February 6, 2017

All Of A Sudden There Was A Pretty Big Shift

A report from the Charlotte Observer on North Carolina. “Charlotte’s real estate market forecasts have been pretty universally positive for 2017, and CBRE added to the optimistic chorus last week, with predictions that growth and development will continue at their fast pace. Despite the record apartment-building boom in Charlotte, with some 23,500 new units planned or under construction, CBRE doesn’t expect vacancy to climb or rents to fall. That’s because job growth and in-migration is expected to provide a steady supply of new tenants to lease those new apartments.”

“‘Occupancy in the multifamily sector remains strong, consistently averaging around 95% from 2012 to present. Occupancy is expected to maintain, if not surpass, those figures over the next two years. The significant amount of development has not scared investors,’ CBRE wrote.”

The Oklahoman. “Apartment developers are building too high for average renters and average investors, so the best venture in 2017 is to buy, upgrade, stabilize and meet the growing demand for affordable housing. That’s the gist of the forecast portion of Commercial Realty Resources Co.’s 2016 apartment report — not that value-add investing is anything new. ‘Growing inventory at the top end will continue to bring average rents up, reducing the relative supply of moderately priced apartments,’ CRRC broker-owner Mike Buhl said.”

“‘New construction has taken this market to a different level in terms of rents, occupancy, pricing, the whole bit,’ Buhl said. Not everyone can afford what is being built now, he said. ‘Developers think they want to create glorious facilities that look really, really good, but the problem is it costs a lot of money to do that,’ CRRC said. ‘When it costs a lot of money to build, you have to charge that back in rent. There is not much availability for the group that is in the $25,000-to-$40,000 annual wage range and this group cannot afford to pay $1,000 to $2,000 a month for an apartment.’”

The Capital Times in Wisconsin. “According to a report released Wednesday, rents in Madison are slightly lower than they were last year. Yearly rent data can also be affected by many high-end units listed at the same time, pulling up the average rental price, said Matt Wachter, housing initiatives specialist for the city of Madison. ‘Some of these years just had really big projects come online, like the Constellation and Ovation, representing hundreds of units, so in one year it can look like these big spikes,’ Wachter said. ‘It’s totally possible that we’re reflecting that national trend of leveling off in 2016,’ Wachter said, but the reasons for this are unclear. ‘It’s hard to pinpoint why that is.’”

From Bisnow on Colorado. “The future health of Denver’s apartment market hinges on businesses and people continuing to want to be here, as they have in droves in recent years. ‘Denver is positioned well in the long run for the apartment supply in the pipeline today, but if there’s a slowdown nationally in the near term, we would likely have a period of oversupply,’ Palisade Partners president Paul Books said. ‘A slowdown would especially be impactful to the higher end of the market.’”

The Banker & Tradesman in Massachusetts. “Boston’s housing costs have continued to rise for six straight years, starting from a low point in 2011. Recently rent prices in Boston have begun to drop moderately, for the first time since the recovery began in 2011. GeoHome, a real estate big data startup, shares its predictions. Boston is experiencing a surge of building permit applications, the likes of which haven’t been seen in the last 60 years. In the past couple of years, over 5,100 apartment units have been built, with another 7,200 apartment units currently under construction that will soon be on the market, according to a recent market report from commercial real estate data firm REIS.”

“Most of these new buildings concentrate around central and south Boston with the majority of them in the high-end luxury condominium or apartment category. The introduction of this new supply to the housing market will make Boston housing more affordable – or result in a significant downward pressure on rents, which could in turn reduce house prices, depending on your perspective. Several neighborhoods, including the Back Bay, Bay Village and the South End, are beginning to experience this downward pressure at a higher rate than usual.”

“One important sign that the Boston housing market has reached the final stage before prices begin to decline is that bottom tier areas are experiencing housing price increases at a rate faster than the price increases being experienced within the top tier districts. From the summer of 2016, bottom tier area prices rose faster than the top tier area, indicating that the bubble is taking shape.”

The Silicon Valley Business Journal in California. “Multifamily housing is in high demand in Silicon Valley, but a new real estate forecast by Allen Matkins and the UCLA Anderson School of Management shows that developers’ desire to build new units may be waning. The recently released report shows that for the first time since Allen Matkins and UCLA began tracking multifamily market optimism among developers four years ago, respondents were less confident they could fill new units or get higher rents for those apartments in the coming years.”

“That was a surprise to John Tipton, a partner in the real estate department at Allen Matkins. ‘Multifamily, like industrial, had pretty much just been positive, positive, positive,’ he said. ‘Literally all of a sudden in this survey there was a pretty big shift.’”

“In 2016 alone, more than 11,260 units wrapped up construction in the Bay Area – more than double the region’s 15-year average of about 5,250 units annually, according to a recent report by RealPage, Inc. Apartment owners throughout the Bay Area are starting to offer new deals to attract new tenants, like a free month – or sometimes more – of rent for signing a lease in a more competitive market.”

From CBS 7 on Texas. “Good news for renters: apartment prices continue to go down. In Ector County, a one bedroom apartment will cost $650 in rent on average. That’s down 13-percent compared to this time a year ago; that’s according to data from Apartmentlist. You’ll also pay less for an apartment in Midland County. On average, a one bedroom apartment rents for $820. That is down nearly 14-percent from this time a year ago.”

The Real Deal on New York. “Chinese development firm CL Investment Group looks to be having second thoughts about New York City’s condo market. The company, formerly known as Cheerland, sold a 32.9 percent stake in the Luminaire, Magnum Real Estate’s rental-to-condo conversion at 385 First Avenue in Gramercy Park, property records show. In recent months, the Chinese firm appears to have soured on luxury condos in Manhattan amid concerns that the market is saturated.”

“This past fall, CL Investment canned its $300.2 million luxury condo conversion at 287 PAS, which it will keep as a commercial and office building, representatives said at the time. The conversion would have included 40 apartments, including a $17.5 million penthouse, according to now-withdrawn plans filed with the New York state Attorney General’s office.”

“Kuafu Properties, another investor with ties to Chinese capital, said last year that it will hold off on condo plans for a site at East 60th Street, which it had bought for $300 million, or more than $1,100 a foot.”

Unwinding QE Will Be A Massive And Long-Lasting Hit

A report from the Orange County Register in California. “The resilience of Orange County’s housing market in 2016 surprised many folks. Builders didn’t construct many ‘affordable’ homes. Questions swirled about the durability of the local economic rebound and the quality of the jobs it was creating. Where would mortgage rates go and would lenders keep lending? And would foreign buyers, a noteworthy force, stay interested? Nonetheless, pricing hit new record highs and sales activity was the best in 10 years. So, was the surprisingly good 2016 a harbinger of more upward momentum or the last gasp of the rebound from real estate’s ugly crash? Is a boom building or a bubble brewing?”

“The typical mortgage used by a 2016 buyer resulted in an estimated monthly loan payment of $2,960, up 6 percent in a year, according to CoreLogic. Perhaps worse, that’s up 41 percent from 2012. But exactly how many folks wanted to buy a home in those early days of the market rebound? Note that last year’s estimated house payment looks cheap vs. the bubble days: It’s 14 percent below the $3,422 payment made by the typical 2006 buyer – back when the market peaked amid a buying frenzy.”

“Builders were the 2016 MVP: 12.4 percent of all sales were new homes, the highest share since 2007. So though developers are adding much-needed supply to a thin market, at new homes’ median selling price of $830,000 last year – down 1 percent from 2015 – it’s little help for bargain hunters.”

The Bozeman Daily Chronicle in Montana. “With fewer homes available to Bozeman homebuyers, prices pushed higher last year, especially for more affordable condos and townhouses, according to local real estate agents. The median price of a single- family home sold inside city limits in 2016 was $359,500, up 6.8 percent from 2015, according to Big Sky Country MLS statistics provided by the Gallatin Association of Realtors. For townhouses and condos, often bought as starter homes, the 2016 median was $240,000, up a whopping 17.1 percent from $205,000 in 2015.”

“‘It’s just like gas or wheat or anything else,’ said GAR CEO Steve Candler. ‘Supply is low, demand is up and the prices are going to adjust accordingly.’”

From CNBC’s Realty Check. “A plunge in applications for government-insured loans was behind a drop in overall mortgage volume last week. Most notable was a 13 percent drop in FHA applications — a direct result of the Trump administration reversing a cut in the FHA’s annual mortgage insurance premium just hours after the inauguration. That cut was the last major policy act of the Obama administration and would have decreased monthly payments for thousands of new, lower-income borrowers. FHA applications increased immediately after the cut was announced, and lenders have reported that many of those have also been withdrawn.”

“‘Following the decision to suspend a proposed decrease in the FHA mortgage insurance premium, FHA refinance applications dropped more than 25 percent, while FHA purchase applications fell almost 6 percent,’ said Michael Fratantoni, chief economist for the MBA.”

From Bloomberg. “Almost a decade after it all began, the Federal Reserve is finally talking about unwinding its grand experiment in monetary policy. And when it happens, the knock-on effects in the bond market could pose a threat to the U.S. housing recovery.”

“Just how big is hard to quantify. But over the past month, a number of Fed officials have openly discussed the need for the central bank to reduce its bond holdings, which it amassed as part of its unprecedented quantitative easing during and after the financial crisis. The talk has prompted some on Wall Street to suggest the Fed will start its drawdown as soon as this year, which has refocused attention on its $1.75 trillion stash of mortgage-backed securities.”

“Because the Fed is now the biggest source of demand for U.S. government-backed mortgage debt and owns a third of the market, any move is likely to boost costs for home buyers. In the past year alone, the Fed bought $387 billion of mortgage bonds just to maintain its holdings. Getting out of the bond-buying business as the economy strengthens could help lift 30-year mortgage rates past 6 percent within three years, according to Moody’s Analytics Inc.”

“Unwinding QE ‘will be a massive and long-lasting hit’ for the mortgage market, said Michael Cloherty, the head of U.S. interest-rate strategy at RBC Capital Markets.”

The New York Times. “After an eight-year run, a troubled government effort to prevent foreclosures and keep struggling borrowers in their homes came to an end in December. The expired Obama-era program - known as HAMP, the Home Affordable Modification Program - was widely criticized for its poor execution. Participation was voluntary for banks, and many that opted in did so unenthusiastically. At one bank, ‘the floor of the room in which the bank dumped the voluminous unopened HAMP applications actually buckled under the packages’ sheer weight,’ according to a scathing oversight report.”

“Banks and mortgage lenders say they are ready to step in with their own foreclosure-prevention programs, modeled on what they learned from the Obama administration’s effort. Armed with years of new data, financial companies say they now know how to make loan-modification programs successful, for both borrowers - who want to protect their homes - and lenders, who want to limit their losses on delinquent loans headed for default.”

“‘There’s tremendous public good in having an industrywide approach,’ said Justin Wiseman, the director of loan administration policy at the Mortgage Bankers Association, a trade group. ‘No one wants things to revert to what we had before.’”