Brandon Donnelly — Daily insights for city builders. Published since 2013 by Toronto-based real estate developer Brandon Donnelly. — Page 483

Here a three interesting charts about the US housing market from Redfin (via Charlie Bilello's weekly newsletter ).

Bidding wars, which are defined as an offer with at least one other competing bid, declined from nearly 70% of sales at the beginning of this year to about 44% as of July 2022.

Stale inventory, which is defined as a home sitting on the market for more than 30 days, is up 12.5% year-over-year. This is the highest jump since 2012, not counting the spike at the beginning of the pandemic (April 2020).

The number of US homes that cut their asking price over the last 4 weeks is now up to 7.8% as of the first week of August 2022. This is the highest percentage since 2015. The seasonality exhibited in this chart is also interesting.

All of this said, the median sale price for a home in the US is still up 8.2% on a year-over-year basis. Though since June of this year, prices have fallen about 4.1%. I don't know about all of you, but I'd much rather be buying today than in January of this year.

Today it was announced that venture firm a16z has made a $350 million investment in Adam Neumann's new residential rental company called Flow ( which is kind of ironic ).

The company is set to launch in 2023 and nobody on the outside seems to be entirely clear on how it plans to revolutionize the multi-family rental market, but supposedly this funding round values Flow at more than $1 billion and supposedly Neumann will be rolling in the 4,000 or so apartments that he has been buying up.

In any event, here's how a16z described the opportunity (I think the key sentence is probably the one about creating a system where renters become like owners):

Only through a seismic shift in the way industry relationships are structured and the mechanisms through which value is delivered can we hope to address the underlying problems of the current system and build the solution. Doing this requires combining community-driven, experience-centric service with the latest technology in a way that has never been done before to create a system where renters receive the benefits of owners . This means rethinking the entire value chain, from the way buildings are purchased and owned to the way residents interact with their buildings to the way value is distributed among stakeholders. And given the fragmented nature of the ecosystem today, we can only hope to accomplish any of this by bringing every aspect of the living experience together.

What I will say is that I think it's great to see this amount of innovation-focused money flowing into the residential real estate space, which is, after all, the biggest asset class in the world and one that could certainly use some fresh ideas. Apparently it's also the biggest funding round that a16z has ever done.

But I also find a16z's characterization of the problems a bit odd. Renting an apartment is described as this soulless and profoundly lonely experience where you're so ashamed of where you live that you're even hesitant to invite friends over. They also conflate house with home, as if to say that you can't have the latter without the former.

On second thought, maybe these are exactly the right problems to be solving. It is our biases that we need to do something about.

Here is a chart from MetroSight that compares housing tenure in California in 2000 and then between 2015-2019:

Two things you might notice immediately are that the number of renter-occupied households has generally increased and that the number of owner-occupied households without a mortgage (i.e. they own their home free and clear) has also increased for every age category except for those 65 or older.

MetroSight uses this data to argue that a new "wealth-related phenomenon is emerging" in California. Instead of the housing market being largely driven by income (that is, I make this much per year and I can afford this much house), it is being driven by accumulated wealth.

The possible explanations for this are as follows:

• The share of renter-occupied households is increasing because people increasingly can't afford to buy

• The share of owner-occupied houses with a mortgage is decreasing because less people can afford to buy given California's price-to-income ratios

• The share of owner-occupied houses without a mortgage is increasing because people are increasingly inheriting homes or getting gifted cash from their families

Consider that the share of owner-occupied houses without a mortgage even increased for the 18-24 age category. Unless you're the next Zuckerberg (who was a billionaire at age 23), this is pretty challenging to do without some kind of assistance, especially in a place like California.

This outcome also provides a possible explanation for why the over 65 age category is the only segment that has seen a reduction in free and clear ownership. It is because they are transferring their wealth to the next generation so that they too can obtain homeownership.

Chart: MetroSight