June 22, 2016

Their Wager Might Be Shakier Than They Thought

WZTV reports from Tennessee. “To rent or to buy — that’s a tough question as Nashville’s ‘it city’ status drives an estimated 65 people to Music City each day. The continued boom means prices for both homes and apartments are rising, with builders working to keep up with demand. After years of paying rent, Travers Xanthos is now paying a mortgage. This millennial bought a house in Nashville’s Nations neighborhood after securing a sweet deal. ‘It’s three bedroom two and a half bath masters on the first floor, I paid $380,000 for it, but I only had to put three percent down,’ Xanthos said. ‘I really think it’s throwing your money away, especially if you’re going to be in an apartment downtown, you’re going to be paying $2,000 a month for a one bedroom a two grand mortgage would get a three bedroom house in the Nations.’”

“But with more apartment buildings going up, some others say renting gives you better flexibility. While all these new apartments being built may exceed the demand for them, it doesn’t mean rental prices will be coming down.”

The Wall Street Journal. “The largest U.S. apartment landlords are betting that hordes of millennials streaming into cities will keep pushing rents sky-high. But an expected spike in new supply in some key markets suggests their wager might be shakier than they thought. In 25 of the largest U.S. cities, multifamily permits in urban areas were up 39% in 2015 compared with a year earlier, according to a study by housing-research firm Zelman & Associates.”

“New York, for example, is poised to see 2.6 times more apartments come online in the next year than the historical average, according to the analysis. Boston is likely to see 2.5 times as much supply growth as usual, while Philadelphia is bracing for twice the usual supply increase. After the recession, ‘everyone rushed into the cities, land prices got bid up, construction got more expensive, so what you’re seeing is a lot of new supply coming on at the high end,’ said Alexander Goldfarb, an analyst at Sandler O’Neill + Partners. ‘You throw on a bunch more supply and the market really feels it.’”

“The slowdown already is beginning to be reflected in company results. According to Zelman & Associates, new apartment completions in the neighborhoods where Equity Residential’s portfolio is concentrated, such as Manhattan’s Midtown West, are forecast to increase 57% in 2016 compared with 2015. AvalonBay is likely to see a 50% increase in new supply in the neighborhoods where it has the strongest presence.”

“‘You can lean on the millennial argument…you can spin a story of how demand will absorb all of this,’ said Dennis McGill, director of research at Zelman & Associates. ‘Demand is not going to change by 50% in a year.’”

From Westside Today. “The average sale price of United States luxury homes fell 1.1 percent for the first quarter of 2016 according to internet real estate brokerage site Redfin. The definition of ‘luxury market’ for Redfin’s study is the highest 5 percent of homes sold in a particular quarter. Redfin reports that the ‘luxury home price decline was felt in cities across the country, including Miami Beach (-13.7 percent); Austin (-11.8 percent); Boston (-11.8 percent); Houston ( -5.1 percent); San Francisco (-4.7 percent); Washington (-4.2 percent); and Los Angeles (-1.3 percent).’ Except for Miami Beach, Redfin found these cities only fell at the high-end, with the bottom 95 percent seeing year over year price gains.”

“The explanation for prices going down at the high end but not the bottom 95 percent is that the global economic volatility caused luxury buyers to put the brakes on in the face of the volatility in asset prices including the oil and stock markets. The result was that the volume of inventory of homes priced above $5 million jumped up 13.2 percent from the prior year. Redfin explained that its numbers may understate the increased volume of inventory which may not include homes being built by speculators that are not yet officially on the market.”

“The Chief economist for Redfin explained further that, ‘instead of cheering rock bottom mortgage rates, luxury buyers recoiled from high–end spending in the face of volatile asset prices. Luxury demand, especially for vacation and investment properties, has been more fragile this year, causing prices to slump.’”

The Business Observer on Florida. “Coldwell Banker real estate agent Lynne Koy, specializing on Longboat Key and waterfront properties, had a golden week in early June, when she had three closings that totaled $6 million in sales. But the stellar week might not foretell a continuation in the housing market rebound. ‘I’m seeing a reduction in prices,’ Koy tells Coffee Talk. ‘We aren’t seeing the appreciation we saw in prices even a year ago.’”

“Koy says that reduction, even on sought-after waterfront properties, makes the science of how to price the listing even more of a priority. That was the case with one of her three recent closes, on Mistletoe Lane on Longboat Key. Koy actively watched the listing when it hit the market, first priced at $1,795,000. She reached out to the sellers when it didn’t move. Koy persuaded the sellers to relist with her at a lower price, $1,495,000. The 3,216-square-foot waterfront property, with four bedrooms and three and a half bathrooms, sold for $1.45 million 13 days after Koy knocked $300,000 of the list price.”

“‘Buyers are sophisticated shoppers,’ she says. ‘They will not be fooled into over-paying for properties, no matter how beautiful the view may be.’”