The Housing Bubble

A report from National Real Estate Investor. “Developers increased the number of new apartment starts every year since the recovery began. But now, the number of new apartments may have finally caught up with the number of new renters who need these units. The percentage of vacant apartments has begun to creep upwards, though it’s still well under 5.0 percent on average in the U.S., according to most apartment researchers. Lenders are also much less willing to provide capital for new development. In 2016, developers will start construction on 320,000 new apartment units, followed by 275,000 units annually during the next few years. In contrast, in 2015, they started work on 350,000 units, according to Ron Witten, founder of apartment research firm Witten Advisors, based in Dallas. ‘We believe 2015 was the peak for this cycle,’ says Witten.”

“In 2016, developers will start construction on 320,000 new apartment units, followed by 275,000 units annually during the next few years. In contrast, in 2015, they started work on 350,000 units, according to Witten. Developers are starting to build fewer apartments partly because banks are refusing to pay for it. As a flood of new apartment developments opens and the percentage of vacant apartments has started to rise, banks are refusing to lend to weak deals and are lending less on the stronger deals. ‘Some banks are declining to quote some deals altogether,’ says Mitchell Kiffe, senior managing director for debt and structured finance in the capital markets group of real estate services firm CBRE.”

From Dallas CultureMap in Texas. “As Dallas is considered one of the 10 hottest rental markets in the nation, it’s not much of a surprise to learn that we like our apartments fancy. How fancy? Of all the apartment projects completed in 2015, 93 percent of them were high-end. In San Antonio, 100 percent of all new apartments that went up last year were high-end. That’s right, 100 percent. In Austin, the number is 92 percent, just 1 percent behind Dallas. Eighty-nine percent of Houston’s new apartments were high-end, and Fort Worth slides in with 86 percent.”

“A handful of cities experienced ’spectacular’ growth in the luxury apartment area, including Midland-Odessa and its 800 percent increase. In 2012, there was just one high-end rental complex. As of 2015, there were nine. RentCafe points out the Texas domination, noting that ‘urban Houston, Dallas, San Antonio, Austin, Midland, Fort Worth, and Spring saw a combined total of 103 new luxury rental properties in 2015 and only six non-luxury rental properties.’”

The Deseret News in Utah. “While nationwide and statewide trends reflect steadily increasing real estate prices, renters in the greater Salt Lake area are under particularly intense pressure as employment opportunities and the population are flourishing. Rental rates are skyrocketing due to high demand for apartment living and limited unit availability. Developers have reacted by building high-quality, high-price units, according to new research by James Wood, a senior fellow at the Kem C. Gardner Policy Institute at the University of Utah.”

“In Salt Lake City specifically, Wood said there have been 2,500 class A — or high-end — apartments built in the past five years. ‘We are in the biggest apartment boom in Salt Lake County and Salt Lake City in 30 years,’ Wood said.”

The Citizen Times in North Carolina. “Many residents already have experienced it. Perhaps more have feared it. Now, a national report has added to worries the Asheville metro area’s housing market has reached unsustainable levels. Economists at Nationwide, the insurance and financial-planning company based in Ohio, have ranked the metro-area market as the nation’s sixth-unhealthiest. ‘House-price gains relative to income have become increasingly unaffordable,’ said David Berson, Nationwide chief economist who is the report’s primary author.”

“The county housing market set new records during the first quarter of this year for both average and median home-asking and median selling prices, said Don Davies, founder of Asheville-based Realsearch, a company that analyzes real estate trends. ‘Local people are priced out of the market,’ he said. ‘The average sales price requires more income than (people) can afford.’”

“Asheville home prices are not overly inflated, said Mike Figura, owner of Community Lifestyle Mosaic Realty in Asheville. Within the city of Asheville, the competition to buy the limited number of available houses has caused the price range that is a seller’s market to balloon, Figura said. ‘We’re not going to see a crash,’ he said. ‘Yes, (home prices) are out of reach for a lot of people, but true demand and low inventory are causing prices to be high. Last year, during the first quarter, it was a seller’s market for homes up to $450,000,’ he said. ‘This year, (during the first quarter), that’s shifted to $600,000. That’s unprecedented. You’re going to need a lot of money to buy that house.’”

“Today, ‘the fundamentals of our housing market are much stronger,’ Figura said. That’s because it’s cheaper today to own a house than to rent. ‘In 2007, you could rent a house cheaper than you could own it,’ Figura said.”

The Santa Cruz Sentinel in California. “The median price for single-family homes in Santa Cruz County set an all-time high — $798,000 — breaking the record of $789,500 from November 2005. Tom Brezsny of Sereno Group doesn’t consider this a spectacular year for high-end sales. In 2014, sales for more than $1 million were higher — 33 percent of the total in May and 28 percent in June. A 5,850-square-foot home on Prospect Avenue with five bedrooms and six bathrooms — fetching $6.5 million — was on the market for more than three years for a buyer attracted to its Frank Lloyd Wright look and feel, he pointed out.”

“The asking price was $7.995 million. ‘I would guess that the people who sold Prospect felt that they didn’t get their money back out of it,’ Brezsny said.”

The Wall Street Journal in New York. “The 1,004-foot Manhattan condominium tower known as One57 was the envy of the real-estate market as it was being constructed in recent years, garnering interest from so many wealthy buyers that it sparked a boom by developers betting demand for luxury apartments would keep climbing to the skies. It didn’t.”

“Instead, sales at One57 have slowed to a trickle, with about 20 of the original 94 condos still unsold. Builder Extell Development in March reduced its projected sellout value of the tower at 157 W. 57th St. to $2.56 billion, a markdown of $162 million from its 2013 projections, according to securities documents filed on the Tel Aviv Stock Exchange.”

“Demand in Manhattan’s super-high-end condo market has dried up amid global economic jitters, just as the market has been flooded with unprecedented supply. ‘There’s a lot of stuff that is chasing what happened three years ago or four years ago when there was a boom,’ said Gary Barnett, Extell’s founder. ‘They’re late to the party and the party is ending.’”