THE BIG SPLASH

Suburbia Rising

America's suburbs are experiencing a surge in rental demand, with rents rising at a faster pace than in urban areas, indicating a potential shift in housing trends.

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• Initially triggered by the COVID-19 pandemic, when white-collar workers sought more space outside of crowded cities, this trend is becoming more permanent due to factors like high mortgage rates, soaring home prices, urban crime, and homelessness.

• According to Apartment List, suburban rents have increased by 26% since March 2020, outpacing the 18% growth seen in urban cores.

• This trend is evident in 28 out of 33 metropolitan areas studied. In some places, such as Portland, Oregon, the gap is stark, with suburban rents up 23% while city rents increased only about 2% since 2020.

• Despite challenging conditions in the housing market, including record-high prices and mortgage rates, families continue to move to suburbs, resulting in population growth. Suburbs are now gaining residents at the expense of central counties in large metro areas.

• Single-family home rents have also surged, with areas like Chicago, Boston, and Orlando seeing over 5% growth in June compared to the previous year. Real estate research firm Green Street predicts that single-family rental landlords will achieve the highest returns among real estate owners this year.

• To address concerns about rental affordability in suburban areas, some local governments have implemented rent control measures. For example, Montgomery County and Prince George's County in Maryland, as well as Pasadena, California, have passed rent-stabilization laws to limit annual rent increases.

• While suburban rents are currently outpacing urban rents, the gap may begin to close as developers respond to the demand by constructing more suburban apartments, increasing competition and potentially slowing rent growth. As suburban apartment rents approach the cost of renting single-family homes, more people may opt for home rentals instead.

A SCOOP OF MARKET ANALYSIS

The US housing market is facing an "affordability crisis" due to surging mortgage rates and near-record high home prices, says real estate expert Jenna Stauffer. The average 30-year, fixed-rate mortgage rate has risen to over 7.5%, up from about 3% at the beginning of last year.

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• Despite the higher mortgage rates, home prices continue to climb, reflecting a severe lack of housing inventory.

• Sellers are hesitant to list their homes, preferring to hold onto their lower interest rates, which has created a situation where demand exceeds supply, keeping prices elevated.

• Stauffer notes that the housing market remains unaffordable for many buyers, leading to concerns about its future.

• While there's still demand to buy homes, the limited supply and rising mortgage rates are making it difficult for many prospective buyers.

• The disconnect between mortgage rates and home prices is driven by the tight housing inventory.

• Despite the challenges, a strong economic backdrop could temporarily push prices higher. However, the affordability issue, combined with the lack of housing inventory, is expected to keep the housing market relatively muted in the near term.

• While some parts of the US economy have weathered higher borrowing costs, the housing market continues to face unique challenges.

A SCOOP OF SAN FRANCISCO

San Francisco is grappling with an alarming trend as one in eight home sellers in the city is losing money, making it the metro area with the highest percentage of homes sold at a loss in the US.

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• This stands in stark contrast to the national average of 3%. A year ago, this figure was only 5% in San Francisco. The typical San Francisco homeowner who takes a loss sells their property for approximately $100,000 less than the purchase price.

• This reflects a broader issue of affordability and an outsized drop in home prices in the Bay Area metro.

• Detroit, Chicago, New York, and Cleveland also have higher-than-average percentages of homes sold at a loss. The steep declines in San Francisco's home prices are attributed to several factors, including its already high housing costs, layoffs in the technology sector, and a decrease in popularity due to remote work options.

• These factors have led to an exodus from the city to more affordable areas.Despite this, the majority of US homeowners are still benefiting from rising home values, with 97% selling their homes for a profit.

• However, the situation highlights the growing concern around affordability in many real estate markets, particularly those that have experienced significant price drops like San Francisco.

A SCOOP OF NEW JERSEY

A New Jersey house in West Orange sparked a bidding war with an astounding 32 offers, ultimately selling for $118,000 over the asking price.

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• The colonial-style home, built in 1929 and renovated in 2019, was listed for $525,000 but sold for $643,000 due to the fierce competition among potential buyers.

• The property boasts four bedrooms, one and a half bathrooms, and sits on a 0.32-acre lot. The rapid sale of the home was driven by strategic pricing and a meticulously planned marketing approach. The owners, needing a quick sale due to relocation, priced the house to attract potential buyers and generate interest. Within a week of listing, it received 181 showings and 32 offers, all of which exceeded the asking price.

• The listing agent, Tanielle Powell of Sotheby's International Realty in Jersey City, carefully evaluated each offer, considering factors such as financing, down payment, terms, and contingencies. In the end, the winning offer not only had a higher price but also had the best terms, including waiving the appraisal and mortgage contingency, as well as most inspection issues.

• The successful sale highlights the competitive nature of the real estate market, where well-prepared listings and strategic pricing can lead to multiple offers and exceptional results for sellers.

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