The Housing Bubble

A report from KATU in Oregon. “According to the February edition of Portland State University’s Center for Real Estate Quarterly, the effective rent growth rate for an apartment in Northwest Portland is slowing down. Carlo Castoro, a realtor in Portland, says the reason behind the negative growth rate can be explained by an Economics 101 concept: supply and demand. The supply in Northwest Portland was bolstered by new buildings. ‘There have been, what we call in the industry, deliveries in that market,’ Castoro explained. ‘What that means is that there are a lot of new apartment buildings that have been built [in Northwest Portland] and are now accepting residents. It’s just the basic function of supply and demand. Where you have more supply of apartments and demand has not met that supply, it puts a downward pressure on prices.’”

From Philadelphia Magazine in Pennsylvania. “National Real Estate Development, LLC (NRED), the union-affiliated development firm that’s behind the East Market mixed-use development, announced that it had closed on a $57 million loan from Wells Fargo that will allow work to commence on the project’s second apartment tower. Dan Killinger, NRED’s managing director of development expressed no worries that this project would suffer as what appears to be a looming glut of apartments is coming down the pipeline. ‘What we’re trying to make is a new neighborhood, and a critical mass of residential is necessary to make the retail component vibrant and drive the street life in the area.’”

“Which doesn’t mean NRED didn’t explore other options before settling on apartments: Killinger said that the company had also studied office and hotel uses for the tower but decided that their first impulse remained the right one and that ‘residential would be the way to go now.’”

From Time Out Chicago in Illinois. “The good news is that rents for one- and two-bedroom apartments in Chicago are lower than they were this time last year. And, cheaper rents aren’t a one-off for the month of March. When you look at the year-over numbers, the price decreases are significant. One-bedroom rents are down 7.5 percent from this time last year, and two-bedrooms have dropped a whopping 10.6 percent.”

From Bloomberg on New York. “Rents fell last month for Manhattan apartments of all sizes, the first across-the-board price decline in at least four years, as a construction boom brought more buildings to market. Apartments available for rent at the end of February totaled 6,872, a jump of almost 12 percent from a year earlier. The number of new leases fell 28 percent last month to 3,634. ‘In the months of January and February, we had customers requesting three to four months free, which is pretty unheard of,’ said Melinda Sicari, a broker with Douglas Elliman.”

The Real Deal on Florida. “As new condo units continue to come online in 2017, resale pricing in Miami’s urban core is reporting a drop for the first time in eight years. Greater Downtown Miami’s condo inventory will grow by 3,456 new units this year, the largest surge of new product expected over the next three years, according to the latest Miami Downtown Development Authority report authored by Integra Realty Resources.”

“In 2016, 2,202 condo units were delivered in Miami’s urban core, which is more than half of the condo inventory that’s been delivered since 2012, according to the report. While the absorption of new units to the Greater Downtown Miami market is slower, preconstruction condo pricing is holding steady. ‘If you don’t buy today I don’t know how you can complain about the rent three years from now,’ said Anthony Graziano, Integra Realty principal and the report’s author, citing lower prices at condo projects like Hyde Midtown and Centro.”

“The wave of new inventory has led to a decline in pricing. Existing condos saw a 7 percent decrease in prices in January compared to the year before. ‘I think we are going to see indexes down another 5 [percent or] 6 percent this year,’ Graziano told The Real Deal. ‘I keep telling everyone, don’t wait for ‘the crash.’ Take advantage of the interest rates now.’”

The Houston Chronicle in Texas. “So many luxury apartments have opened recently that landlords are offering move-in bonuses, free rent and chances to win week-long cruises just to fill them up. Some Houston developers say it’s time to start building more. The owner of Memorial City Mall, for example, announced Thursday it would begin construction this month on an 8-story building with 327 luxury rental units and a rooftop pool.”

“That’s not to say this year isn’t going to be brutal for landlords. Occupancy will continue to drop, as will rental rates, especially in the urban neighborhoods where much of the construction has taken place. Willett said rents are off about 6 percent from where they were last year. Some 27,000 new units are in the lease-up phase, yet only about 30 percent of those are rented, said analyst Bruce McClenny of Apartment Data Services. About 13,000 more units are expected to be developed this year.”

“Despite the glut, other developers have pitched new projects, which they expect to be open once the recovery has taken hold. ‘I’m not at all alarmed what’s happening now,’ said commercial mortgage veteran Hal Holliday. Holliday said developers should be planning for future demand. ‘If we slam on the brakes and don’t try to gently push on the gas we’re going to find ourselves back into a pent-up demand situation, and that’s always accompanied by rising rents and probably too many people jumping in,’ he said.”