The Housing Bubble

A report from National Real Estate Investor. “The U.S. apartment completion volume across the country’s 100 largest metros has accelerated to more than 80,000 units per quarter in 2017, up from around 60,000 units a quarter in the previous couple years. That aggressive new supply tally is creating a more competitive leasing environment for top-of-the-market product, especially in urban core settings where so many communities are coming on the market within blocks of each other. Atlanta and Dallas are markets that could drop out of the ’solid performer’ category for urban core properties relatively quickly. The cities are absorbing product additions at breakneck speed. However, construction has gotten so aggressive that rent growth is showing signs of stalling.”

“Rents have been essentially flat for a while now in a big block of downtowns, including the urban cores in Charlotte, N.C., Los Angeles, Miami, San Antonio, Texas, San Diego, San Francisco, San Jose and Washington, D.C. Let’s also put Manhattan and Brooklyn in this category. Downtown Los Angeles is still not an especially well-established marketplace, and it has struggled to absorb new supply totaling more than 7,000 units over the past three years. With ongoing construction at 8,000 or so units, a brief period of sizable rent cuts is looking like a possibility.”

“Effective rents in downtown Portland, Ore. have been gradually drifting downward throughout the past year, and Denver’s urban core has been losing pricing power throughout 2017. Furthermore, Central Portland occupancy of about 94 percent is off roughly 300 basis points from the level recorded a couple years ago, and downtown Denver’s occupancy rate of about 91 percent is down even more drastically.”

“Houston’s urban core apartments are really taking a beating. Annual rent cuts are right around the 5 percent mark downtown, and similar or deeper losses are occurring in other urbanized zones like the Medical District, Greenway/Upper Kirby, Greater Heights/Washington Avenue and the Galleria/uptown area. Furthermore, most of these neighborhoods have been suffering rent loss since late 2015 or early 2016. About half of the 21,800 apartments currently under construction in metro Houston are on the way in the more urbanized submarkets, including some 4,200 units specifically in downtown.”

From Bisnow. “There remains a large disparity between the luxury apartments being constructed and the working-class Americans in need of affordable apartments. This divide is driving companies and renters from expensive core markets with inflated rents like San Francisco and New York to more financially manageable areas, and the migration is not going unnoticed by investors. As for the top sell markets, it may come as no surprise that the country’s leading metros like New York and San Francisco are experiencing a shift in renting power as landlords increasingly offer concessions and perks to lure residents and remain competitive. According to Ten-X research, the five top sell markets for multifamily investors are New York City, San Francisco, San Jose, Washington, D.C., and Oakland.”

“Healthy absorption continues to power the sector forward despite expectations of record new deliveries hitting the market later this year. Yardi Matrix predicts multifamily supply will peak this year, with 360,000 new units expected to come online in Q3 and Q4. ‘While many large metro areas are increasingly exposed to both cyclical risk and massive oversupply, the overall market is being sustained by significant societal shifts that is driving strong, sustained demand,’ Ten-X Chief Economist Peter Muoio said in a statement. ‘As long as gainfully employed millennials and other Americans continue to choose renting over homeownership, a majority of multifamily investors can be confident that rents will continue to rise.’”

The Philadelphia Inquirer in Pennsylvania. “Developer Carl Dranoff is planning 28 stories of luxury condos at Broad and Pine Streets, instead of the hotel-and-apartment hybrid he previously had in mind for the site, as Center City heads toward a likely near-term glut of both rental housing and hotel guest rooms. Tony Biddle, regional leader for CBRE Hotels, said central Philadelphia hotel rooms are being booked at an ever-swifter pace. But Biddle said that won’t be enough to absorb all the new supply in the near term, which could encourage other developers with hotel projects on their drawing boards to join Dranoff in revising those plans.”

“Developers are ‘taking note of the anticipated supply growth that we will have here over the next couple years,’ he said.”

The Dickinson Press in North Dakota. “Are apartments and commercial properties taking on an unfair tax burden in Dickinson? Carlos Royal, owner of roughly 300 apartment units in Dickinson, certainly thinks so. Even as Dickinson’s oil boom continued to pump along in 2013, Royal believes that the apartment market was already beginning to crash. Developers ‘basically overbuilt the market,’ Royal said. ‘The apartment boom started to show signs of a bust in 2013.’”

“He also believes that he won’t be the only one giving the city trouble over this issue and pointed to recent similar lawsuits filed by Menard’s and Sierra Ridge Apartment Homes’, both in Dickinson, as evidence of a more systemic issue. ‘I think you are going to find that there is going to be a whole flood’ of commercial property owners complaining to the city about overvaluation, Royal said.”

From Curbed Miami in Florida. “Miami rents are dipping across many popular neighborhoods, according to the latest report by Zumper. While rent in the city itself still remains expensive—the median one-bedroom apartment price of $1800 ranks 9th in the country—a year-over-year decrease is noticeable in coveted core areas like Brickell (-2.3%), Downtown (-6%), and Edgewater (-8%), but the reductions are especially prevalent in South Beach, where rents along West Avenue and the city’s center have dropped 10 percent and 15 percent, respectively.”

“Reasons why rents have slipped in the aforementioned areas could not only be due to an oversaturated supply but that Miami renters simply want out. Apartment List recently surveyed 24,000 renters across the country and found that 76 percent of renters in South Florida ‘planned to settle in a new city.’ This was 12 percent higher than the national average.”

From Real Estate Weekly on New York. “It may be the busiest time of the year in the New York City rental market, but according to the latest market reports, renters have the upper hand. According to a report from Citi Habitats, while average rents declined in July as compared to the previous month, the vacancy rate increased. ‘Any time the vacancy rate kicks up one month from another in the summer season, that’s something that always intrigues me because it’s the busiest time of the year,’ said Citi Habitats president Gary Malin. ‘Historically, you’d think vacancy would go down because in the summer people are moving here. You just wouldn’t expect it to rise, but given the way the market’s been operating over the last year, it’s pretty much par for the course.’”

“Malin called the rental market ‘very price-sensitive,’ and that while landlords are looking to achieve high prices — and many do — renters will find other neighborhoods where they can get the same amenities and proximity to Manhattan for less. ‘They have an idea in their head that they can go to other locations and get value,’ said Malin of renters.”