Hello my friends, and welcome to another episode of Passive Real Estate Investing. You know, it’s the end of the summer. We’re at the beginning of September. It’s been a few months or a couple of months since I’ve done a housing market update and looked at housing trends and what is going on in the economy and interest rates. And I know that you as investors and many of you specifically as real estate investors, are always interested in knowing what is going on and to some degree having an idea of what is coming down the pipe in the next three to six months, 12 months. So I take this opportunity to take a look at what is going on around the country in terms of housing and real estate as an investment class because real estate is amazing. It is the most historically proven asset class.
It is a true wealth preserver and for many, most of the time is a great creator of wealth and over time, long-term cash flow. So let’s just break down a few things today and take a look at what has been going on.
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I do apologize for the last couple of weeks. I’ve not been able to put out an episode because I’ve been traveling so much. I’ve been incredibly busy with some other business ventures related and unrelated to real estate, mostly on the education side. And I may have talked about it in previous episodes and I will be talking about it a little bit more in future episodes. And those have to do with our Aspire Tour Events, which we do once a month in a different major city around the country. And these are events that have at least 2000 people at the event or more.
And these are events that will ultimately grow to 7,000 people at an event. And I will share more of that with you in future episodes and I’ll probably bring on one of my business partners to talk about that as well. Also, I’ve been going to different cities to participate in some events, sometimes to speak at them as well. So had a crazy, crazy busy schedule this summer and I do my best to put out an episode every single weekend. For the most part, I do that 95% of the time. So if I skip a week, it’s not because I want to skip it, it’s because I haven’t been able to record an episode. So anyway, I’ll put my foot back on the gas pedal and try to be a little more consistent with the weekly schedule that I’ve been very consistent with over time.
So let’s jump right into it. Let’s just begin with kind of the big picture or the macroeconomic picture, if you will, and look at housing and the economy in very high general terms. So some people have emailed me and said, Hey, you know, the economy is really shaky or it’s <laugh> coming undone or unraveling or whatever the case is. That is actually not the case. The economy is pushing forward, it is remaining strong and solid. It actually appears to be accelerating at this point in time. So because of that, it’s actually going to likely push some mortgage rates higher. But companies are still hiring. They’re hiring at a healthy pace. It’s not a crazy hiring spree that they’re on, but unemployment seems to be remaining at record lows and that’s just keeping things marching along in terms of employment. So as a result of that, interest rates have been ticking upward again, but it’s not what we saw back in the fall of 2022.
Now, housing still remains unchanged for the most part. Supply, as I’ve said many times, has been low and has not been able to keep up with the demand that is out there. So supply has dropped again, lower than demand, which has been pushing house prices or home prices up and that’s just, you know, economics 101. It’s just supply and demand. Even with rising mortgage rates that are at the 7% to 8% rate, we are still seeing home prices rise more or less all over the country. And I’ll talk about this in a little more detail here in a few minutes, but when you look at the key housing indicators or gauges, what we see across the board is low supply, good solid demand, especially in the new home section and perpetual ongoing poor affordability backdrop. So we have tight for sale inventory across the board.
This is just a normal thing right now when you look at the resale market, tight inventory is all around and this is also true to a large degree in the new home resale market, or not resale market, but the new home market. You know, it just is a persistent thing. So let’s just break this down a little bit more at the metro level. Right now we are seeing most of the major markets around the country remaining either normal or strong, which means that their price trends have been pretty consistent above zero. Their appreciation rates have been anywhere from one to 5% in that market annualized or year over year or somewhere between five and 10% in some markets. So when we break this down, and I’m just, I’m not gonna go through all 100 markets here that I’m looking at, but when I pick some of them out, the strongest markets that I’ll just classify as strong, not very strong are markets such as Los Angeles, San Diego and Riverside, San Bernardino County on the West Coast.
Central, we’re looking at Dallas. And a lot of it seems to be on the eastern half of the US including Indianapolis, Boston, Richmond, Charlotte, North Carolina, Atlanta, Georgia, Charleston, Orlando, Tampa, Sarasota, and West Palm Beach. These are markets that are clocking in at very strong market conditions, meaning their sales and pricing grades are strong, strong price growth, strong rent growth. Most of the country, just over half of it is what we would call a normal market price appreciation. Typically in the one to 5% range over the course of a year, they’re peppered throughout the eastern, or excuse me, the western half of the country, Boise has cooled off. It’s now a normal market. Seattle, Tacoma, Portland, same thing. San Jose, Fresno, Bakersfield, even Las Vegas and Phoenix have now normalized. They’re appreciating and growing at what is, you know, historically speaking a normal rate or pace of growth.
Same with Tucson, Arizona, Fort Worth and Houston. I’ll just add to that list here. Chicago, New York, Philadelphia, Washington DC, Raleigh, Durham Jacksonville, Miami, Naples, and Fort Myers. Now quickly looking at markets that are categorized as slow markets, those would be Salt Lake City, no surprise there just because of the rapid growth that we’ve seen year over year over year. Denver, Minneapolis, Baltimore, and not surprisingly again, Austin, Texas, which has just been on fire for many years. And it’s finally cooling off. So the only two markets that stand out here that I would classify as very slow is San Francisco. No surprise there just being an incredibly expensive market. And surprisingly, what has come up on the radar just recently or more recently is Cleveland, Ohio, which typically a slow growth market, but not a very slow market. San Antonio is also a market that is classified right now as a very slow market.
So that’s what’s going on there. Builders are still optimistic in selling a lot of new product. That’s just a normal thing right now. The national sales in July jumped 42% year over year in terms of what new home builders are selling right now in their communities on average. Think about that. They’re selling almost, almost 50% more year over year, even with this backdrop of higher mortgage rates. It’s, it’s actually incredible. And if you really think about it, a big reason for that, a big part of that is because there is such a lack of inventory in the resale market that buyers that need to buy, have to buy or really want to buy and can qualify are being forced to go into the new home market. They just can’t find what they wanna find in the resale market. Now, in a recent survey of real estate agents, a fairly large pool, four figure sample size, you know, real estate agents were asked several questions, but these are two things that kind of stood out, at least to me.
They mentioned that 13%, again, this is qualitative and quantitative at the same time. They said that 13% of buyers nationally have switched from wanting to buy a home to choosing to rent. And you know, obviously that’s not good for real estate agents because they earn their living through commissions and if they don’t have inventory to sell or they don’t have buyers to sell to because those buyers are now switching from buying to renting, clearly the buyer’s pool and the listing pool is shrinking. So it’s less for them to work with and less for them to go after. And so that affects everybody. Also, 7% of sellers in that resale market have now switched from wanting to sell their homes to listing their existing homes as a rental property and just moving on to another location or buying a new home. This is very pronounced in Southern California, but it’s less pronounced than the Northwest and the Southeast, but it is still an interesting statistic.
So the Northwest is where we see the highest amount of people choosing to rent versus let’s say the Southeast. Nationally speaking, only 13% of buyers have switched from wanting to buy a home to choosing to rent. So that’s essentially the national average is 13%. Alright, let’s take a look at some other facts and figures if you will, and trends that are going on around the country. A lot of people are always interested in mortgage rates and inflation. So let’s first start with inflation a little bit about that. So the Federal Reserve continues in their efforts to lower inflation. They continue pumping the brakes on it and what they are doing is essentially pushing up the borrowing rate for investors to cool off demand. In other words, they want to cool the economy by making it more expensive to get credit and to afford to buy goods and services, including housing.
And they’ve done a pretty darn good job of that over the last, let’s say 18 months. They started that in about let’s see, February, March, around March of 2022. So yeah, roughly a almost a year and a half they’ve jacked up the Fed funds rate to about 5.3%. The secured overnight financing rate, which is something that is tied to, you know, the short-term interest rates that banks use is very close next to that at 5.2%. So let’s just call the fed’s fund rate 5.3%. That’s where banks lend money to other institutions in between themselves. So everything that we borrow as a consumer is gonna obviously be above that ’cause there are premiums put on top of that. But we’ve seen a trend upwards, although it’s flattening. But the expectation right now is that the Fed will probably do another rate hike of about a quarter point this year to help further cool the economy.
But I don’t know, and I don’t think they’re gonna do much more than that. I think they’ve reached a point where they’ve put the consumer price index under control, which is the rate of inflation. So when we look at the CPI currently, it’s at 3.3%. It is, it kind of bottomed out at about 3% a month or two ago. So they’ve done a pretty good job of dropping that rate of inflation. It peaked at 8.9% around July of 2022 a year ago. And it’s come down ever since. So that’s a pretty good thing. And their target is 2%. But will they hit that? Probably not, at least not in the foreseeable future. So there has been some inflation relief from a, a high of about 9% to about 3% right now, and that happened all within a 12 month period. But the Fed is still focused on core inflation, it’s still above their target rate of about 2% right now that is at about 4.1%.
That’s what they call the core PCE. So that’s what the Fed prefers to measure inflation by. So anyway, they’re doing a good job of it and hopefully they’re coming close to ending their rate hikes because you don’t want to stall the economy, you wanna cool it down but not stall it. But the economy is reaccelerating. Interestingly enough, the Atlanta Fed is predicting that we are going to see an increase in retail sales. It’s already been happening and they are also predicting that US housing starts will continue to advance through the rest of the year, especially in the single family construction area. So I guess that’s a good thing. We need the inventory. Now here’s an interesting thing about inflation. I’ll just kind of stop talking about inflation after this. What we’ve seen happen here in the last year with the drop from about 9% down to about 3%, this has not happened this quickly outside of a recessionary period in 72 years.
It’s been that long before, since we saw the inflation rate come down this quickly. It was in 1951 when during the wartime the US implemented price controls and because of that we were outside of recessionary period, but because of price controls, they were able to hit the brakes on inflation and the inflation rate came down rapidly. Well, 72 years later, which is now, you know, we’ve seen inflation relief come down again with a massive drop in a 12 month period without being in an official recession. So what has been driving down inflation well comes down to basically four things. Lower fuel prices, even though we’ve had some recent ups and downs and increases. But generally speaking, lower fuel prices, improved food supplies, companies reducing their inventory, and the moderation of wage growth. So those four things have been driving down inflation, but don’t get too excited about that because those things are for the most part, temporary in nature.
Fuel prices do tend to go back up. They fluctuate. It really depends on what’s going on on the international stage with OPEC and you know, international fuel prices and oil prices. Inventory destocking ultimately runs out. I mean, you can only do that for so long. Companies who sell goods and services mostly goods need inventory. So they obviously have to keep a certain amount of stock labor costs are going up and they probably will continue to go up because labor needs to start keeping up and keeping pace with inflation because the affordability has been dropping year after year after year and it’s just becoming more and more expensive to afford housing. And lastly, rents are also going up obviously because of inflationary pressures. And so, you know, how long is that gonna continue to go? Well, not for much longer, at least temporarily as I’ll talk about here in a minute.
Rents have gone up like crazy for a number of years. They have been cooling off this year. They’ll probably stay cool for the next year or two and then they’ll probably go back up again. So what are the factors that are pushing mortgage rates higher? It’s really three things. If you take what has been historically the average mortgage rate for the last 20 years, it’s been 4.7%. When you add inflation expectations for the next 10 years, you can add a slight margin to that of about, let’s call it 0.3%, now we’re at 5. When you look at the stronger economic growth expectations for the next 10 years, you can add another point, maybe just under a point. And lastly, the higher than usual mortgage premiums that we’re seeing today because of the economic environment and conditions that we’re in, you can add another percentage point.
So currently mortgage rates are in the low 7% range, at least it was in August. That is because of these factors or premiums that are being stacked on top of what we’ll call the average mortgage rate of the last 20 years. When we see market conditions start to change, first thing we’re gonna see drop is that premium on the rate. That’s just an adjustment in the marketplace for the current market conditions and the expectations of where we’re going with the economy. But as things continue to improve, we will see economic growth expectations adjust and we will see mortgage rates naturally adjust because of market conditions and market expectations. If the Fed funds rate continues to drop, well, I shouldn’t say continue, when it does, we will probably see mortgage rates follow as other indices out there start to adjust, including the bond market itself. Like I said before, there probably will be another rate hike before the end of the year of a quarter point.
I think that’s expected and to some degree probably baked into the cake at this point. But the expectation in 2024 is that we’re going to start to see rate cuts and what will that do? That will start to juice the market again. Credit will become cheaper, more available. Borrowing will increase, it’ll start to drive demand and rinse and repeat. The cycle starts to go all over again. That’s just what happens with, you know, cycles. They go up and down. But let’s not forget, real estate prices revolve around supply and demand. It’s just economics 101. A lot of that is based around population growth. So what’s happening with population growth, if you look at the expected population growth projection for the next 10 years, so through 2033, we are expecting about 21 million new adults, meaning 20 years and older coming into the marketplace, well, coming into the us you know, call that a demographic.
And that’s what we’re gonna see in terms of a net change in population, 21 million more adults. And if those adults are people who are 20 years and older, obviously they’re gonna need a place to stay. In other words, a place to live, they might be renting, they might be buying, it’s all over the board. But when you look at that demographic across the 20 to 85 plus age range and break it into groups, the largest growth of that is those who are 70 years and above by far. But when you look at the next group below that, where the growth is happening, it’s those people who are ages 40 to 54. So adults from 40 to 54 are gonna account for about 6 million new adults. So keep in mind these are people moving from, you know, a lower demographic in that age group to a larger older age group.
And that is going to be a cohort or demographic that is going to need housing mostly in terms of purchases. So they need to go and buy a resale home if it’s available, or new home construction, single family homes. And that is just adding more fuel to the fire, if you will. It’s pressure, it’s buying pressure, demand. So great. If you own real estate, great. If you’re a real estate investor, this is why you should be building your portfolio and stacking the amount of inventory that you own. Buy as much as you can, as fast as you can. Everybody’s got a different speed at which they can acquire because like I’ve said, it comes down to the two Cs, cash and credit. If you’ve got the credit, the more cash you have, the more property you can buy in the shorter period of time. And then you’ll just take advantage of these interesting demographic changes that will be tailwind for you and you benefit from it from price appreciation, strong demand, high occupancy, increased rents.
It’s just a beautiful thing when you own an asset like real estate and you have all this tailwind and little to no headwind. So that’s a little bit about population growth. In terms of employment growth, right now we are seeing roughly about 3.4 million people in the pool. So we’re talking about national employment growth here. So 3.4 million jobs is the employment for growth forecast for this year, seasonally adjusted, but annualized, we actually see that closing the year at about 3.6 million. But here’s the interesting thing, the expectation is that is going to cool off considerably in 2024 and 2025. It’s gonna drop to a very, very small amount and then it’ll pick up again in 2026. At least that’s the expectation. We’ll see what happens. But you know, if that’s the case, then we have a barely growing economy for the next couple of years, which is what the Fed is forecasting as well.
So time will tell. In terms of home inventory, I’ve talked about this in recent past, but we have existing home inventory for sale at historical lows. Historically speaking, if you go back to 1983, the historical average is about 2.3 million homes for sale. When you look at, you know, a, a rolling average, but right now the existing home inventory for sale is right around a million, a million homes. So we are less than half of the historical average. It’s been a downward trend since 2014. We’ve had ups and downs over the years. Just, you know, that’s what happens with you know, the seasons and cycles, micro cycles within the cycle. But essentially the macro trend has been down. In fact, if you go back to the peak of the housing crash of 2007, 2008 when we had a massive amount of inventory, almost 4 million units, housing units, it’s been, again, very cyclical in a micro sense.
But when you zoom out and you look at it, it’s essentially been just dropping year over year over year ever since. So now we have historically low inventory right around a million units. So again, that just is creating upward price pressure and rent growth because we have a lot of demand, not enough supply. And that’s just what happens. Talked about mortgage rates already forecasted mortgage rates for the year right now is about 6.7 for 2023 next year, 2024, the average estimated or forecasted mortgage rate is a little bit less. It’ll be the low threes in 2025. We’re expecting about 5.6% and around the same thing for 2026. You know, these can fluctuate a little bit, but the trend is down, which is good. So we’ll see mortgage rates start to you know, come back to what we’re accustomed to or spoiled with over the last few years actually let’s call it the last 12 years.
But again, you know, mortgage rates are elevated right now because of mortgage rate premiums. But once that starts to fade into the background, we’ll see mortgage rates normalize and return to historical averages. Price growth, everybody’s always interested in price growth. So right now we’re seeing, or at least seeing a forecast for the next couple of years of slow price growth. We’ll see rising incomes and falling mortgage rates, it’ll improve affordability. But what we’re seeing here for this year is low single digit price appreciation. And now keep in mind, I’m not real estate is local. It’s all about the local market. It’s very specific to a, a region, but we’re seeing weak appreciation by the end of this year, single digit 2024 is probably gonna be relatively speaking, a flat year. We’ll still see markets that are appreciating and some of them will be appreciating quite well just because of the strong demand for homes in those markets.
And you can talk to the investment counselors here at Norada Real Estate to help you in choosing those markets. We’re actively focused on about 25 markets with inventory in those markets. Obviously we can’t be in all 500 markets around the country, but you can still find markets and neighborhoods that will give you decent price appreciation and growth. Again, we don’t have a crystal ball, but you can make very calculated decisions. 2025, we’re gonna start to see that tick up again. That’s kind of the year where appreciation is gonna start to ramp up. And then the expectation in 2026 is that we’re gonna start to see upper single digit price appreciation nationwide when you average out all the markets, all the major markets across the country. And then let’s just kind of start to wrap up with a few things here on affordability, permits and rent growth.
So when you look at affordability, we kind of peaked at the most unaffordable point in time around this year, like in 2023, we’ve just seen incredible late 2022, early 2023, a very, very low affordability. That’s the ratio of the housing cost to your income. And so it was right around 44%. You know, it’s very unaffordable when you have 44% of your income going towards housing costs. That means that you’re essentially spending half of the money you make, or half of the money you take home or more towards housing the historic norm. And maybe you can call it the new normal, just because we’ve had some major peaks in mid two thousands, like 2006, as well as 2022, 2023. The new norm is essentially about 32%. That’s the affordability index right now we’re, you know, way up there, we’re at about 44%. So it’s still abnormally high, historically high and abnormally high.
But the expectation and the prediction over the next, let’s say three to four years, maybe five years, is that affordability will improve it, it has to, but it will improve and that’ll be a good thing for more people to get into the market. So we’re gonna start to see that drop here, probably starting, starting next year in 2024. But it will remain a long-term challenge because we have so much demand and we are not keeping pace with that demand in terms of putting out supply. And speaking of which, you know, when you look at permits, single family home permits, it’s basically a leading indicator of how much supply you’re gonna see over the next 12 months. Well, we’ve just seen a dip for the last, I don’t know, last six months. We’ve seen a dip in the number of permits that have been pulled, which tells you how many homes the builders are gonna be building in the next six to 12 months.
But historically speaking, that usually turns around after a dip like this. So the expectation for the next six months is that there’s gonna be an increase in the number of permits being pulled nationally for single family homes. And that just tells us that we’re gonna finish this year pretty strong, and that will give us a lot of acceleration in the first half of 2024. So again, that’s very good news, especially if you’re sitting on the right side of the fence. And lastly, rent growth. When we look at single family rent growth, at least from a forecast perspective, this is good to know as a real estate investor and as a landlord, if you own property, we’ll probably end the year again on a nationwide basis, looking at a national single family rent index, which looks at the top 100 markets in the country. We’re seeing about a 4% annual rent appreciation or growth, which is great.
The next two years is going to be, again, nominal, right around the same thing, somewhere around three and a half, 4% each year for the next couple of years. And again, 2026 is where we’re gonna start to see things start to accelerate and appreciate where we’re starting to get into the mid single digits or more. Again, very, very much market specific. It’s all local. So that’s where we’re at. Things are still bullish in my opinion. Even with high mortgage rates, investors are still investing. I can tell you that because of the number of calls we get from seasoned real estate investors, existing clients, new real estate investors that are coming to us saying, Hey, I’ve been waiting long enough, I need to get started, or I’ve been thinking about it, I’m new. Whatever the case is, investors are still buying property. They’re still benefiting from all the benefits of real estate.
They’re getting, you know, their cash flows which grow over time. They’re getting equity gains over time. They’re getting the tax benefits, they’re able to leverage their investment capital and build a portfolio. And that’s, you know, what we want to help you do. We want to educate you on that, and we want to help you invest in real estate so that way you can create wealth and passive income slowly but surely. And over the course of 5, 7, even 10 years, you’ll be amazed what you can achieve investing in real estate the right way in the right markets, and especially with the right team. And that’s what we are all about. So I will wrap it up with that, I appreciate you guys listening. Please remember to subscribe to the show, click the button or whatever pod player you’re listening to. If you have questions about real estate, I love doing Ask Marco episodes.
So just go to our website at passiverealestateinvesting.com and click on the Ask Marco link. Or you can just send an email to askmarco@passiverealestateinvesting.com, and I will batch them and do my best to answer all your questions. If there’s anything my team can do for you, let us know. Download the free report on our website, which is called The Ultimate Guide to Passive Real Estate Investing. And last but not least, share the show with your friends and family. Visit us on iTunes, leave us a rating and review. I read them all, and I greatly appreciate it. So I will thank you in advance. And that is it for today. Thank you all for listening. I will see you all on our next episode.
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