Executive Summary

With official information from the Federal Reserve of the United States and Zillow.com, from January 2019 to January 2023, we analyze the behavior of inventory, prices and rental value of housing in the cities of Miami, Dallas, Houston, Austin, Denver, Phoenix, Los Angeles and San Diego.

The following pages will illustrate how:

Context

Considerable improvements in world’s connectivity and trade as well as in computing power, along with recent sanitary contingencies, have enhanced value of residential real estate assets (contrary to office real estate assets). Also, since the earlier 2000’s the inception of what is called “Sharing Economy” started to shine bringing also value benefits for idle residential assets. The advent of the Internet—and its use of big data—has made it easier for asset owners and those seeking to use those assets to find each other, optimizing and monetizing the usage of underused assets. In a sharing economy, idle assets can be rented out when not in use. In this way, physical assets are shared as services.

The U.S. real estate and rental and leasing sector anticipates stable annualized growth – exemplified by impressive 5.3% recovery growth in 2021 alone following the brunt of the COVID-19 pandemic. During the pandemic, increasing numbers of housing starts and rising house prices have contributed to positive real estate industry outlooks and industry confidence. Other industry-specific macroeconomic factors (e.g., declining urban rental vacancy rates), along with growing homeownership levels, have also helped boots performance. While this has led to some counter movement in the U.S. real estate industry, with rising home prices and catch up rents, the overall industry outlook appears generally optimistic.

The U.S. real estate industry – along with ancillary institutions and funds (e.g., REITs) – still benefit in the intermediate and long-term as housing starts increase across the United States. This, combined with growing demand, ensures a robust mixture of demand and supply-side engagement.

The following analysis will focus on comparative measures of some of the most attractive US Urban Markets.

Variables

Metros of Interest

Inventory

  • Phoenix, Miami, Dallas and Houston are (individually) more than 10 times the size of Denver in terms of units.

  • With the exception of Austin, all metros remain with less inventory than in January 2019. Miami remains as the metro with the biggest reduction in inventory (56% less, a reduction of more than 13,000 units).

-Scarcity remains present in most metros.

Prices

  • Regardless inventory contraction, Denver Houston and Dallas register less than 30% price increases since Dec 2019. Miami and Austin highlight with close to 50% increase. The average price increases among the analysed metros is 33%.

  • Price trends recedes during 2022 after important increases in 2020 and stabilization in 2021. However 2023 seems to recover the upward path.

Prices should react to inventory. The higher the contraction in inventory the higher price increases should be expected. According to inventory reduction Most metros still have room for price increases. Austin and Phoenix are remarkable due to its high price increases if compared with inventory availability. Houston is the opposite,, considering lack of availability, price increase still remain lagged.

Rents

  • Taking price dynamics into account, we might expect price increases to translate into rent increases.
  • Most metro areas present sustained rent increases,
  • San Diego, Phoenix and Miami seems to be the most resilient markets in terms of rent following prices increases.
  • Houston, Denver, Los Ángeles y Austin seem to have more restrictions or inflexibility for rent adjustments.

  • While price increased faster than rents during 2020 and 2021 for these metropolitan areas, rents have recently made catch up by increasing 33% on average.

  • As expected, rents catches up with prices protecting the performance of the asset with respect to its value.

  • In this sense, Miami and Austin present the most generous adjustments, while Houston, Denver and Dallas seem to be markets that are reluctant to adjust to the Price dynamics.

  • This dislocation compresses returns on assets over longer periods, meaning potential losses for an investor in those cities. This can be for a variety of reasons, but one important reason is local law and tenants’ rights.

Conclusion