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Apartment Sales Fall Amid Rising Costs, Widening Bid Ask Spread

Apartment sales fell as the cost of equity and debt financing increased in July, but demand still remains strong in most markets relative to supply. Continued interest rate hikes from the Fed have translated into higher long-term rates and a higher cost of both debt and equity. While these higher rates have cut into investor proceeds, so far many sellers are reluctant to lower prices, causing a sharp drop in sales volume.

LET'S TALK ABOUT IT

June's Average Multifamily Rent Topped $1,700 for the first time. Yet it's clear that rent growth is starting to moderate.

So Cal saw 11 consecutive months of double-digit rent increases. June’s 14% jump in a year, was the smallest since the first month of the streak.

A new Redfin report found that nearly 40% of home sellers in Orange County and 30% of home sellers in Los Angeles dropped their list price in June.

Another Redfin report found that nearly 40% of home sellers in Orange County and 30% in Los Angeles dropped their listing asking price in June. In Riverside, 36% of sellers cut the price of their homes last month. With persistently higher rates, demand has significantly dropped to low levels last seen during the Great Recession.

Housing analyst Ivy Zelman says deterioration in the market is happening "at mach speed" and We're really in the early innings" of the housing correction.

Southern California home prices had their first May-to-June drop in 12 years. Prices dropped 2.9% from May to June.

The CEO of Bank of America says home equity line of credit originations are way up now, as homeowners finally start to pull money out. Housing wealth is currently at a record high.

Tanks have been deployed on the streets of China to protect the banks — Due to the Henan branch of the Bank of China declaring that people's SAVINGS in their branch are now 'INVESTMENT PRODUCTS’ and can't be withdrawn.

59% of Small Retailers are at Risk of Shutting down in the fall. There were several factors including spiraling inflation, higher interest rates, gas prices, rent hikes, supply chain disruptions, lower consumer spending and losses left over from the pandemic.

RECENT TRANSACTION: 62 units in Santa Ana sold for $27 million. This sale was significant because it shows that despite the unsettled debt markets, buyers are still seeking quality buildings in superior submarkets.

THE PULSE OF THE MARKET
Current market conditions are area specific. Some areas are seeing a lack of sales and others are seeing strong sales. Coastal cities are still strong and typically are during the type of market we are currently experiencing. Some of the inland areas with properties in lower-income neighborhoods are seeing longer days on market and either price reductions or properties selling at lower price points than previously. Last week we saw Los Angeles County have the lowest number of weekly sales in quite some time and fewer properties selling at or above the asking price.

WHAT TO EXPECT
The FED are meeting again this week and we should have an answer by Wednesday on how much the next interest rate increase will be. I’m expecting a 1-point increase in rates. With the recent market changes and properties taking longer to sell and with more competition for investor dollars, I expect the RE/MAX Commercial Auction Program to become a lot more beneficial for sellers looking to compete in this market. This is a program that allows sellers to get both local and worldwide exposure of their property, maximize sale proceeds and do so with little or no fees. Let me know if you’d like more information on this program.  

Don’t forget to look at all the closed sales, weekly stats, and monthly charts in detail in the full report on my website SoCalMultifamilyBroker.com. As always, feel free to give me a call or send me an email with any questions on the market. Let me know if you’d like to have me analyze your situation and property to help determine your equity position for a potential sale or 1031 exchange.

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Mike Lembeck

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