December 20, 2016

The Market Has Reached Its Apex

A report from Community Impact in Texas. “Austin Board of Realtors market data for single-family homes in Southwest Austin over the past five years indicates that inventory is increasing slightly in some areas and dramatically in others. ZIP codes where homes fall into a higher price range, such as 78735 and 78737, are seeing inventory figures almost double from December 2015 to October 2016, demonstrating that supply is driving down demand, and buyers are becoming more cautious. ‘The market is softening a bit,’ said Burt Dement, a Broker Associate for Realty Austin’s Southwest Austin office. ‘Buyers are resisting the increased prices, so homes are sitting a little bit longer and inventory is building up.’”

“As inventory increases, buyers are realizing they have more options—causing sellers to rethink their price points. ‘There have been really strong sales, but now all of the sudden you have more supply, which drives demand down a little bit,’ Dement said. ‘Now that we have the supply, buyers have a lot more options and can negotiate a little bit more.’”

The San Francisco Chronicle in California. “The penthouse in the luxury high-rise Millennium Tower has just sold for $13 million, according to the Wall Street Journal, despite the fact that the sinking luxury high-rise has a lean you can see from space. The sixtieth-floor grand penthouse may be a few inches lower than it was when it was purchased and subsequently built out by venture capitalist Tom Perkins in 2009, but that didn’t stop tech veteran Craig Ramsey from purchasing the 5,000-square-foot space.”

“In fact, Ramsey told the WSJ he felt the price was ‘very reasonable’ and ‘well below what the market was nine months ago.’ He added that after talking to engineers and attorneys he felt the risk was low enough to be worth the reward of getting the penthouse, which cost Perkins (who passed away in June) about $18 million to purchase and build out. ‘I’m willing to take whatever risk there is to benefit from a depressed environment,’ Ramsey said.”

From Florida Politics. “Senate budget chairman Jack Latvala isn’t interested in balancing state government’s books on the backs of counties hit hard by the BP oil spill. And he believes the state might have to let local property taxes increase along with home values. Those are among the pressures on the state’s finances projected during the next three years, according to Amy Baker, coordinator for state Office of Economic and Demographic Research. ‘We’re building a structural imbalance,’ Baker said.”

“The good news is that the tourism economy is doing well. And although construction is lagging, there’s a large ’shadow inventory’ of distressed homes left over from the foreclosure epidemic that followed the Great Recession. They’d likely have to be torn down and rebuilt, and that would mean jobs, according to a report Baker’s office prepared for the committee.”

From Crain’s Chicago Business in Illinois. “After rising for six straight years, spending on Chicago-area commercial and residential construction projects is expected to drop in 2017 amid a cooling apartment market. After propping up the construction market in recent years, residential development will drag down overall construction starts to $12.3 billion in 2017, a 6 percent drop from this year, according to Dodge. The main reason: Apartments, the strongest sector for developers and construction firms the past few years, will lose a lot of their oomph.”

“‘We are starting to see that multifamily market slip across the country,’ said Richard Branch, senior economist at Dodge. ‘There’s been so much high-end construction going on, especially in the major metropolitan markets, that the market has kind of reached its apex.’”

“Dodge estimates residential construction starts will drop 27 percent in 2017 from $7.5 billion this year—the biggest volume since before the last recession in 2006—with multifamily starts plunging 48 percent. The expected dip in multifamily construction comes after a wave of new downtown apartment towers in recent years that has landlords bracing for a decrease in occupancy and rents. ‘When you have projects of the magnitude of Vista Tower and One Bennett Park, even in a large metropolitan market like Chicago, the market isn’t going to support two projects of that size in back-to-back years. For those two projects, that’s almost $1.3 billion (in construction costs),’ Branch said.”

The Hottest Markets Are Seeing The Biggest Decreases

A report from The Real Deal on New York. “Extell Development’s One57 has taken another hit. A 6,240-square-foot sponsor unit at the luxe condominium tower sold for $45.8 million, or roughly $7,343 per square foot, according to property records filed with the city Monday. That’s $12.7 million below the last asking price of $58.5 million. The apartment first hit the market in March 2015 for $58.5 million. Anna Zarro, Extell’s director of residential sales and leasing, said in a statement that the unit had gone through ‘five price amendments since it was originally offered for sale in 2011.’ ‘Additionally,’ Zarro added, ‘a previous purchaser forfeited a deposit on this unit which allowed us to take an even deeper discount than the 10-15 percent that we are currently extending on other upper floor units in the building. It was an excellent deal for both parties.’”

The Philadelphia Inquirer in Pennsylvania. “Philadelphia is making an appearance on rental firm Abodo’s list of decreasing rental rates for the first time this month. Between November and December, prices fell by about 4 percent, according to the firm. Rents in Philly may be down 4 percent, but that’s still nothing compared with Miami, where an 11 percent dip still puts the average one-bedroom rental at $1,569.”

The Seattle Times in Washington. “After four years of trudging through brutal rent increases, the Seattle area may finally be ready to see some relief on the horizon. There are strong signs that the price surge in the local rental market peaked in the summer and fall of 2016 and is now in the very beginning stages of a slowdown, according to a report released Monday by Apartment Insights Washington, a leading local rental market surveyor. Rents have even begun to dip compared to a few months ago, with the hottest Seattle and Eastside markets seeing the biggest drop.”

“And looking deeper, there are new, encouraging signs that 2017 will be brighter for renters. The vacancy rate — the biggest predictor for future rents — soared in the fourth quarter at its fastest pace since the beginning of the housing collapse in 2008, the last time local rents dropped significantly. The percentage of empty apartments in King and Snohomish counties rose twice as fast as normal for this time of year, as thousands of new units opened.”

“Another big sign of an apartment market turning is when landlords start offering perks like free rent for a month or no deposit to move in, often a precursor to rent cuts. The survey found 20 percent of landlords of large buildings in King and Snohomish counties are offering incentives to renters, up from 12 percent earlier this year.”

“The hottest markets — typically the first to be impacted during a slowdown — are seeing the biggest rent decreases: Compared to a quarter ago, rents are down 3.5 percent in the University District, 3.1 percent in Queen Anne/Magnolia and 2.8 percent in downtown Seattle. And on the Eastside, the pricey West Bellevue area saw rents dip 3.8 percent, while rents are down 3.5 percent in Kirkland and 3 percent in Redmond.”

“Still, the rosier outlook doesn’t mean rents are suddenly about to start plummeting. ‘Certainly it’s not going to be anything like after 2008,’ said Tom Cain, who leads the survey and has studied the local apartment market for decades. ‘This is going to be rent growth leveling off and slowing a bit.’”

The Houston Chronicle in Texas. “Average rent prices for single-family homes in Katy’s Cinco Ranch subdivision have fallen this year and in November reached their lowest mark in at least two years, according to the Multiple Listing Service provided by Aaron Layman Properties, a local real estate brokerage firm. ‘We have a situation where we are overbuilt in the single-family sector,’ said Aaron Layman, who heads the firm. ‘That’s going to put pressure on landlords. There’s more (housing) options available than before.’”

“Average home rent prices in Cinco Ranch are down 20 percent since the oil crisis started in 2014, Layman said. MLS data provided by his firm shows the subdivision’s average rent just below $2,000 per month, with the average having been about $2,650 in January and roughly $2,500 at the start of 2014.”