• Peter Ettro

Existing Home Prices Hit All Time Highs & Rent Cost Increases Still Well Above National Wage Growth

2018 has already been an interesting year for the real estate market, we've seen the most new homes built in a single month in the last decade and soaring rent prices across most major cities in the US. Looking at the current wage growth figures for 2018 so far, annual wage increases were on average of 2.7% while in 2017, they averaged 3.0%. Taking inflation into account that means wages essentially haven't grown at all, yet average rental costs have increased 3.7%.

Meanwhile, existing home prices (not new construction) have hit a new all time high, and it's likely to keep rising. Buyers paid on average $267,000 for an existing home in may according to the most recent reports, that's up nearly 3% from april and represents a 5.2% annual rise. The demand from buyers is high and the current supply, even with record development levels is still limited so prices will continue to rise until the supply vs demand imbalance is solved.

Despite the higher prices of existing homes, they are still considered a bargain when compared with new construction homes. The median price of a brand new home was $312,400 in April, almost 16.8% more than an existing home according to the US census bureau and the US department of housing and urban development. We discussed the increasing material cost in lumber and other materials for new home development in our previous post you can read here.

The rising costs may be responsible for the small dip in sales, the number of closings fell 0.6% from April to May and 3% year over year to reach 4.81 Million. The West, the most expensive region there were 1.02 million sales, down 1.9% from April and 3.8% year over year. The South saw the most sales at 2.03 million in May, Closings were down 0.5% from April, but flat from a year ago.

The rising development costs have also hampered existing homeowners who would like to use the equity they already have established to move up into larger or nicer homes.

Builders completed a massive 1,291,000 new homes in May, that's the most new homes built in a single month in more than a decade according to a new joint report from HUD and the US Census bureau. The number of finished new homes was also up 1.9% from April this year and 10.4% from May 2017.

The near future of construction looks positive. The number of permits issued to build new residences dropped 4.6% from April to May to hit 1,301,000. But they jumped 8% compared with the previous year. Permits are a good indicator of new construction activity in the next few months.

Permits to build new single-family homes dipped 2.2% month over month, but were up 7.7% year over year. Builders received 8.5% fewer permits to put up multi-family buildings (apartment, co-op and condo buildings with with five or more units) in May compared to April. But they received 9.1% more permits to put up these buildings than year earlier.

You can take a look at the Portland market specifically to see how local city Government changes to permitting and affordable housing may be stifling potential new development in the area here in our previous market update.

Ettro Capital is committed to developing affordable housing in the Pacific Northwest and providing strong returns for its investors. If you would like more information on our real estate investment fund, please don't hesitate to contact us.

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