The Housing Bubble

A report from Bisnow. “The multifamily market is in the late stages of a prolonged expansion, and capital sources continue to put money into the sector although industry experts say internal rates of return are declining. ‘Capital, especially debt, is extremely available — so is equity, and that raises prices and compresses returns,’ Southlake-based Trinity Private Equity Group principal Doug Gunn said at Bisnow’s Multifamily Annual Conference South. To be sure, plenty of equity is looking for yields and a place to land, Walker & Dunlop Managing Director Stuart Wernick said. He and others spoke on the state of multifamily financing during the conference. ‘There is not only capital here in the U.S. but all over the world,’ Wernick said.”

“Allied Orion Group CEO Ricardo Rivas said the company recently took a Houston property off the market after its best offer fell $1M short of its minimum asking price. ‘What made that decision easier was the availability of debt,’ Rivas said. Because cap rates have been compressed, investors have started to lean toward bridge loans to finance acquisitions and renovations. However, with the slowdown in rent increases, developers will need to be careful as they look at positioning their assets for a future sale as IRRs are coming down as rent growth slows. ‘We can’t pencil in anything over 17 [IRR],’ Rivas said. ‘Unless we are drinking a lot of Kool-Aid, then it’s a 25.’”

From Mansion Global on California. “San Francisco real estate markets are continuing their blistering streak through the second half of 2018, according to Paragon Real Estate Group. Some of the heat is coming from renewed interest in luxury condos flooding the market. Even while many luxury projects don’t list their offerings publicly, the sheer number of construction projects in the pipeline—68,000, by Paragon’s count, are among the evidence of an uptick in demand over the last six to nine months, said Patrick Carlisle, chief market analyst for Paragon. ‘There’s an immense amount of money sloshing around the Bay Area, for that matter, around the country,’ he told Mansion Global.”

From CBS 4 Denver in Colorado. “Denver city leaders launched a new program they say is unlike any other in the country to try and help families find affordable options for housing in the competitive renter market. The program uses vouchers supported in part by employers and apartment complexes. Councilman Kevin Flynn was the only ‘No’ vote. He says he supports programs that help families pay for the cost of rent, but wonders if this is the right approach. ‘If apartment units are vacant and new, in this hot market, that means the rents are too high,’ said Flynn.”

From Reuters on Florida. “Elene Errazuriz had spent nearly three months trying to sell her four-bedroom-house on Key Biscayne. She was surprised at the small number of visitors and the low offers. Some viewers even implied that the house had little value as its elevation is among the lowest in all of Miami-Dade county: just one meter (3.2 feet) above sea level, Errazuriz said. ‘I was afraid I’d have to sell for just the land value,’ she said.

“In mid-June, Errazuriz received an offer on her home, and was hoping to close the sale in a few weeks. But from the original asking price of $1.8 million, the house was contracted for $1.5 million - about 15 percent less. Property appraiser Pedro Garcia said his office could not conclude that lower values were related to fears about sea-level rise, and suggested the cause was likely a boom in apartment complexes being built in luxury neighborhoods.”

The Arizona Daily Star. “Let me paint a totally hypothetical scenario for you, dear reader. A midsize city with a modest architectural history finds itself at a crossroads. One of its few local landmarks — beloved by the entire community — comes up for redevelopment. The city doesn’t seem to be capable of spurring small business development beyond the vape pen economy of cannabis dispensaries, fast food joints and tattoo parlors. They lost interest long ago — assuming they had it in the first place. Let me also warn you, there is a student housing bubble and it’s coming fast. Just look at the flattening number of college aged consumers coming in the next 10-15 years.”

From The Advocate in Louisiana. “Disparate groups across the short-term rental (STR) debate are urging city officials to require people who put their homes on platforms like Airbnb to also live at the property. The city has issued more than 5,000 STR licenses over the last year, and nearly three-quarters of all STRs are for whole homes or apartments. ‘I’m afraid we’ve seen the unintended consequences of short-term rentals run amok,’ said Pat Galloway, adding that her block is empty most weeks unless STRs are booked. ‘What’s a neighborhood without any neighbors?’ she said.”

“Ben Harwood — a developer with more than a dozen STRs in Treme — said he now has vacant properties and projects-in-statis with the recent moratorium and has ‘no idea what’s going to happen.’ ‘It makes me want to sell my properties and move to another city,’ he told the CPC. One group at the meeting shouted, ‘Please do!’”

From the Times Colonist. “With Greater Victoria and Metro Vancouver creaking under the strain of sub-1 per cent apartment vacancy rates and among Canada’s highest rents, it’s eye-opening to look just south of the border at what’s happening in Seattle. The Emerald City – once itself struggling with low vacancies – is now awash with available apartments. Which means rents are falling.”

“In downtown Seattle, the vacancy rate is a whopping 25.7 per cent, according to the Seattle Times. And in newly completed downtown apartment buildings, around 40 per cent of units are currently empty. Seattle has completely flooded the market with new-build apartments in a very short space of time. In the 2015-2019 period, the city has opened or is opening more new apartments than in the previous 50 years combined. But unless we see the kind of supply flood that Seattle has seen – which still seems highly unlikely – it may not be enough to significantly move the dial on vacancy rates and rents in the long term.”

From CBC News in Canada. “First it was real estate sales numbers dropping. Then it was the prices. Now signs are emerging that Vancouver’s sky-high rents could be trending downward, according one local data analyst. Since 2016, UBC-trained data scientist Louie Dinh has been somewhat obsessively tracking the rents for Vancouver homes in his spare time and posting the findings on his blog. Now, for the first time since he started, ‘it does seem like the rents are coming down a little bit,’ he says cautiously.”

“Last year there were about 4,500 units listed each month, but that’s risen to over 5,500 units lately, his figures show. ‘Now we are starting to see landlords are pulling back a little bit and saying, ‘Hey, I gotta drop my prices so I can move my unit,’ he says. He’s willing to suggest that declining property sales could be leading many real estate speculators to rent their properties out rather than put them up for sale. ‘Last month, condo sales dropped 30 per cent to match 2012 lows, and detached homes haven’t seen this sort of sales drought since 1991,’ he writes. ‘Recent buyers will likely sit back and rent for the next few years of zero per cent growth rather than sell at a loss.’”

From Domain News in Australia. “Renting a house in some of Sydney’s most expensive neighbourhoods has become cheaper over the year as they compete with newly built apartments on the rental market. The median house rent in Sydney’s inner city dropped 5.5 per cent year on year to $1,040, according to the latest Domain Rental Report. On the lower north shore it dropped 4.5 per cent – or $50 – to $1050. Asking prices for apartments on the lower north shore also fell by 3.2 per cent to $600.”

“‘It’s the first negative year on year movement for houses in the city and east since [the beginning of the data set in] 2014′ said Domain Group data scientist Nicola Powell. ‘The supply is out-growing demand in that particular market. The pace is changing for the rental market, particularly as a cooling sales market in Sydney is giving landlords less reason to increase their rents,’ Powell said.”

“‘It’s definitely a renter’s market,’ said LJ Hooker Lane Cove business development manager Yvette Cherry. She said an influx of units in the Lane Cove area had put downward pressure on asking rents. Figures from the Department of Planning and Environment show multi-unit completions for the year to April were up more than 200 per cent annually. ‘There are two-bedroom units everywhere, there were over 150 just in Lane Cove alone when I last checked,’ she said. ‘For a lot of properties getting re-let, [landlords] have even had to offer price deductions.’”

“An influx of Sydney rental listings over the June quarter was a key factor for easing prices, with the number of houses for rent up 6.9 per cent from the previous year, and units up 16.4 per cent – their biggest annual increase since 2012. ‘We’re seeing building completions peak and seeing a lot of off-the-plan properties sold to investors [in previous years] coming onto the rental market,’ Dr Powell said.”

“Economist Stephen Koukoulas noted falling property prices meant investors who had relied on strong capital growth to get ‘bang for their buck,’ might increasingly be deterred by Sydney’s ‘relatively low rental yield’ and look elsewhere. Domain Group data showed Sydney’s rental yields had remained relatively flat year on year at 3.15 per cent for houses and 3.85 per cent for apartments. Any shortage in rental stock was a long way off, with Mr Koukoulas saying there was still a lot of supply in the construction pipeline. ‘My hunch is that….we could see more of a deterioration in [rental] prices.’”