. The number of occupied 4-star units increased by 100, while the number of occupied 3-star units increased by 130, year to date.

The recent uptick in the area's population bolstered renter demand. Growth accelerated slightly to over 1% in 2022 and 2023, higher than the typical 0.4% growth rate of the 2010s.

Abilene primarily consists of average-quality apartment buildings, with 3-star properties comprising two-thirds of all units. The cost for a renter to upgrade to a 4-star unit is high at more than $300 per month, which is expected to contribute to stable demand in this segment over the coming year.

As such, rents in the mid-range segment have increased the most over the past year by almost 4%, from $925 per month in the third quarter of 2023 to $960 per month in the third quarter of 2024. With minimal new supply expected over the next two years, rent growth is expected to remain within the 3% to 4% range through 2025.

From 2015 to 2019, the Tucson apartment market averaged 0.35% rent growth in August, with September capturing a 0.25% gain, the weakest month of the year historically.

Aside from June, rent gains have considerably lagged behind the pre-COVID average this year, climbing less than 1% year to date. By comparison, Tucson typically sees a 3% increase through the first eight months, including a 3.2% gain in 2023.

Though Tucson’s construction pipeline is thin compared to other Sun Belt markets like nearby Phoenix, the area has also not seen the same rebound in renter demand, keeping market conditions soft.

Annual net absorption, or the change in occupied inventory, was modestly negative in the trailing 12 months through the second quarter. The completion of more than 1,600 net new units during the same period propelled marketwide vacancy above 10% for the first time in a decade, contributing to softer rent performance.

Counter to trends seen both nationally and in Phoenix, apartment rent growth in Tucson has been strongest in luxury properties, with gains easing down the quality spectrum. Asking rents among four- and five-star complexes are up 1.2% year to date, followed by a 0.8% and 0.5% increase in the mid-priced and workforce housing segments, respectively.

August’s sales pace was down 5.3% on a monthly basis from a revised 268,940 in July and down 18.9% from a year ago, when a revised 314,270 homes were sold on an annualized basis. Sales of existing single-family homes in California remained below the 300,000-unit pace for the 11th month in a row. The monthly decline was the third consecutive decrease, and the annual decline was the 26th straight drop.

Home prices rose again from the year-ago level for the second straight month, as the statewide median price recorded the biggest year-over-year gain in 14 months. California’s statewide median price climbed 3.3 percent from July’s revised $832,400 to $859,800 in August and rose 3.0 percent from $834,740 a year ago. August’s median price was the highest in 15 months and the highest since California reached its peak price of $893,200 in May 2022