Long-Term Failure To Some And Severe Stress To Most
A report from Multi-Housing Biz. “This week marks the release of the October Housing Tides Report, featuring an update to the Housing Tides Index, an objective and sophisticated approach to quantifying and comparing the health of U.S. housing markets. Driving the significant drop in the Index was the release of 2016 local household formation data from the U.S. Census Bureau’s American Community Survey (ACS). The Index component that measures the ratio of housing permits to household formations worsened considerably, from a largely healthy ratio of 1.24 in 2015 to a less-ideal 1.83 in 2016. Specifically, while the U.S. saw 1.19M housing permits approved in 2016, the ACS data show that there were just 652k new households formed. Compare this to 2015, with 1.18M permits approved and 949k new households formed.”
“It’s difficult to reconcile the above, which suggests that housing construction is outpacing household formation by a large margin, with the extreme shortage of homes for sale, which fell to 2.8 months of supply in August.”
From Bisnow on California. “Cap rates may be low in San Francisco, rents may have flattened, but multifamily developers and investors are chomping at the bit to get their slice of the city. ‘As of three or four years ago, San Francisco became the center of the universe,’ said Maximus Real Estate Partners CEO Robert Rosania. Lenders and investors, including life insurance companies, are not showing signs of pulling back even as rent growth has slowed. ‘No one [in life insurance] is looking to lighten their allocations into 2018,’ Bellwether Enterprise Senior Vice President John Ghio said.”
From WUFT in Florida. “When Irfan Kovankaya pulled into the parking garage of his new apartment complex in August, one of the first things he noticed was an abundance of nice cars. ‘I looked around, and I saw like four Mercedes Benzes in literally four minutes,’ said Kovankaya, a resident at The Standard, the just-built high-rise complex across from the University of Florida. ‘Then I saw like 15 million Mustangs, and as I was driving in my Toyota RAV4, my mom was like, ‘These cars are all nicer than my car and every car I’ll probably ever own.’”
“Kovankaya said he’s feeling the financial pressure from that greater value at The Standard and plans to live elsewhere next year. ‘I already live above my means,’ he said. ‘I can’t live here another year.’”
The Bowling Green Daily News in Kentucky. “Michael Vitale believes in downtown Bowling Green, so much so that he and business partner Steve Sutton are all-in when it comes to betting on the city’s core. Partners in New Millennium Real Estate LLC, Vitale and Sutton are watching their The Vue residential/commercial development take shape while also breaking ground on a three-story, 15-unit residential development called 700 State and on an upscale residential development they’re calling Lenox Place.”
“And there’s more. These developments are among more than 1,600 multi-family units approved by the City-County Planning Commission of Warren County in the first nine months of this year, but Vitale and Sutton aren’t worried about a glut in the apartment market. ‘So many apartments have been constructed in Bowling Green,’ said Vitale. ‘But we think location is the key. We think being downtown will be an advantage.’”
From WHYY in Pennsylvania. “Apartment leasing agents across Philadelphia are noticing a trend: It’s getting harder and harder finding tenants to move in. With the city in the midst of an apartment construction boom, renters have more options than ever, meaning landlords are increasingly dropping rents and sweetening the pot to woo tenants. ‘The market is so saturated right now,’ said real estate agent Cristy Michaels. ‘Owners are decreasing rents in an effort to try to get renters in. I have one client who is now offering two free months. Two free months prorated over 12 months. That’s an incredible deal.’”
“‘Two years ago, we’d do a Craigslist post, and we’d get 20 hits instantly,’ said longtime Philadelphia real estate broker Mike McCann. ‘Now, I just had one, a little one-bedroom on Ninth and Spruce for $1,100. We had no hits in a week.’”
From DNA Info on New York. “Home sales prices in Brooklyn continued to rise in the past quarter, while rents dipped, according to market reports from top brokerage firms. The median price for rentals in the borough, when taking concessions like a free month’s rent into account, dipped 5.6 percent to $2,757 a month. The borough’s focus on new high-end rentals — where a glut is forcing developers to give incentives to keep prices aloft — has resulted in ’softness’ in that market, explained Elliman report author Jonathan Miller.”
“‘I wouldn’t say condos are in short supply, but there’s not a flood,’ Miller said. ‘The only time a condo doesn’t sell quickly is because the sales price is too high, not because of the demand.’”
From D Magazine in Texas. “As we continue through the longest economic recovery period in recent history, most indicators remain level promoting a perceived stability. There appears to be no common agreement on the remaining length of this positive cycle being offered from knowledgeable prognosticators. Most feel a predictable ‘correction’ is inevitable and most seem to be wisely preparing for it. Industrial, multifamily, Class A office, and hotel construction continues at a record pace, although all are beginning to display moderate discipline with significant decreases in new and planned projects. Stealing a comment from Wayne Swearingen, ‘Are we really overbuilt, or just over announced?’”
“The gap between existing home prices and new home supply continues to increase despite the 40 percent price increase in home values over the past four years. In comparing our company’s current brokerage activity and product focus with that of just five years ago, we see little activity in severely overpriced income producing acquisitions. Sale prices are two and three times replacement cost, even with land and construction costs at record highs.”
“Scrambling for yields has made this investment vehicle extremely vulnerable in all vertical asset classes. Their susceptibility to a negative national economy spells long-term failure to some and severe stress to most. Specialty products, self-storage, hotels, student housing, and certain medical uses are rapidly being overbuilt.”
