JACKSONVILLE, FL – We begin by examining key economic figures for Charleston, focusing on personal income and relative housing prices over time. This data, sourced from the Federal Reserve of St. Louis (FRED), provides insights into housing affordability using the Regional Price Parity (RPP) of housing. RPPs are regional price levels expressed as a percentage of the overall national price level for a given year, determined by the average prices paid by consumers for a mix of goods and services. Essentially, RPP tracks how housing costs in Charleston compare to the national average. Below, we observe the percent change in these two data points since 2009.

Year-over-Year Changes: A Clearer Picture

While the initial data provides a snapshot, year-over-year (YoY) changes offer a deeper understanding. YoY changes compare each variable to one year earlier, smoothing out unusual spikes or drops and highlighting trends. When analyzing these changes, we notice that income and housing affordability in Charleston don’t consistently move together. However, they often move in opposite directions, suggesting a potential negative correlation.

In data science, a correlation greater than 0.50 (or less than -0.50) is considered significant, indicating a consistent relationship between the two variables. To explore this further, we examine if a lag between the variables reveals a stronger correlation, proposing that changes in income may have a delayed effect on housing costs.

The Four-Year Lag and Its Significance

By applying a four-year lag to the housing price data and comparing it to income changes, an inverse pattern emerges. We find a negative correlation of -0.674, indicating that as income rises, housing tends to become more affordable in Charleston four years later. This insight is valuable for predicting future housing affordability and rent growth, as demonstrated in the lagged data chart.

Implications for Real Estate Investments

For multifamily real estate investors, understanding the relationship between income and housing affordability is crucial. Monitoring income changes today can provide a sense of where housing costs will be in 3-4 years relative to the national average. This information can guide investment decisions and impact underwriting assumptions, particularly regarding rent increases over the hold period.

Charleston’s personal income figures and relative housing costs are linked, but the effects of income changes on housing affordability manifest over 3-4 years. This correlation makes intuitive sense: as residents earn higher incomes, the proportion of their income spent on housing tends to decrease, making housing more affordable relative to markets with slower income growth. For projecting strong rent growth, it is essential to determine whether incomes are rising faster than housing costs.

In summary, keeping an eye on income trends in Charleston today can help investors predict future housing affordability, guiding strategic decisions in the multifamily real estate market. Understanding this delayed relationship between income and housing costs is a powerful tool for anticipating market shifts and making informed investment choices.

For a deeper dive into the analysis and to explore the detailed data and methodology behind these findings, read the full article here.

About Nuvo Capital Partners

Nuvo Capital Partners is a niche market-focused multifamily private equity firm operating throughout the Southeastern United States. As a dedicated sponsor (General Partner), we specialize in institutional quality real estate investments within these regions. Our team, with a combined 25+ years of experience, has facilitated over $700M in transactions (10,000+ units). Delivering a transparent investment process, we provide our investors with access to high-quality real estate opportunities, while also ensuring integrity throughout. Our commitment extends to providing monthly, quarterly, and yearly in-depth reporting for our valued investors. To learn more, visit nuvocapitalpartners.com.

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