Industry Roundup: Location Timing, Retail Migration, and Net Investor Contributions

Welcome to our industry news round-up, where we cover the latest real estate trends and location insights.

Location timing matters much more than mortgage timing.

Source: Wall Street Journal

A Wall Street Journal piece claims that ‘timing matters more than location’, pointing out that wealth building diverges considerably based on low vs. high mortgage rates. In fact, market choice and market timing matter dramatically more. 

Graph 1 (left) shows mortgage rates can substantially change the home price affordable by households. The article further points out the wealth accumulation chasm between households that locked in low rates and those that got higher rates.

However, graphs 2 and 3 (right) highlight that WHERE you buy can have a far greater impact on wealth accumulation. Compare markets that saw a ~250% growth in home value since 2000 (top performers in purple) with those that saw near zero growth in value over that same period (bottom performers in orange).

A closer look at graphs 2 and 3 reveals the massive difference in gain (or loss!) between those who bought in 2000 and those who bought in ~2007, 2015, 2019, etc.

Real estate decisions are always both location and timing decisions. Markets have cycles. Some are market-wide, like the GFC collapse. Others are more regional or local, like price declines on the West Coast along with continued price rises on the East Coast and parts of the Sunbelt.

No one wants a high mortgage rate. However, waiting until rates fall might mean missing out on a market choice opportunity. A low rate in a stagnant market, like the orange ones in this graph, might also be a bad investment in terms of wealth creation. 

So yes, timing matters — but market timing usually matters most.

Grocery stores moved far out, while restaurants and general retailers gravitated to the inner burbs.

Source: JP Morgan Chase

The pandemic drove households and shops out of dense urban cores, but there was a huge variation in how far they migrated out. Grocery stores moved far out, while restaurants and general retailers gravitated to the inner burbs. 

How is this changing the urban fabric?

Access to food matters. Access to diverse amenities and shops matters. Together, they account for the majority of household destinations, which in turn determine household transportation patterns.

As grocery stores move away from city centers, more households need cars to access them. That has implications for affordability and emissions.

Investor home sales are up along with investor home purchases, resulting in little net change in investor ownership.

Source: Realtor.com

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The graph above shows investors’ net accumulation of single-family homes in the US housing market. The uptick in investor home purchases has been accompanied by a similar uptick in investor home sales, leading to little net change in investor ownership.

The purchase of single-family homes by investors and their conversion to rental properties have created a great deal of controversy and debate in recent years. However, as indicated here, sales have more or less offset purchases.

In the last few years, there has been a steeper net increase in investor-owned homes (see red ‘deficit’ on the top graph). It may seem like a lot, but in a market where 4.5M homes are transacted each year, the net acquisition of 10-15K homes by investors per period isn’t that much.