The Housing Bubble

A report from Mortgage News Daily. “New home sales were down again in August, following a 9.4 percent plunge in July. The U.S. Census Bureau and the Department of Housing and Urban Development said sales of newly constructed homes sold during the month at a seasonally adjusted rate of 560,000 units. This is a 3.4 percent drop from the revised rate of 580,000 (from 571,000) in July and is 1.2 percent lower than the August 2016 rate of 567,000. At the end of the reporting period there were an estimated 284,000 new homes available for sale, a 6.1-month supply.”

From National Real Estate Investor. “Nothing good lasts forever. Apartment sector experts are scanning the horizon for problems that could hurt their properties. Here are a few of the top worries for today’s multifamily investors: Luxury apartment building owners worry about competition from new class-A developments. ‘The delivery volume is the biggest concern in the class-A property niche now,’ says Greg Willett, chief economist for RealPage Inc., a provider of software and analytics to the real estate industry. Developers plan to open more than 100,000 new apartments per quarter starting in the third quarter and continuing through the middle of 2018. That’s up from the roughly 80,000 new units per quarter that opened over the last year.”

“‘A huge wave of new supply brought on-stream during the seasonally slow leasing period that is seen in the fourth quarter and the first quarter of 2018 could do some real damage to overall occupancy,’ says Willett.”

The Kansas City Star. “‘In reality there are only two flavors that new apartments come in,’ said Jim Thomas, a partner in Indianapolis-based Cityscape Residential, which is building hundreds of luxury units around the metro. ‘Luxury and low-income.’ Both types of housing are apt to garner government support. So far there appears to be no shortage of demand for the new luxury apartments shaping KC’s downtown skyline. But as more units go up, developer Thomas predicted, the supply of housing eventually will cause the market to soften and rents to stabilize.”

The Columbian in Washington. “Drive along state Highway 503 between Brush Prairie and Battle Ground and the land tells a story of more apartments to come. Signs staked out in pastures advertise commercial land. Though building of single-family homes continues at a rapid pace, right now it’s the construction of apartments and other multifamily dwellings that is red hot. For the first time in many years, more multifamily units are under construction in the city of Vancouver than single-family homes. In unincorporated Clark County, the share of multifamily housing is 42 percent, more than double 2016.”

“Roni Battan, a manager with the assessor’s office, said the homebuilding trend today resembles the 1970s and 1990s. ‘Since 2011 and moving forward, I’ve seen a huge increase in multifamily development,’ she said. ‘I mean, they can’t break ground fast enough to get these developments going.’”

“Still, the business cycle suggests that Clark County eventually will reach critical mass with multifamily housing. With plenty of apartments in the pipeline, it could happen within a couple of years, said Jon Spikkeland, senior associate of consulting firm Johnson Economics. Developers see what’s happening and they will start to pull back. When that happens, landlords will start sweetening the pot. Some will offer the first month of rent free or other promotions and amenities. Union Park developers built in a fitness center, playground, basketball court, a barbecue and patio with covered gazebo to try to separate it from the pack. It also touts amenities like keyless entry, parking for electric vehicles with charging stations and more.”

“Those amenities, developer Sam Scheuble said, make them more competitive for whatever turmoil the future may bring. ‘If we can be better than others, we’ll survive it,’ he said.”

The Seattle Times in Washington. “Seattle rents are rising at their slowest pace in more than five years and the slowdown is likely to continue as a record number of new apartments open, a new survey shows. Some hot neighborhoods have cooled way down. In Ballard, rents are up just 2 percent over the past year — the smallest increase in at least a decade. Capitol Hill’s average rents are up just $35 from a year ago, about the same as inflation. And Rainier Valley rents dropped a bit since the spring.”

“The report lays out how the market, which has long favored landlords, is finally starting to shift toward giving more power to renters. Seattle has opened more new apartments in the past five years than in the previous 25 years combined. But until recently that surge hadn’t affected rents, as all the expensive new buildings were quickly snatched up by the many people moving to the region. That story is changing. The number of new renters has begun to drop considerably, and the number of new apartments continues to grow, with another record-setting year for construction set for 2018.”

“‘Investors should plan for higher vacancies and fewer rent increases,’ Dupre + Scott wrote in its report.”

From KATU in Oregon. “After seven years of strong economic growth, real estate experts say Portlanders may soon notice prices are dropping. Mixed-use buildings have sprung up all over Portland, primarily on the city’s east side. Real estate broker Vinny Small says the increased supply has led to an increase in vacancy rates for both retail and residential units.”

“‘When I do throw a two-bedroom apartment out there, I’m not getting the response that I used to,’ Small said. ‘I’m actually having to do incentives, where you’ll give a free month of rent or lower the price, which wasn’t the case last year.’”

From Banker and Tradesman in Massachusetts. “Plans to build two residential towers above the Massachusetts Turnpike in Back Bay have been scaled back with elimination of a 182-unit apartment tower and reduction in a proposed condo tower from 160 to 108 units. In January 2017, Boston-based Weiner Ventures filed plans to build 182 apartments and 160 condos in a pair of towers rising 586 and 301 feet on a 1-acre site above the Turnpike and MBTA rail lines just west of the Hynes Convention Center.”

“The revised plans filed Monday with the Boston Planning and Development Agency are the latest in a series of pullbacks by multifamily developers in Boston after several years of blistering construction. Equity Residential said it’s delayed groundbreaking of its 44-story apartment tower at the Garden Garage site in the West End, citing rising construction costs. Boston-based Samuels & Assoc. last month dropped plans for 550 apartments at the Landmark Center in the Fenway in favor of a proposed 506,000-square-foot office and lab building called 401 Park.”

“And Boston-based HYM Investment Group said in July it will eliminate 118 apartments in favor of 55 condos at its 45-story Bulfinch Crossing tower under construction at the Government Center garage property.”