The Housing Bubble

A weekend topic starting with Realty Biz News. “The apartment sector of the residential housing market has begun showing indications that it is becoming saturated. Construction of high-rise apartment buildings in metro areas typically takes a year or longer to complete. The result is that many projects started during the middle and towards the end of the boom are only now coming online. In the hottest growth areas like Seattle, property managers are beginning to offer discounts and incentives to fill these new and expensive buildings. Yet, foreign investment into apartment buildings has been increasing rather than decreasing. The last quarter of 2017 and first quarter of 2018 saw higher foreign investment amounts than when the boom was in full swing during late 2016 and most of 2017. We’re talking about $10s of billions flowing in every 3 months for at least the past 3 quarters.”

“According to Real Capital Analytic, this increase is at least partially due to new foreign investors entering the market. You might think that most of this money keeps coming from China but even China almost always comes in second to Canada, which is historically the largest foreign investor in US real estate. In fact, 10 of the top 15 foreign buyers of apartment properties in the U.S. were Canadian during the 12 months that ended in the first quarter of 2018. What’s of interest is that Singapore has recently passed China to become the second most active foreign investor. Two Singapore investment funds alone invested about $6 billion in U.S. apartments over the past 12 months.”

“The same two biggest foreign investment countries, Canada and Singapore, are also investing heavily in college student housing. Overall, foreign investment in student housing is estimated to account for 36% of all transactions in 2017 and 42% so far this year. Both of these numbers are up significantly from 21% in 2016.”

From Multi-Housing News. “Jason Shepherd, co-founder of Atlas Real Estate Group, a Denver-based full-service realty firm, talks here about what he’s seeing in 2018. Q: With the first half of 2018 now behind us, what are the trends you’ve seen in Denver’s multifamily market? Shepherd: In Denver, we have been flooded with new multifamily construction over the last few years. Developers have overbuilt the multifamily asset class in Denver and I’m keeping my eye on this over the next couple years. I’m patiently waiting to see what happens to these units as 10 years of apartment supply (using our average absorption rate for this asset class) enters our market.”

“Q: What’s your biggest piece of advice with today’s current market? Shepherd: Be patient; post-housing crash we saw a flood of multifamily tenants. First, because a lot of people lost their homes or credit and also a large group of people that observed the fallout and preferred the ‘less stress’ rental option. Couple that with lenders that were excited to loan as much cash as possible after of a few years of very controlled lending practices and you have a frothy multifamily construction market.”

The Charlotte Observer in North Carolina. “Charlotte’s high-flying apartment market can’t ignore the rules of supply and demand, according to a new report that warns developers might be building too many high-end units in the city. The wave of construction probably won’t stop anytime soon, according to an analysis by apartment-tracking firm Yardi Matrix, even as the supply of new units outstrips demand from renters. ‘In the near term, markets at risk of oversupply include Denver, Seattle, Charlotte, Dallas, Phoenix and Miami, where deliveries are expected to outpace demand,’ the company wrote in its report.”

“Figures from Charlotte-based Real Data show the apartment vacancy rate uptown is 21.8 percent. That’s the highest in the city by a wide margin, and more than three times the Charlotte market’s average. More than 1,100 uptown apartments are vacant. For now, however, the boom is still on, with about 27,000 apartments planned or underway. And developers are optimistic, forging ahead with plans that incorporate ever-more-luxurious amenities like private wine bars, golf simulators, massage rooms and complimentary dog grooming in dedicated pet spas.”

From Bisnow on Texas. “Is too many amenities a bad thing? The Houston apartment industry oversupplies facilities with services and features, including ones renters don’t want, according to Apartment List. ‘Houston falls into the category of what we are calling too-many-amenities metros,’ Apartment List Housing Economist Chris Salviati said. ‘If you are paying for amenities that you don’t necessarily need that could be a downside for a renter.’”

“The supply of new rental inventory in Houston is driving the overabundance of amenities — newer properties are more likely to be equipped with the modern amenities. Houston is oversupplied in nine of the 10 amenities profiled, including air conditioning, hardwood floors, dishwasher, parking, gym, balcony, pool and being cat- and dog-friendly. For example, only 7% of users desire cat-friendly housing yet 78% of housing offered it. The report also showed 40% of users wanted a pool yet 80% of the properties provided one.”

From KBTX in Texas. “A housing trend is troubling local landlords and property owners. They tell us the Bryan-College Station market has become over-saturated with rental properties. The Texas A&M Real Estate Center says the vacancy rate for apartments alone is nearly 18.9 percent, one of the highest in the state. Area landlords told KBTX the abundance of properties are hurting their bottom line. ‘I own five houses in the Southside Historic Area that, in the past, I’ve had people waiting in line to rent them. We’re struggling to rent some of those houses,’ said Robert Averyt, a College Station landlord.”

“Averyt has owned rental property for years, but he’s finding it harder to lease them as inventory in town grows. ‘I just signed a lease… for $1,250 for what I used to get $1,600 for. That seems like we’re very overbuilt,’ he said.”

The Argus Leader in South Dakota. “It’s a good time to be a renter in Sioux Falls. A rush of large-scale apartment buildings going up in the last couple of years caused average rent in Sioux Falls to drop. There were more than 4,000 empty apartments in Minnehaha and Lincoln counties in January, according to federal housing data. Sioux Falls is celebrating five straight years of record-breaking in construction. Much of the activity both last year and the year before included sizable apartment complexes trying to hook families with lots of amenities and luxury offerings.”

“Massive campuses such as Graystone Heights in southeastern Sioux Falls and University Hills across town added to the city’s pool of rental units, and are still opening new apartments.”

The Daily Record in Maryland. “Baltimore joins metro areas, such as Portland, Oregon, Seattle, and Washington on the list of metro areas with slow rent growth, according to RealPage. The firm attributes slow rent growth to a glut of luxury units on the market in many major metro areas. Concessions, such as month of free rent, are now common in many of the trendiest neighborhoods in these areas. Apartment List found that rents in Baltimore were .6 percent lower year-over-year in the second quarter. Rents in Towson dropped the most declining 4.2 percent.”

The Seattle Times in Washington. “Inventory doubled from a year ago in Ballard/Green Lake/Greenwood, Renton-Benson Hill and Sodo/Beacon Hill. The number of homes on the market surged more than 75 percent in Lake Forest Park/Kenmore, Skyway and Renton-Highlands. In downtown Seattle, a condo-only market, inventory nearly tripled.”