The Housing Bubble

A report from The Stranger in Washington. “Danny Westneat’s present column, ‘Another ‘Manhattan moment’: Seattle’s new $19,265-a-month apartment’ concerns an apartment that’s at the top of a new Seattle building and, of course, only the super-rich can afford. It costs $19,000 not ‘per year—the advertised rent is $19,000 per month.’ But what is luxury exactly? It’s a thing that connects with or taps into the infinity of money. For, Noam Yuran, a philosopher of desire and money, this is when a thing ‘can be endlessly desired’; meaning, desired as if the ‘thing were money,’ which, unlike a thing, is limitless.”

“But a thing of luxury breaks with ‘the restricted desire for [a] thing’ (this is what orthodox economics calls the marginal utility of a thing, and is the foundation for the supply and demand conceptions of the market utopia), and for one reason or other, is sucked into ‘the limitless desire for money’ and thereby is inflated like nothing else. Another object of this kind is, of course, hanging in Seattle Art Museum right at this moment: Jean-Michel Basquiat’s Untitled (1982). One is not by any means nuts to conclude that it’s now even worth much more than its price a year ago. Money cannot stop flying to it, even as it sits doing pretty much nothing in downtown Seattle. It doesn’t work. It doesn’t grow. It’s unproductive. It has achieved the highest level of luxury possible.”

From Seattle PI in Washington. “Remember our post a few weeks ago about buying a Seattle condo? It was titled, Seattle Condo Buyers, Now Is Your Time. Well, I wanted to cover this same exact topic once again. There are now 145 units on the market in Downtown Seattle. Of the 145 units, 30 of them are new and 115 of those units have been waiting for buyers. Of the 115 units that have been on the market, 33% of those condos just reduced their price.”

“As inventory climbs, new projects are announced and we head into what feels like a cyclical shift in the market. Just 8 months ago, I posted about the severe shortage in condos listed under $500,000. At that time, Seattle had just 5 condos priced under $500k. Now, as of today, the number of units under $500k has moved up 260% (5 units to 18 units). As price reductions increase, the percentage of list to sale price ratio will decrease.”

“As an example, in April of this year sellers were getting 4.4% of their asking price. So if a place was listed at $1,000,000, the buyers were on average, bidding that property up, to a sales price to $1,044,000. However, just 3 months later in June the number has declined to 98.8%.”

From McKnights Senior Living. “The occupancy rate for assisted living continued its downward trend in the second quarter of 2018, falling lower than last quarter’s record-low average of 85.7% to a low of 85.2%, according to the National Investment Center for Seniors Housing & Care. ‘The occupancy rate for assisted living was the lowest since NIC began to report the data in late 2005,’ NIC Chief Economist Beth Burnham Mace said. ‘Inventory growth also set a record, with more than 4,400 units coming online. Demand accelerated from the first quarter’s flu-related weak levels but was not strong enough to offset growth in inventory.’”

“‘The seniors housing occupancy rate has trended downward over the past 10 quarters, which is only two quarters short of its 12-quarter downturn during the Great Recession,’ NIC Chief of Research and Analytics Chuck Harry said. ‘Although annual absorption [change in occupied units] has averaged a solid 2.4% during this 10-quarter downturn to date, the total number of seniors housing units absorbed amounts to only 63 percent of the significant and sustained inventory growth during this same period.’”

The Idaho Business Review. “Developers of senior housing describe a saturated market in much of the Treasure Valley. Jeremy Garner, president of Veranda Senior Living, said several new providers – many without experience – have entered the local market to serve the seniors expected to need assisted-living care in the next three to five years. Garner said the assisted living inventory has expanded beyond the need sometime in the last few months, especially between downtown Boise and west of Nampa.”

“‘I’m seeing a lot of these places that are popping up, even out in Nampa,’ said Garner, whose company runs a 73-unit facility in Meridian. ‘Some of the recent feasibility studies that we have done have shown an overabundance of beds in some of these western Treasure Valley areas.’”

“Mike Sharp, executive VP of Edgewood Health Care, concurs the assisted living market has become saturated in most of Treasure Valley, though he knows of about six projects in the works that will provide new assisted living and memory care. ‘As far as Meridian and Eagle, there’s a lot of (assisted living) vacancy right now,’ Sharp said. Sharp said business is booming for builders specializing in independent living housing for seniors. ‘Every time I drive somewhere I see a new 55-and-older development,’ Sharp said.”

From Multi-Housing News. “The student housing market continues to grow across the U.S. at an unprecedented rate. Between 2016 and 2017, developers added nearly 20,000 units to the nationwide inventory, with 15,521 units currently under construction, according to Yardi Matrix. Julie Bonnin, COO of Asset Campus Housing, possesses more than 30 years of asset management experience and, in her current role, she is overseeing all operations of the firm’s expanding student housing portfolio—currently comprising upwards of 121,500 beds.”

“What are some of the biggest challenges in today’s student housing market? Bonnin: Overbuilt markets—due to development companies’ need to build communities to feed their businesses. We have seen this repeatedly in markets where enrollment has been steady and/or increasing and where land is cheaper to purchase. For example, Texas A&M University. Additionally, some of these overbuilt markets are suffering from the delivery of new projects, outpacing even significant enrollment growth. From an operating standpoint, utility expenses and payroll costs are beginning to place strain on net income.”

From National Real Estate Invstor. “Student housing properties are taking a little longer to pre-lease this year. ‘There certainly are several over-built student housing markets around the country,’ says Frederick Pierce, president and CEO of Pierce Education Properties, a San Diego-based owner, developer and manager of student housing communities. All the new student housing beds developers have planned are finally beginning to weigh on the market. The percentage of student housing beds that were pre-leased for the school year beginning in the fall of 2018 was just 74.4 percent in May, according to Axiometrics.”

“Developers will finish a total of 47,000 new beds at off-campus student housing projects for the fall of 2018. Construction is also starting on 30,900 beds for the fall of 2019, with 10,000 additional beds identified but not started, according to Axiometrics.”

“Multifamily investors continue to be eager to purchase value-add apartment assets. The challenge is to find the right property. ‘Many of the easy deals already have been done,’ says Greg Willett, chief economist for RealPage Inc. Private equity fund managers have become particularly interested. More than 40 percent of all real estate investment dollars raised in 2017 by private equity funds were raised for value-add investments, according to JLL. That’s a tremendous amount of capital targeting what had once been a niche investment strategy.”

‘In fact, apartment rents could even slip lower from today’s levels. ‘If the upgrade is significant enough that the property will need a complete turnover of the resident base, there’s some possibility that the leasing efforts could be pushed into a recessionary environment,’ says Willett.”

From My Central Jersey. “In the last few years, apartments have been springing up in Central Jersey towns with a frequency not seen in decades. Alert developers who have been anticipating this trend for a few years are reaping the benefits of their vision, and thousands more are planned around Central Jersey. At least two Central Jersey professionals looking a few years into the future worry that too many apartments may be in the works, especially in the greater Somerville area.”

“Tim Deluccia of Berkshire Hathaway HomeServices New Jersey Properties, has been working with developers who are constructing apartment buildings in Somerville. He said that in Somerville alone, there are now about 400 luxury apartment units among the various new buildings under construction. Also, there are 140 units scheduled for Raritan Borough, and Bound Brook has hundreds of apartment units in the pipeline.”

“In Somerville, Tom Genova has been renovating apartments and mixed-use buildings for years. ‘I’ve been saying for a while that we need to slow up the apartments, pump the breaks a little bit,’ Genova said. ‘We need diversity in housing stocks; they can’t all be apartments. Everything is a cycle. Look at New York City. They are actually having trouble renting luxury apartments in New York City.’”

“However, Don Tozzi, a councilman in Raritan Borough who has lived at the Lena in the borough for six months, disagrees. ‘These apartments move the town forward, because other towns are doing the same thing,’ Tozzi said. ‘I don’t think there will be a glut because people are moving in from other areas.’”

From Curbed New York. “The story of New York City’s rental market remained the same at the beginning of the summer: Prices continue to inch downward—though not to a level of what one might call ‘affordable’—and concessions remain prevalent across the boroughs. Jonathan Miller, the author of the Douglas Elliman reports, calls it ‘the slow grind’—as long as there’s a hefty supply of luxury inventory, price drops will likely continue, and incentives will remain high.”

“According to Miller, ‘we’ve cracked the three year mark’ when it comes to new leases in Manhattan with some form of rental incentive; for the 37th consecutive month, there was a year-over-year rise in the number of transactions with concessions, from 24 percent last year to 32.6 percent this year. That number was actually higher in Brooklyn and Queens; 40.4 and 45.7 percent of new leases came with a concession, respectively.”

“But there is ‘one interesting wrinkle’ in last month’s numbers, according to Miller: New leases are down across the three boroughs. In Manhattan, the number of new leases declined 17.5 percent to 5,447. In Queens, that number declined 13.7 percent to 302. Brooklyn saw a drop of 17.7 percent to 1,413. But it doesn’t point to a drop in inventory; instead, Miller believes ‘landlords have become better at wooing tenants into renewal,’ meaning more negotiations and continued concessions past year one of the lease.”