Hello Friends Old and New, It’s time for my monthly real estate report for February 2023.
If you know someone who’d like to stay updated with our newsletter, please direct them to email us at bill@jbblcapital.com.
On the single-family side, the market picked up in February with an increase in both listings and sold homes. Listings increased by 14% and sold homes increased by 41% from the seasonal lows in January. According to Rocket Mortgage, the market is now neutral again after dipping into being a buyer’s market in January. The report also stated that 59% of homes are still selling under the asking price. The San Antonio Board of Realtors (SABOR) reported that the days on the market slightly increased from 66 to 70. In my opinion, the single-family market is still holding firm and HomeHelpSA is still buying houses.
On a personal note, the house that we have under contract still has not closed. It was supposed to close two weeks ago, then it was pushed to Monday, and now it is getting pushed out until Friday. Everything looks okay, and I expect it to close soon. In other news, we are planning to put two houses on the market in the next two weeks. This will be the true test of how the market is. One is a mobile home on half an acre in Bandera, and the other is a four-bedroom, two-bath home with a pool in Schertz. I am excited to see how these homes sell and look forward to sharing the results in my next update.
But that’s not all that’s been happening in the world of real estate. Have you heard about the collapse of Silicon Valley Bank (SVB)? It was the 15th largest bank in the United States, and poor decisions in risk management led to its downfall. Bond losses, along with a slowing economy, caused many start-up businesses that banked with SVB to start withdrawing money at a faster rate. SVB had to sell their bonds at a loss to cover their withdrawals and had to disclose it to the government and the public which caused a run on the bank. The Federal Reserve took some drastic action to limit the damage to the banking system, and it seems to have worked so far. The Federal Reserve (the Fed) also decided to hike interest rates a quarter point. Prior to the SVB failure, it was widely considered that the Fed was going to raise interest rates a half a point. The Federal Reserve also removed language from the statement that said “ongoing increases” would be appropriate to bring down inflation in favor of language that suggests they will monitor inflation before deciding on further rate hikes.
What does this mean for the real estate market? I believe that we’re probably done or almost done with interest rate hikes. The general consensus was that the Fed was going to raise rates until something broke. They closed down the 15th largest bank in the US so they can check that one off their list. I don’t see interest rates dropping significantly, and I certainly don’t see them going back anywhere close to the 2.8% 30-year mortgage rate in February of 2021. My opinion is that they will hover around 6% by December, give or take half a point.
Now, let’s talk about the multi-family market. It’s been slow, but there’s been a bit of movement recently. I have seen a couple of sponsors advertise deals asking for capital, but I believe that the prices are still too high. It’s funny how sponsors who wouldn’t give me the time of day just a year ago have had their people call me personally and ask if I had seen their deal and was I interested in investing. My answer was, “Yes, I had seen the deal, and no, I was not interested in investing.” I think the prices on the deals are still too high. My opinion is that it is still too soon, and I should wait for a better opportunity. My friend who is in the multi-family construction side is saying that they are still very slow, but they are talking to a bunch of developers that want to build. The developers and the construction companies both want to build, but everyone is still having a hard time making the numbers work given the increase in construction cost and the slow down in rent growth.
On the deal where I am a general partner, the Annex, I am still happy with the property’s performance given the headwinds we are facing. I am especially pleased that the demand for their luxury package is high, and tenants have been willing to pay a little more for the upgrades. I am optimistic about the summer rental season and the future of this property as a whole.
In conclusion, I am cautiously optimistic about the current state of the real estate market. The single-family market seems to be holding firm with a healthy balance between supply and demand. On the other hand, while the multi-family market has seen some movement, I am still hesitant to invest due to high prices and an inability to make the numbers work. However, I do see potential for a shortage in multi-family housing in the next few years due to a lack of new development today, which might be about the same time we are trying to sell our current properties. Overall, I remain a firm believer that real estate is a solid investment, especially given the ongoing housing shortage in this country overall and Texas in particular.
If you know someone who’d like to stay updated with our newsletter, please direct them to email us at bill@jbblcapital.com.