The Real Estate News Brief: Home Sales Plunge, Rent Increase Impact, Airbnb’s Party Ban

In this Real Estate News Brief for the week ending August 20th, 2022... a big plunge in home sales, rent increase impact on tenants, and Airbnb’s new anti-party technology. Hi, I'm Kathy Fettke and this is Real Estate News for Investors. If you like our podcast, please subscribe and leave us a review. https://podcasts.apple.com/us/podcast/real-estate-news-real-estate-investing-podcast/id1079952715 Economic News We begin with economic news from this past week, and a big drop in residential construction activity. The Commerce Department says that housing starts were down 9.6% year-over-year in July to their lowest level since early last year. Building permits also fell in July. They were down 1.3% compared to June. (1) HousingWire Data Analyst, Logan Mohtashami, says that homebuilders are pulling back until mortgage rates fall and home-buying activity picks up again. (2) One reason that home builders are pulling back is the cancellation rate among buyers. A survey by John Burns Real Estate Consulting shows that the cancellation rate has more than doubled since April to 17.6% in July. The firm’s data also shows a 16% cancellation rate for existing home sales or about 63,000 deals that fell through. (3) Some of the highest cancellation rates are in Florida along with Las Vegas and San Antonio. Why the high cancellation rate? As CNBC reports, there are two main reasons. One is that some buyers no longer qualify for a loan with a higher interest rate. The second is that homebuyers are worried about inflation and the possibility that home values might drop so they are simply walking away from their deals. The situation has rattled home builder confidence. The National Association of Homebuilders monthly confidence index dropped below 50 in August, which is the midpoint between negative and positive sentiment. The last time it fell below 50 was at the beginning of the pandemic. One year ago, it was 75. (4) Homebuilders are describing the situation as a “housing recession.” Existing home sales were also down again, for a sixth straight month. The National Association of Realtors says that sales fell 5.9% in July to a seasonally adjusted annual rate of 4.81 million. If you exclude the pandemic, that’s the weakest sales activity since November 2015. Although inventory was up 4.8%, there’s still just a 3.3 month supply of homes, and with an average 14 days on the market. (5) The job market remains stable. Initial jobless claims were down a few thousand to a total of 250,000. Economists say the economy has slowed down because of rising interest rates, but there’s no surge in lay-offs because the economy is still growing, and companies want to hold on to their employees.. (6) Mortgage Rates Mortgage rates dipped a little. Freddie Mac says the average 30-year fixed-rate mortgage was down nine basis points to 5.13% The 15-year was down 4 points to 4.55%. (7) In other news making headlines... Building Material Prices Move Higher The cost of building materials moved higher in July led by a surge in concrete prices. The National Association of Home Builders says that building materials were up .4%, while concrete prices shot up 2.5%. (8) The NAHB says that ready-mix concrete prices have gone up in 17 of the last 18 months and now costs about 35% more than it did before the pandemic. That’s similar to the total price increase for all building materials combined during the same time period. Rent Increase Impact on Tenants Inflation is making it difficult for tenants to keep up with their rent payments. Freddie Mac conducted a survey that shows almost all of them have been impacted by higher prices, and that 60% of them have experienced a rent increase in the past year. 40% of those tenants say they are somewhat likely to miss a rent payment while 20% say they are extremely likely to miss a payment. (9) The survey also asked about the size of the rent increases. About a quarter of the survey participants said that rent went up 10% or less. 15% said it went up 10% or more. 11% said rents were more than 20% higher. 6% said the increase was more than 30%. Airbnb’s New U.S. Anti-Party Technology Airbnb has launched new anti-party tools in the U.S. and Canada. The tools will help identify users who appear to be organizing a party. The technology will look for red flags including any negative reviews on Airbnb, whether the user is local, the length of the reservation, and whether it’s a weekend or a weekday. (10) Airbnb has been testing these tools in Australia since October of last year, and has found that they are very effective. The company says there was a 35% drop in unauthorized parties while the pilot program was in effect. The company says this new system is more robust than the “under-25 system” that is currently in place in the U.S. That program is mostly focused on people under the age of 25 without any positive reviews and are booking an Airbnb locally, indicating a possible desire to hold a party with their friends. That’s it for today. If you’d like to read more about any of these topics, check the show notes (below) for links at newsforinvestors.com. And please remember to hit the subscribe button, and leave a review! If you haven’t yet joined RealWealth, please sign up. It’s free and will give you access to our members-only Investor Portal where you’ll find data on specific markets, the property teams that we work with, and other resources. Thanks for listening. I'm Kathy Fettke. Links: 1 -https://www.census.gov/construction/nrc/pdf/newresconst.pdf 2 -https://www.housingwire.com/articles/homebuilders-are-done-until-mortgage-rates-fall/ 3 -https://www.cnbc.com/2022/08/16/homebuyers-are-backing-out-of-more-deals-as-recession-fears-linger.html 4 -https://www.marketwatch.com/story/home-builders-see-housing-recession-as-builder-sentiment-index-drops-further-in-august-11660572142?mod=economic-report 5 -https://www.marketwatch.com/story/july-existing-home-sales-fall-for-the-sixth-straight-month-realtors-see-housing-recession-11660831837?mod=economic-report 6 -https://www.marketwatch.com/story/jobless-claims-fall-to-250-000-and-signal-labor-market-is-still-strong-11660826638?mod=economic-report 7 -https://www.freddiemac.com/pmms 8 -https://eyeonhousing.org/2022/08/building-materials-prices-increase-in-june-as-concrete-surges/ 9 -https://www.multihousingnews.com/60-of-residents-saw-rent-increases-freddie-mac/ 10 -https://news.airbnb.com/airbnb-introduces-new-anti-party-technology-in-us-and-canada/