The Housing Bubble

A report from CNBC. ” In its recent survey of nationwide rent conditions, data from apartment rental site Zumper said that the most expensive markets in the nation saw either flat prices or outright declines—demonstrating evidence of a potential top. ‘Among the top ten most expensive rental markets, only one city, Seattle, saw median rent prices for one bedrooms rise this past month, up just a modest 0.5 percent,’ Zumper wrote. ‘Several of these rental markets saw falling prices, including in New York and Boston, while both D.C. and Chicago saw even sharper declines of over three percent.’”

“The data showed more worrisome declines at the micro level of certain cities. The Big Apple’s average rent remained relatively flat around $3000 per month for a one bedroom apartment, but showed the sharpest drop of any top 10 U.S. rental market, Zumper added. One bedroom prices are down by more than 7 percent since last year, while two bedrooms have swooned by nearly 8 percent. In the perpetually hot San Francisco area, rents have now fallen for five consecutive months, Zumper data showed. ‘Overall, one bedroom rents in San Francisco end the year down nearly 5 percent from where they were twelve months ago,’ Zumper’s study said.”

“In the borough of Brooklyn signs of a retrenchment appeared more pronounced. Douglas Elliman data revealed that prices there have for the third time in four months, even amid a construction boom that is reshaping the neighborhood’s skyline. Although Brooklyn’s average one bedroom rental prices remained stable around $3000 per month, the luxury rental market has plunged by 9.1 percent year over year, Douglas Elliman noted.”

From Bisnow on New York. “NYC had the sharpest year-over-year drop in rent prices in the entire US, a recent Zumper National Rent Report found. Over the course of 2016, one-bedroom prices have fallen by 7.4% and two-bedroom prices are down 8% year-over-year. Even in the last month, two-bedroom rents declined 1.4% to $3,400. The reason for these drops, the report asserts, is simple supply/demand dynamics, with a supply flood giving renters greater choice and leverage.”

“TOWN Residential leasing managing director Dan Marrello says supply/demand is one of several factors. While rents have been steadily climbing over the last six years, for example, wages haven’t, leading to an affordability pushback. While Dan’s confident the upcoming supply will be absorbed, landlords will need to offer incentives like free rent to entice tenants. This has already been seen in Brooklyn, where hundreds of rental units are forcing some landlords to offer as much as four rent-free months.”

The Banker and Tradesman in Massachusetts. “Mortgage rates are ticking up and have been for several weeks. Debate rages about what effect this will have on the housing market. Increased rates will also have an effect on the commercial market. When rates rise, so do cap rates – and collateral values decrease, along with LTVs. Boston also ranked as one of the few metro areas in the county that is seeing a decrease in rental rates. In its most recent report for the month of November, Yardi, an investment and property management software development firm, reports that nationally multifamily rents fell 0.2 percent on a trailing three-month basis; in Boston, that figure was down 0.6 percent.”

“The six metros that fell furthest in their rankings ‘were at the high end of rent growth earlier in the year; the flip to the bottom reflects the facts that rents were due to revert to the mean and/or that the markets are feeling the pinch of new supply.’”

“Perhaps Boston is seeing a market correction – or, as impossible as it may seem given the endless harping on our lack of housing supply, perhaps we are indeed seeing the beginning of the end of the luxury apartment boom. It is important to note that our lack of supply does cross all socioeconomic lines – but it is more pronounced at the lower end. Also important: there are plenty more luxury buildings currently under construction and in the permitting stages.”

From Time Out Chicago in Illinois. “Rents for one- and two-bedroom apartments are down more than 3.5 percent this month, but Chicago is still among the most costly U.S. cities to rent, according to Zumper’s December National Rent Report. The company ranked Chicago the ninth most expensive rental market in the last month of 2016, despite the cost of one-bedroom rental units falling 3.7 percent and two-bedroom rents down 4.7 percent from November. ‘The looming winter months may be leading to a slowdown of rental prices in the ‘Windy City,’ according to the report.”

“Still, lower rents are part of a larger trend. Chicago’s year-over-year prices show even greater declines, with one- and two-bedroom rents down 8.1 percent and 5 percent, respectively.”

KUOW on Texas. “These days, you can find luxury rentals in virtually every part of the city, but let’s focus on downtown Austin, where luxury apartments have popped up on just about every corner. Robin Davis is the owner of Austin Investor Interests LLC, a private research firm that tracks the Central Texas apartment market. She looked at the area within a 3-mile radius of the 2nd Street district near Austin City Hall. Davis found that during the last half of 2013, the occupancy rate for the area’s high-end rentals fell sharply, from just under 92 percent to about 84 percent. She attributes that drop to an influx of new units.”

“This year, the market’s occupancy rose about 2 percent over the last quarter, but it still hasn’t caught up to those 2013 levels, and more than 3,400 new units are currently under construction. As the market works to stabilize, Davis said we’re seeing more and more luxury properties offering concessions to attract tenants ​– even apartments in the most coveted parts of town are offering several weeks of free rent.”

“‘I don’t think we’ve seen concessions this high in four to five years,’ she said. ‘The core downtown area had the highest level of concessions over this last quarter, and I expect that to remain on the rise as new units continue to stabilize.’”

The Aspen Daily News in Colorado. “Ryan Sweeney originally signed a 16-month lease to open Ryno’s Pies and Pints in a building on the corner of Cooper Avenue and Galena Street that was facing the wrecking ball. The planned redevelopment is still coming but has been delayed, and in the meantime, Sweeney has had four years in business. When the building eventually meets its fate, that’s probably the end for his business, Sweeney said last week.”

“The ascendant commercial scene, as Sweeney sees it, is driven by out-of-town corporations that lack understanding of Aspen’s seasonality. Whenever one of these new tenants signs an above market-lease, it makes affordable rent less likely for the next tenant to enter negotiations with a landlord, he said. ‘My restaurant is my sole source of income. If I have a bad month, I’m eating cereal and hot dogs,’ Sweeney said. ‘It’s tough for me to compete against people who don’t really need the money.’”

“Jerry Murdock, who has funded legal research into the formula retail ban resulting in a proposed ordinance making the rounds in city hall, believes the policy is necessary to combat an emerging commercial market in Aspen that he worries is killing the ability for locals to thrive in their own town. A venture capitalist who has backed tech disruptors including Twitter, Snapchat and Uber, Murdock draws a distinction between ’short-term greed versus long-term greed.’”

“‘If [landlords] are experienced, they know what a bubble looks like,’ Murdock said. ‘They understand that having tenants pop in and out is not a good long term strategy.’”

“He also draws a distinction between landlords that buy buildings with their own money versus landlords that buy buildings with other people’s money. The latter, which has become increasingly common in Aspen, is driven by a motivation to sign up high-paying tenants, and then sell the fully leased property for a higher price, he said.”

“‘Short-term bubble rents make a lot of sense if you’re just going to flip the building,’ Murdock said. ‘If you want to build and flip, that’s a different set of ethics than someone who wants to build to own and operate.’”