November 20, 2017

Something Has To Give

A report from Mortgage News Daily. “Housing activity in the third quarter of 2017 is described as ‘continuing its rough patch’ in Fannie Mae’s latest edition of Economic Developments. The company’s economists say that activity pulled back across the board during the quarter. Leading indicators suggest that the rough patch demonstrated by third quarter numbers may be spilling into the fourth. Pending home sales, which are generally expected to predict sales of existing homes one or two months hence, were flat in September at the lowest level since January 2016. Contract signings have declined on an annual basis in five of the past six months. In addition, average monthly purchase mortgage applications fell in October for the third time in four months.”

“They warn the census report indicates the rental market may be softening. The vacancy rate for all rental housing types rose on an annual basis for the second consecutive quarter to its highest reading in more than three years, 7.5 percent. This is partially because the supply of apartment units, especially in large metro areas and at the high end of the price scale, has increased.”

From Multi-Family Biz. “This week marks the release of the November Housing Tides Report, featuring an update to the Housing Tides Index. As we noted in June, the number of apartments under construction reached a forty-year high this summer and rental rates have been affected by the stream of completed units coming to market; the national median price for a two-bedroom unit fell year-over-year in each of the last eight months. Median monthly rents for these units have fallen by over $200 since mid-2014, from $1,750 in June 2014 to $1,545 in September 2017. Remarkably, these rent decreases have taken place at a time when much of the new multi-family construction in the U.S. has been in the high-cost luxury category.”

“Multi-family housing permits have totaled 292.9k through the first nine months of 2017, marginally higher than the same period in 2016, so we can expect the trend of moderating rent prices to continue in the short term.”

From National Real Estate Investor. “Private equity and institutional investors from the U.S. and around the world have been stepping up their pursuit of seniors housing assets, seizing an opportunity to capitalize on a pullback in acquisitions by seniors housing REITs. But REITs could encounter oversaturation of AL facilities in some markets and should strike a more even balance between AL and IL, notes seniors housing consultant Andrew Carle.”

“‘Assisted living, particularly at the very expensive high end, has been overbuilt,’ says Dr. David Friend, a physician who serves as managing director of the Center for Healthcare Excellence & Innovation at professional services firm BDO. ‘At the low price point, there’s probably a great deficiency of product, but it’s not clear any investor wants to build that product, because I’m not sure they think they can get a return.’”

The Nevada Independent. “Fernley boasts a median home price that, while up 27 percent from a year ago, still remains more than $100,000 less than what it is farther west. The Reno-Sparks Association of Realtors reported in October a median home price of $348,500 for the greater Reno area, which includes Sparks, compared with a $241,500 median price in Fernley. Mike Kazmierski, president and CEO of EDAWN, has been sounding an alarm about the region’s housing problem for more than two years. In February 2017, he submitted a piece with a more dramatic headline: ‘Reno’s housing sky is falling.’”

“‘The first thing we must do is understand that THIS IS NOT A BUBBLE!’ he wrote, noting that 20,000 jobs had been added but only 4,000 new housing units. Browse websites which feature homes for sale, and you’ll be hard-pressed to find many Reno-area listings under $300,000. Those that do fall in the $200,000 range or lower are usually older and smaller, two-bedroom houses or condominiums. ‘We don’t need any more $600,000 houses,’ Kazmierski said. ‘That’s the problem.’”

“On Friday, a bit of good news arrived in Reno Mayor Hillary Schieve’s email inbox: Construction activity had bumped up the rental vacancy rate to above 2 percent, which could curb rent increases if the trend continues. The city recently added 112 rental units and has another 3,000 units in the construction pipeline.”

The Union Tribune in California. “The 10-year, post-recession building recovery is heading for a pause and possible pullback, lending and investment experts predicted. The panel told a local Urban Land Institute forum that next year may see a slowdown in lending commitments for apartments, offices, industrial and retail projects. The profit margin has narrowed between costs and sale prices to make some deals viable, said panel moderator Connie Emmitt-Stern. ‘Something has to give on the land (price) side and that hasn’t changed yet,’she said.”

The Orange County Register in California. “Southern California — and the nation as a whole — is experiencing the biggest apartment construction boom in a quarter century. In the last 34 months alone, new apartments have been springing up from San Clemente to Sylmar, from Murrieta to Marina del Rey. More than 37,000 new apartments have been built in the region since the start of 2015, data from commercial real estate tracker CoStar show. More than 36,000 more are under construction.”

“And it’s happening across the country. U.S. developers are on track this year to complete at least 350,000 new apartments, the most since the late 1980s, according to rental data firm RealPage Inc. So, after seven years of galloping rents and low vacancies, are tenants finally going to get a break? Is there an apartment glut that will trigger a round of rent cuts?”

“In a word, experts say, no. If anything, developers still aren’t building enough. There might be some saturation in a few areas, like in downtown Los Angeles, where rent hikes have slowed. And because most of all this new construction is for luxury apartments, there’s very little that’s affordable to middle- and low-income workers. ‘We do see that the pace of rent growth is starting to slow,’ said Greg Willett, RealPage chief economist.”

“The 700-unit Eighth & Grand apartments cover almost an entire city block in downtown Los Angeles, with two-bedroom rents as high as $4,100 a month. It’s one of 42 complexes built or under construction in the 5 square miles that make up downtown Los Angeles. In all, 12,000 new units have been built or are under construction there.”

The Dallas Morning News in Texas. “Dallas-Fort Worth leads the country in new apartments opening their doors this year. More than 30,000 apartments are scheduled to open in the area through the end of the year, John Sebree with brokerage firm Marcus & Millichap. Along with D-FW, Houston, New York City and Atlanta will see the most new apartments this year. ‘Fifty percent of the total number of units being delivered in 2017 are in just 10 markets,’ Sebree said.”

“D-FW has almost 48,000 apartments under construction, down from a recent peak of almost 53,000 new units in the development pipeline. And, rent increases are slowing. ‘We are seeing a little bit of slowdown in performance relative to where we were in the past couple of years,’ said Greg Willett, chief economist with Richardson-based RealPage. ‘There is some slowing down from what had really been record levels.’”

The New York Times. “Logic, or perhaps a pleasant knowledge deficit about the mechanics of New York real estate, would tell us that to fill the vacant spaces, the remaining apartments should simply be offered to people making a lot less money. The way that these public-private partnerships are structured and underwritten, however, the revenue from more expensive units helps offset the rents of those apartments intended for lower-income tenants (some one-bedroom apartments at 535 Carlton, for example, cost as little as $589 a month). Developers can’t just lower the rents to accommodate demand and keep the projects financially viable.”

“In Brooklyn an overload of luxury rentals already exists downtown. As Adem Bunkeddeko, who is running for Congress in Brooklyn on a housing platform, put it, there is a glut of apartments for people making $80,000. As a member of Community Board 8’s housing committee, he has listened to people bemoan the structuring of 535 Carlton. ‘The main gripe is ‘this is absurd; who is this affordable for?’ he said. ‘Even the folks who came in as the first wave of gentrifiers can’t swing it.’”