Hello and welcome to another episode of Passive Real Estate Investing. I’m your host, Marco Santarelli, and this is the only and first show on passive real estate investing. I started this show back in 2015 and it’s been a great success. We’ve got literally tens of thousands of listeners all around the world, mostly in North America. I get emails literally every week thanking me about the show, asking me questions. I respond to many of those questions via email. I keep some of them and I batch them together for the occasional Ask Marco episode. So if you have a question about real estate or real estate investing, or the economy or housing or investing in general, or even a personal question, by all means send it over. I will certainly consider it for the show and I do my best to respond to every single one of them.
But again, you know, like I started the show back in 2015, I aptly titled this show, Passive Real Estate Investing. Although it’s not just about real estate investing, it’s about investing in general and the economy and finance and money and currency and mindset and personal development. So I hope you enjoy the show and appreciate it. Remember to subscribe. It only takes you three seconds to subscribe to the show, whether it’s on iTunes or Stitcher or anywhere else or even on YouTube. We’re starting to slowly migrate all of this stuff onto YouTube. It’ll take a little while, but we’ll get it all there. And then ultimately it’ll be a channel that mimics the show itself. But today it’s another episode of housing trends and market updates. So with that, let’s look at where we are with the economy, mortgage rates and the housing market in general.
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Let’s also consider what to expect going forward with real estate prices and housing supply and demand, because that will impact you as a current or even future real estate investor. It’s good to look at trends and the big picture, but you’ll also want to keep an eye on your local markets that you invest in or markets that you’re considering to invest in because you want to know what’s going on in terms of housing trends and anything related to the market that may drive the market up or drive the market forward or maybe pull the market back. And of course, my team of investment counselors are here to help you if you ever want to take a deeper dive into anything. And everything that I talk about on this show, and there are so many different episodes, it’s not just a mono color monotone type of show.
I talk about a lot of different topics. I try to mix it up, not too much, but I do mix it up. But if you want to talk to my team of investment counselors about anything I talk about on the show and take a deeper dive as it relates to your real estate investing goals or just real estate in general in an effort to help you because we feel that if we help you, you ultimately work with us and it’s a win-win symbiotic relationship. But with that, let’s jump in. So today I wanna start with a conversation about affordability, because this is something that’s talked about in the media a lot. In fact, almost all the time it’s certainly on your mind because affordability applies to your own housing as well as your customers, meaning your tenants that are buying into the, into the space you sell called a rental property, whether it’s an apartment or a single family home or something in between.
It’s really your product. It’s the rental space, the housing, the living space that you provide. So affordability is still poor, but technically it isn’t the worst it’s ever been. Affordability, which is in our case here, defined as the median housing cost divided by 125% of the median income ratio. So in other words, what I’m saying is if you take the median housing cost and divide it by the median income of the people in that area, that market, whether it’s a local market, a neighborhood or the country, this is what gives you affordability or the affordability index. So if you look all the way back to 1982, we kind of peaked at a very unaffordable 52.3%. That is a very, very expensive housing cost. If you look at the trough where it was about the lowest since the early eighties, we were at about, I’d say about 22, 20 3% in 2012 going into 2013.
That is very affordable. The new norm going forward, if you average it out since the early 1980s is about 32%. 32% has been an average, or let’s call it the new norm for housing affordability. Where are we right now? Well, as we closed out 2023 housing affordability, or I like to say in affordability or unaffordability, was essentially at 44.6%. So let’s call it 45%. That’s pretty expensive. You know, if you really think about it, that means that on average a family needs to spend about 45% of their income on housing. And that’s what we mean by affordability. So in order to get back to historic norms, which is 32%, we would have to see one of the following. We’d have to see a 47% wage spike, a whopping 47% increase in the average person’s wages in order to get back to a normal affordability index.
Or we’d have to see a whopping 30% drop in home prices, which would take us all the way back to to December, 2019 levels. So this is pre covid. So 30% drop in home prices to get us back to that, that normal 32.1% affordability index. Or we’d have to see mortgage rates drop all the way back down to 3.2% in order to adjust that affordability index to bring us back to the norm. So this is a very interesting thing to consider. So again, we are still in unaffordable times, but affordability is still not the worst. It’s getting better. Mortgage rates continue to drop, but you know, you’ve got to put that into perspective. So as we were closing out last year, 34% of households were experiencing what some refer to as an affordability crunch. But that also means that about 66% of those out there were not experiencing this crunch.
And so this kind of creates an economy where we have the have and have nots. It’s not literal, it’s not that black and white, but there are people who don’t struggle to afford housing. And then there are those who do struggle for housing. And those people are your tenants, your renters that are pushed into that market or demographic, not necessarily all of them, because many of them wanted to rent, choose to rent, and are already renters. So it doesn’t really impact those people. But if we take the 132 million people or so, the 132 million occupied households actually in the country, about 27% of those or 35 million are owners and have no mortgage. About 9% or 12 million of those are owners with a mortgage less than 3%, which is incredible. About 14% of that pool or 19 million are owners with a mortgage between three and 4%. About 8% or 10 million of those are owners with mortgages between four and 5%.
And then 11 million of those people or another 8% are owners with mortgages above that 5% rate. So you can see that the greatest majority of the country are owners that have homes with a mortgage or even without a mortgage. So what does that leave? It leaves about 45 million people or 34% of that 132 million people, and I keep calling them people, but they’re really occupied households. About 34% of those are renters. So when you stomp to think about this, about one third of the country, 34% or 45 million households are rentals. They’re renters. These are people who need housing and they get it from investors like you and I. We provide safe, clean, functional housing to about one third of the country’s households and provide them that safe, clean, functional shelter. And this is where the opportunity is as a real estate investor, we just provide them a hard asset known as real estate, a place to live at an affordable, in quotes, affordable price where they are happy to live and happy to stay.
And that helps us because it creates our cashflow and it builds our wealth. So it’s just interesting to look at where the household breakdown lies in terms of those that own with a mortgage, those that own without a mortgage, and those that are left in the rental pool. So anyway, it’s pretty interesting. But you know, to kind of sum that all up, affordability is still a big issue, but not for everybody. And that has resulted in, again, I say this in air quotes, you know, a have and have not economy. So not everybody wants to own, keep that in mind. There are people who want to rent, like to rent and will always rent, and that’s great. They just contribute to the rental pool. And we want to, as real estate investors, provide them with the type of housing that they need. Secondly, the Federal Reserve has noticed this.
They are seeing that pullback, if you will, from this growing demographic of have nots and have held rates steady. And as you know, more recently we’ve seen these rates put on pause, and there are full expectations that the Fed will start to cut rates here fairly soon, probably as early as April and maybe even aggressively. And I am predicting that there will be three rate cuts in a row with each Fed announcement about what the plan to do with the Fed funds rate. So mortgage rates are expected to fall in 2024, in part due to hopes that, you know, the Fed has done, you know, their quantitative tightening and they’re gonna now move to quantitative easing. Plus it’s 2024. We’re now in an election year. And you know, as it happens virtually every single time, the Fed likes to ease on their rate cuts and help juice the economy by making money cheaper and helping, you know, wall Street and other people who have access to cheap capital because rates are falling, generate more revenue, more profit, and more tax income.
And then lastly, you know, there’s been an increase here over the last year or so with increasing rates for more creative financing, especially from new home builders. But the consumer has been looking at more creative financing to help either sell or purchase real estate. And this is a form of stimulus in a way. It’s helping to address the affordability problem people just put on their thinking caps and become more creative. Now let’s look at home prices and changes in home prices. When we look at new home prices, they’ve been falling in areas of the country, regionally speaking, in the southwest in Texas and in the Northwest, we’ve seen new home prices fall in the northwest, a mild 1% in Texas, about 2%, and in the southwest a 3% drop here year over year as we close out 2023. But interestingly enough, southern California is the strongest in the country.
We’ve seen new home prices increase by whopping 6% it far past everything else in the country. So that’s a pretty good year over year change. Second on that list was the Northeast with a 3% increase. Florida had a 2% increase year over year in net price increases. The southeast 2%, Midwest was 2%. The national average was only 1%. When you take all the regions altogether, Northern California was flat at 0%. So, you know, this just goes to show the trend. Now, if you looked at these numbers six months ago, closer to the middle of 2023, these numbers were all much higher. We saw appreciation much, much stronger. But as things cool down towards the second half, and especially the last quarter of 2023 with high mortgage rates, higher mortgage rates, we saw these year over year numbers drop. But you know, for the most part, they’re still reasonably strong overall.
What we’re gonna see going forward here in 2024 are builders ramping up or escalating the number of homes that they’re going to be building. It’s estimated to increase by 17% this year over last year, leading the way of Southern California with an increase of 39% this year over last year. So that’s a big increase in the production from new home builders. Northern California is also weigh up there at 32%. The national average is 17%. You know, as I mentioned a minute ago, the southeast 21% Northeast 20%, Southwest 20%. So even the worst on this list is Florida with an increase of 8%. Now granted, Florida has a lot of new construction going on and has had for many, many years because so many people moved to Florida. But we’re gonna see that increase this year, but not as much as the rest of the country.
8% is still a healthy increase. Now, when we look at resale demand and supply, there is still a low, relatively speaking, low demand for resale homes. And I’m comparing this year over year, but that demand still exceeds the low resale supply. What that means is this demand still outstrips supply. We still have an imbalance between supply and demand that’s pushing prices up. It’s making inventory difficult to find. It is a problem if you’re looking to purchase, looking to find a home or looking to find an a rental property. It’s pushing rents up, but it’s pushing prices up. And so if we look at, you know, going into November of 20 23, 60 1% of buyers outnumber sellers. In other words, if you look at housing supply, 61% of the markets have buyers outnumbering sellers. So that means strong demand lighter on the supply side, 22% of the markets around the country are roughly equal, meaning that there’s a a balance between supply and demand, meaning there’s a balance between the buyers and the sellers.
That’s an equilibrium market. 22% and only 17% of the country has sellers outnumbering buyers, meaning that it’s a seller’s market. This is very interesting. It’s a relatively small amount, but for a long time now, for many quarters, we have seen a strong buyer’s market, meaning there are more buyers than there are sellers. And that peaked right around. If you look at LA the last few years, that peaked right around January, February, March of 2022, and then it started to drop, and then it started to go back up again mid 2023. And now it’s starting to come back down again. And a lot of that has to do with increased mortgage rates. But you know, we still have across the country, generally speaking, a seller’s market. Sellers have an advantage over the buyers because there’s such low inventory and, and strong buyer demand that sellers can almost ask for whatever they want within reason, as long as they’re priced within the market.
But it’s hard to negotiate with many sellers today because there’s such low inventory. Now in terms of resale market pricing, the resale market pricing is more balanced than in the new home market in terms of new construction. So if we look at this last quarter in 2023, what direction have resale home prices moved? Well, 25% of the markets have been increasing. About 23% of the markets have been decreasing, and about half 52% have been mostly flat. So we’ve seen market pricing really stagnant. Now, this kind of flies in the face of so many people saying that we’re gonna have a market correction or a market crash that hasn’t happened, and it’s not happening. 23% of the markets indicated price declines, but another 25% had price increases. The majority of them about half stayed flat. And so again, you know, we look at these increasing mortgage rates and see how that impacts consumer demand and consumer confidence and what, you know, shifts we see in the markets.
We don’t see a lot of changes from month to month to month. You know, we saw back in April of 20 23, 40 8% of the markets had pricing increases. 13% were decreasing and 40% back then were stagnant or mostly flat. So the trends change, but not dramatically. This was actually the largest changes back in October, November of last year. And I’m gonna be getting some updated information here very soon. So by the time I do the next episode of this housing trends and market update, you know, we’ll have some more interesting numbers to consider. But really just to kind of draw some conclusions from all that, sales are slowing down, but that is because of seasonality more so than anything else. Yes, mortgage rates have something to do with it. The decline that we’ve seen in first time home buyers is more significant now than it has been in the past.
And this is largely due to a decline in current homeowners purchasing another home like moving up or moving laterally. So again, that creates a lack of resale inventory in the market. And so there’s less out there for buyers to choose from. And new home prices are declining slightly primarily through the use of increased mortgage incentives. But new home prices have come down because of increased mortgage rates. We are expecting resale prices to decline a little bit more going forward. But as mortgage rates start to come down this year, you’re gonna see that turnaround again. And as I mentioned before, we’re gonna see builders start to ramp up production, not dramatically, but we’ll see about a 17% increase in new home starts this year into next year. Now, as far as rent growth goes, the single family residential rent growth has been pretty darn resilient, even with apartments, but more so with resale homes and build to rent.
So what we’ve seen as of late going into October of last year, which is less than a quarter away apartment rent now this is looking at an index, of course, you know, this is an index of multiple markets, but apartment rent growth has been, eh, kind of flat, but about 0.7%. So not even 1%. The build to rent market, which is new construction homes, has been flat. These are typically more expensive homes on a price per square foot, all else being equal. And so when you get into new construction space, you don’t see an increase as much in the rent growth for various reasons. I’m not exactly sure why. I think it’s because those rents are relatively speaking higher than the resale market surrounding those neighborhoods. But here’s what’s interesting. The single family rental space has increased 3.8% year over year as we were closing out 2023.
So when you look at the national rent growth year over year change, the highest was in single family rentals. This is the resale market close to 4% year over year. The apartment growth is almost 1% at 0.7%, and the build to rent market has been relatively flat. But let’s just look a little further back in late 2022 well, actually let’s go further back. If we were to look at what that year over year rental growth was back in, let’s say March, April, may of 2022, for comparison’s sake, the single family rental space increased almost 8%. The apartment rents grew 14.6% with a huge number. And for comparison, the build to rent space, new construction homes broke 16% at 16.1% in early 2022. That’s how much of a change there was year over year. So it’s interesting to see what was happening then and compare it to what we’re seeing here today.
But one thing is for sure that for the most part, rents have continued to go up year over year, month over month for many years now, is really only the apartment space that took a dip and went a little bit negative from May, 2020 through to about May, 2021 during that one year period. And again, you know, this was in the, you know, the early stages of, of Covid. Now apartment rent growth did slow down here recently. In fact, it is changing almost at about a 0.7% year over year growth. A lot of the people that listen to the show here are not so much apartment rental investors, although they do own some, but yeah, it’s relatively flat right now. And here’s maybe some good news. If you’re an individual real estate investor, investment purchases by institutional home investors have dropped dramatically. Significantly. If you look at the year over year change in institutional home purchases, we are seeing drops.
Now, by the way, these are institutions that typically own a thousand properties or more. These are institutional buyers, ibu, et cetera. In Las Vegas, we saw an 84% drop in the home purchase activity. Same thing with Phoenix. And same thing with Austin. Tampa was a drop of 82%. Charlotte was a huge drop. Miami was a huge drop. Cincinnati 79% drop Indianapolis, a 79% drop on the lighter side of this drop was places like Nashville with 63% drop in activity. What does that mean to us? It simply means that there are a lot, there should be more inventory out there because these institutional buyers are purchasing less, meaning there’s, you’re seeing last meeting, there’s more inventory, however limited that may be, but more inventory for us as real estate investors looking at these markets, especially markets that we are in and we’ve been in for many, many years, like Indianapolis, Houston, Jacksonville, Nashville, on and off, Dallas, Atlanta.
Let’s see, what else do we have on this list? On and off, we were in and out of Tampa, just inventory based Charlotte, certainly Cincinnati. So that’s a little bit of good news for us as real estate investors is it gives us some more breathing room to find the the inventory that we want and even build to rent. Rents are falling and actually they have fallen for the first time since data was started, you know, being collected back in 2019. So year over year rents peaked somewhere around late 2021, early 20 22, 16 0.1%. That was the COVID-19 market peak is right around there right now. Those rents are essentially flat and, you know, to just bring this data all together. I know I’m throwing a lot of numbers at you, but just to kind of summarize or draw some conclusions about the four rent and investor market, rent growth has slowed down practically for all segments, even though the sales affordability problems driving demand in the rental market have shifted the markets considerably here over the last year or so, the single family rental market has been more resilient than other sectors like the apartment sector, while apartment supply has been weighing on the fundamentals.
And lastly, higher interest rates have slowed investor activity down dramatically, but we see that turning around here in 2024. And then let’s kind of wrap things up here with some regional rankings, meaning that I’m looking at what regions have appreciated the most and depreciated the most. If we look at the regions of the us, which is essentially the northwest, Midwest, northeast, and then we have Northern California, two halves, northern southern California, southwest Texas, southeast, and then we have northern Florida, Southern Florida. Here’s what’s been going on. If we look at the Northeast, the greatest underperformer in the northeast was Baltimore. It had a 6% year over year home price appreciation, which is pretty good. It’s, it’s actually really, really good. And then the over performer is very, very close to that. It was a 7% year over year home price appreciation. So the northeast has been doing quite well, but that’s that’s the under an over performer there in the Midwest, our underperformer, it was Minneapolis at a 2% year over year home price appreciation and the over performer is a market we’ve loved for a long, long, long time, well over a decade.
And that’s Indianapolis with a 7% year over year home price appreciation. Interestingly enough, that market has also saw a 4% increase year over year in the single family rent growth. Well, Minneapolis also saw year over year rent growth of 3% in the southeast Nashville was the underperformer at 1% year over year price growth. So it’s essentially been a flat market. Atlanta is the over performer in the southeast at 4% year over year. Interestingly, we saw year over year rent growth drop in the multifamily space by about 4%. But single family rent growth, this is why I love single family rentals increased 3%. Nashville grew by 5%. By the way, Florida, the underperformer was a 1% year over year home price appreciation for Fort Myers specifically, even though rent growth in Fort Myers grew a whopping 6%, Miami was the over performer. But that is not an investor friendly quote unquote market in my opinion.
Just because pricing is so high and the rent to price ratio there is really not that favorable for real estate investors. However, being a major tier one market with lots of demand and expensive prices home prices, it still saw a 9% euro over year home price appreciation and even single family rent growth was a whopping 7%. So go Florida, Texas, an interesting market, San Antonio was flat at 0%. Rent growth was relatively flat at 2%. So that was the underperformer. But Dallas was still one of the stronger performers in the Texas market at 3% year over year and also saw a 3% year over year rent growth. As we look at the Southwest, the over performer, there was Salt Lake City with a 4% year over year price appreciation and a whopping 6% year over year rent growth. So Salt Lake City was the over performer, but the underperformer was Las Vegas with only quote unquote 2% year over year home price appreciation and a flat rental market.
It was actually a 0% year over year change in rent. So that was a southwest. If we look at California, the underperformer was San Francisco with 2% year over year growth, 1% in the rental space in terms of growth. But to no one’s surprise, orange County, California in Southern California was the over performer with a 10% year over year price appreciation and rents growing a whopping 7% year over year. Orange County is just a small county with limited space, strong demand, and so many people want to move and live there. So it really is, you know, the shining star in California. And last is the Northwest. Boise, Idaho was now the underperformer there 1% year over year, 3% in rent growth. Seattle was the over performer. 6% year over year price appreciation and still a 2% year over year single family rent growth.
So there you have it. If I was to draw a conclusion about these regions, we can just see that home prices have risen slightly in most of those markets. Nothing crazy like we’ve seen in 2021, single family rents continue to grow pretty much modestly across the country. There are some outliers. The apartment markets space has slowed down quite a bit and new supply that’s coming online is going to add further downward pressure in many of those markets on price. So not a great time to be an investor in the apartment space, nor do I think it has been for the last year or two. But again, you know, all markets are local and there are always reasons why some markets will shine and outperform others. This is why, you know, you need to keep focused on your local markets and have local market knowledge and keep track of the trends and whatever else is going on.
So in wrapping up, you know, this was a lot of information and data to cover in a short period of time, and I apologize if it was too many numbers coming at you too quickly. But you know, I’m gonna adjust and modify how I deliver this information going forward and try and provide you as much value as I can with the data that is out there. But again, you know, we expect the the Fed to continue to pump the brakes and pause. Their rate increases and we do expect rates to start coming back down. And in terms of housing, you know, these high rates continue to weigh on the for sale market, the rental market, and with investors. But resale home prices, you know, will continue to appreciate. Slowly new homes will continue to come online, although not as fast as years passed.
And rent growth will continue, although it has slowed significantly and for many markets will continue to slow down. But rental demand is still strong. Housing affordability is still a problem. Rental demand is high, supply is low. And we are gonna see, you know, a favorable tailwind for real estate investors into 2024 and throughout 2025. So, you know, I still remain bullish on housing in general. And as I always say, it’s not a question of when should I invest, it’s a question of where should I invest. There are always opportunities and deals.
And again, that’s something you can have a conversation with my team of investment counselors about. They’re they’re here to help you and we of course love to help you. So I’m gonna wrap it up there. I appreciate you listening. Remember to subscribe to the show. If you have a question about real estate investing, contact me and my team. Help us spread the word. Please visit us on iTunes. Leave us a, a rating and review. I like to read all of them, and I do. And that is it for today. Thank you for listening. I’ll see you all on our next episode.
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