April 18, 2016

The Game We’re Playing Is Completely Insane

A look at rents and the multi-family housing bubble starting with the Oregonian. “When Caitlin and Charles Vestal began looking to buy a home in January, the search quickly felt like a full-time job. The couple ended up with a small, one-bedroom apartment along Southeast Division street but eventually decided to buy a home – something they’d never done before – with a backyard for their dogs. ‘We just kind of had to wise up very quickly to the fact that it’s an insane game,’ Caitlin Vestal said. ‘And that list prices basically mean nothing.’”

“The reason the Vestals started to consider buying a home is ’sort of hilarious,’ Caitlin Vestal said: it was ‘how crazy the rental market is.’ Finally, they found a home: a three-bedroom, one-bathroom bungalow in North Portland’s Portsmouth neighborhood. The Vestals beat out 28 other offers with their $386,000 bid – 29 percent higher than the list price of $299,000. ‘To us, this is the game we’re playing. It’s completely insane, but that’s just how it is. You gotta roll with it,’ Caitlin said.”

The Star Tribune in Minnesota. “The ugly ducklings of the Twin Cities rental market are turning into swans. Investors are snapping up vintage apartment buildings in first- and second-ring suburbs and renovating them into upscale housing. As one prominent developer explained his strategy to a Brooklyn Center housing task force: ‘Get the Caribou crowd in, and get the Jerry Springer crowd out.’”

The Orange County Register in California. “A Register survey last fall found that more than 9,000 new apartment units came on the market or were under construction in Orange County last year. Economist Chris Thornberg reported in the USC Casden Multifamily Forecast that 38,000 new multifamily building permits were issued in all of Southern California in 2015 – the most for any year since the recession. Unlike the Casden Forecast, Reis predicted new construction will outstrip the increase in demand slightly in both Orange and Los Angeles counties.”

“Although the bulk of the new construction is for luxury ‘Class A’ apartments, the increase in supply will have a ripple effect, helping to moderate rent hikes across the spectrum of Orange County rentals, said Nicholas Dunlap, president of the Apartment Association of Orange County. ‘(Class) A product will compete with B product, and B product will compete with the C market,’ Dunlap said. ‘I don’t think we’ll see rents decrease, but we are going to see concessions. We are going to see move-in specials.’”

The Birmingham Business Journal in Alabama. “One expert says the red hot nationwide apartment market could be starting to cool off. Ryan Severino, senior economist and director of research at New York research firm Reis, is quoted as saying that vacancy is trending upward and has been for three consecutive quarters. It is the longest stretch since the fourth quarter of 2009.”

“‘This is the beginning of an upward trend in vacancy that should persist for at least the next five years,’ Severino said. ‘New construction continues to exceed net absorption by a wider margin over time, which will cause vacancy to increase in the majority (if not all) of the coming quarters. While the apartment market should still remain tight, there is clearly not a bottomless pool of demand that absorbs all of the units that are being delivered to the market.’”

“For Birmingham, some have said that the combination of luxury apartment development driven largely by institutional investor demand and anemic job growth in Birmingham’s city center means there might be a tipping point in the future where there aren’t enough consumers that can afford the high rents.”

The Orlando Sentinel in Florida. “Even as construction cranes crank out new apartments throughout Central Florida, one group reports multi-family occupancy has declined from a high six months ago. Last fall, Metro Orlando’s apartments were virtually filled with an occupancy rate of 96.3 percent — the highest rate since March 2006. By last month, occupancies edged down to 95.1 percent, which was the lowest rate in two years, according to Charles Wayne Consulting’s semi-annual apartment census.”

“In addition, the region had its greatest amount of empty apartments in recent years with 8,466 vacancies. Daryl Spradley, senior vice president for Charles Wayne Consulting, said the market isn’t necessarily softening. ‘Everybody gets nervous when it ticks off a little bit, but they’re still at maximum occupancy’ said Spradley, adding that jobs are driving demand.”

The New York Times. “Looking to sign a new lease on a New York City apartment? Now is the time to negotiate. Manhattan rental prices have begun to slip as a wave of new luxury rentals enters the market, stoking competition and spurring a flurry of concessions by landlords who are willing to pay the broker fee or throw in a free month or two of rent to fill vacancies. More than 20 percent of rental agreements in the first quarter of 2016 handled by the brokerage firm Citi Habitats included some form of deal sweetener, marking the highest level of concessions in more than five years. Rental prices are also finally beginning to decrease.”

“‘Increasing concessions in a rental market signals that landlords are having a harder time filling vacancies, making it easier to negotiate,’ said Joe Charat, the general manager of Naked Apartments.”

KX News in North Dakota. “The flood and oil boom have had major effects on the renter’s market. Rent has dropped around 30 percent over the past two years and renters also have more options. Pre-2011, there were about 7,000 total units — now there are roughly 9,000 apartment units. However, the vacancy rate has gone from around 1 percent in 2012 to roughly 20 percent currently. If the vacancy rate is so high, why are we noticing apartment complexes still being built? Doug Pfau, IMM Property Supervisor: ‘These buildings that you see in the process of being constructed are ones that have been planned out and the buildings permit pulled in 2014-2015. It’s probably back in the pre-2011 times regarding rent prices and actually the occupancy rates are lower than they were.’”

Fort McMurray Today in Canada. “At the end of 2015, Fort McMurray’s vacancy was nearly 30 per cent, the highest in the country according to the Canadian Mortgage and Housing Corporation. Estevan, the centre of Saskatchewan’s oil boom, followed at nearly 21 per cent. Alberta’s average was 5.6 per cent. And with more rentals than people to fill them, many landlords are doing whatever it takes to woo potential renters, from spending thousands on renovations to offering financial incentives.”

“Christina Augruso has waived the damage deposits on the two vacant bedrooms in her basement and is considering offering the first month free. She’s also tried sweetening the deal by allowing pets and promising a fresh-cooked Sunday dinner.Colin Woodcock estimates he’s spent $12,000 renovating his three-bedroom duplex in Timberlea, building a fence, repainting the interior and putting in a new floor. He’s dropped the monthly rent from $3,000 to $2,200. There’s also one month of free rent to anyone that signs a one-year lease. Yet, it’s been empty for weeks.”

“‘I’ll admit the house needed a facelift, so I hope that helps,’ he said. ‘And for the first time I’m allowing small pets. The market is flooded so you have to be competitive.’”

“Five years ago, both Augruso and Woodcock say they never would have imagined Fort McMurray becoming a buyer’s market. Yet, like many people, they bought their homes during the halcyon days of the last oil boom, and rely on renters to help pay off the steep mortgages. Financially, Woodcock says he’s doing well. But Augruso’s hours at her office job have been cut and her husband works in construction, which is also sputtering. ‘We’re hurting right now,’ she said.”