June 27, 2023 | Driving It Home with ABoR's Housing Economist

Still-elevated home prices and mortgage rates continue to dampen purchase affordability for potential buyers—particularly first-time buyers. All else equal, this raises the demand for single-family rentals, the most comparable alternative to purchasing a home. In May 2023, while the median sales price and closed sales fell 15% and 4% YoY, respectively, the median rent and closed leases measured 0% and 4% YoY, respectively. In other words, while higher rates precipitated a moderation in sales, it resulted in a rise in closed leases. As some investors and builders have at least temporarily stepped out of the market for single-family rentals (again, a factor of higher rates—investors are currently more inclined toward assets that pay higher yields, while builders face higher costs of capital), we expect the growth in the supply of new single-family rentals to moderate. All else equal, this will induce upward pressure on rent growth. Week-over-week, residential sales, and leasing activity moderated. In the Austin-Round Rock-Georgetown MSA, both closed sales and closed leases were down 23.7% on a weekly basis. Meanwhile, pending sales were down roughly 6%, and pending leases were down over 7%. Three phenomena are at play here: - Juneteenth, a federal holiday which fell on June 19 and thereby resulted in one fewer business day last week, - the summer vacation season, which delays closings and pending offers, and - still-elevated mortgage rates (which averaged 6.67% last week, only slightly lower than the recent high of 6.79%). Overall, we anticipate more moderate activity over the next several weeks, particularly as next week heralds the Fourth of July, which falls on a Tuesday (meaning business will be slower on Monday). In other words, seasonality, which isn’t reflected in the week-over-week comparisons, is at play here. Stay tuned for the release of our June housing stats in mid-July, which will provide clearer indication of residential activity. Don't forget that Dr. Losey will present the Buy vs. Rent Index at the upcoming Central Texas Housing Summit on July 26. Don't miss it–save your spot here: https://www.abor.com/event-type/central-texas-housing-summit Download the Audio Transcript + Episode Summary: https://www.abor.com/content/uploads/2023/06/DIH-6-27-2023.pdf Connect with us on socials: https://www.abor.com/socials Connect with Dr. Clare Losey on LinkedIn: https://www.linkedin.com/in/clare-losey