The Housing Bubble

A report from Bisnow on Washington, DC. “In recent years, DC has experienced an influx of Millennials who have boosted absorption in the rental market, but Delta Associates’ latest multifamily report says that trend is slowly fading. While absorption remains well above the 10-year average, 2016 saw a steady decline that, by Q4, had reached the lowest level since Q2 2014. ‘We expected the trend to start to go down but it went down a little more than we expected it would,’ Delta Associates’ multifamily director Will Rich told Bisnow. Delta expects absorption will continue to drop over the next three years. It predicts a 9,033-unit per year average through 2019, with 2017 being the strongest year in that period.”

“While this absorption would still be above the 10-year average, the area is preparing for a record year of multifamily deliveries. More than 13,000 units are expected to deliver across the DC Metro area in 2017, nearly 2,000 more than last year.”

The Dallas Morning News in Texas. “Almost 50,000 apartments are being built in North Texas. And nationwide, developers got permits to start an estimated 383,000 multifamily housing units in 2016. Still, after a half-dozen years of rising construction, the apartment building binge shows signs of flattening in 2017, top housing economists say. ‘We are seeing a leveling off of production,’ said Robert Denk, a forecaster for the National Association of Home Builders. ‘I think we are pretty much done.’”

“Apartment construction around the country remains very high — more than three times the starts the industry saw at the worst of the recession in 2009. ‘We’ve been averaging almost 400,000 starts in 2016,’ Denk said. ‘We think that’s not quite sustainable.’”

The San Francisco Chronicle in California. “Sound Off: Concerns about a commercial real estate crisis? According to various sources, San Francisco’s commercial real estate market may be seeing a slow down in the city’s technology driven economy. Office subleasing is at the highest level since 2010. A five-year frenzy for San Francisco office space may be cooling as venture capital investments decline and tech firms slow their hiring from record paces. The extra space is a warning sign that the growth rate for some companies was unsustainable. Some startups took more space than they needed in the hopes of expanding later, while others are moving to less expensive areas.”

“The trend isn’t entirely negative, however. Subleasing opens up more affordable space at a time rents are near record highs. - as the space on the market for sublease have asking rents about 17 percent below those of regular leases, according to Cushman & Wakefield.”

The Grand Rapids Business Journal in Michigan. “While not quite yet a wet blanket, there’s at least a damp towel on optimism for future development of market rate housing in downtown Grand Rapids. Absorption of apartment units coming online has slowed, with hundreds of units still under construction or planned, resulting in a more diligent and hesitant process in considering new projects. Developers, lenders and brokers all told the Business Journal they’re treading lightly into future market rate developments.”

“Mercantile Bank commercial lender Justin Karl said there is concern supply could soon outpace demand, and despite current demand in Grand Rapids, it still is tough to open a project and fill 200 units immediately. ‘It’s been something on our minds: When do we have too much?’ Karl said. ‘There’s a general consensus they’re in good demand and projects are being absorbed but maybe not as quickly as they thought.’”

The Denver Post in Colorado. “Metro Denver’s housing market could diverge in a big way this year, with apartment rent increases slowing to a crawl or even reversing, while home prices continue to race higher. Signs of cooling are strongest on the multifamily side, where a large number of high-end units are expected to hit the market this year. Abodo, in its annual rent report, puts metro Denver in the category of declining markets, recording a 6.7 percent drop in one-bedroom apartment rents in January compared with a year earlier, the seventh steepest decline among the cities it tracked.”

“One of the more upbeat reports comes from RealPage in Texas, which estimates metro Denver rents are rising at a 4.4 percent pace, down from gains in the 8 percent to 10 percent range a year ago. ‘It has been a meaningful slowdown,’ RealPage chief economist Greg Willett said. ‘But it is still a good number.’”

“RealPage estimates about 11,000 apartments came onto the market last year and that another 13,000 should become available this year out of a construction pipeline of around 21,000 units. So far, the Denver market has managed to absorb the new supply, but landlords, eager to fill their projects, are offering more concessions — including a month or two of free rent — to win over tenants, a key reason why rent increases have slowed.”

“Willett said apartment developers, initially focused almost exclusively on downtown areas, are casting a wider net, although the economics have them still focused on higher-rent or luxury units. Whether the metro Denver apartment market holds up or rolls over will depend mostly on continued job growth and in-migration, given that developers can’t easily put the brakes on projects launched years earlier.”

From Fox Business on Florida. “Stephen Cohen, a realtor and investor specializing in the South Beach luxury condo market, is biding his time. By this time next year, the 15-year real estate veteran expects the average price for a condo in Miami Beach’s hottest neighborhood to drop by more than 40 percent than it is today. ‘In the last six months, prices have dropped by nearly 20 percent,’ Cohen says. ‘I expect it will go down another 20 percent in the coming months. So I’m not buying until 2018.’”

“From Miami’s Brickell financial district to the sunny shores of Golden Beach, a growing glut of luxury condos combined with a dwindling pool of foreigners willing to pay seven figures for a glitzy home in a glass and steel tower has experts like Cohen predicting a free fall in sales prices in the next 12 months. ‘It’s a complete stall,’ Cohen says. ‘There is nothing moving. Realtors are freaking out right now.’”