July 30, 2018

Where Investors Played A Bigger Role

A report from the Toronto Star in Canada. “There are fledgling signs of recovery in the Toronto region’s real estate market. But those have come too late for homebuyers like Abid Mirza and his fiancée, Sapna Singh, who bought a pre-construction home in Barrie at the height of the market in February 2017. They think that their house, not yet finished, is now worth about $100,000 less than the $639,900 they agreed to pay. Mirza, a PhD student who works in communications and is the signatory on the home, said it will likely take years to recover the home’s value and, in the meantime, their financing costs have risen.”

“To make matters worse, delays in construction — their builder, Colony Park Homes, had originally offered a closing date of Sept. 11, 2017, that was then extended to April 10, 2018, and is now set for Aug. 8 — have also prompted them to twice delay their wedding. A real estate agent and former reporter, Singh said she and Mirza were aware there was risk in the housing market but she wasn’t prepared for the speed and severity of the market’s rise and fall in the past two years.”

“‘We saved up a down payment. We’re first-time buyers,’ she said. ‘I would never have expected all of that was happening at the same time.’”

“It’s not clear how many consumers are in Mirza and Singh’s situation. But the fallout on resale homes from the extraordinary last two years was significant, according to a study published earlier this year by Toronto realtor and analyst John Pasalis. He found 988 homeowners lost $136 million in less than five months when the Toronto-area housing bubble burst.”

“‘The thing that took us back was not the fact that the price went down but the unwillingness of the builder to work with us,’ said Mirza. ‘House prices go up and down — that’s normal. But when the market was good, they said, ‘We have you, we’ll take care of you.’ Now they don’t want to help.’”

The Calgary Sun in Canada. “Sales in Calgary’s top-tier housing market (homes priced at $1 million-plus) in the first half of 2018 are up from the last half of 2017, but are down when compared to the first half of 2017. Single-family and attached homes showed sales declines, while the condo market recorded increases.”

“‘The reality is that sales in the first half of the year are down compared to the same time last year — inventory is on the rise and we’re seeing motivated sellers willing to adjust prices to match buyers’ market conditions. Rising interest rates and tighter mortgage guidelines will only continue to test the Calgary market in the months ahead,’ says Mary-Ann Mears, managing broker, Sotheby’s International Realty Canada in Calgary.”

From Domain News in Australia. “Suburbs in Sydney’s inner west have borne the brunt of the city’s steepest annual drop in property prices since the Global Financial Crisis. While Sydney’s median house price fell by 4.5 per cent year-on-year, a handful of suburbs in the inner west saw prices decline at double the rate, according to Domain Group data. Petersham was the worst hit with prices falling 15.2 per cent, the greatest decline for any suburb across Sydney.”

“Earlwood, Balmain, Annandale and Russell Lea followed suit, each recording a drop in house prices between 7 and 8 per cent. Sans Souci in the south had the second-largest drop in prices across Sydney, with the median falling 13.9 per cent to $1.205 million. ‘I think it reflects a combination of those areas being among the most popular. During the boom they were the key beneficiaries,’ said Dr Shane Oliver, AMP Capital’s chief economist. ‘That’s where investors played a bigger role in the boom times, therefore those areas have become more vulnerable when the market has turned down again.’”

“Malcolm Lewis and his wife bought their family home in nearby Randwick at the peak last year. But they aren’t phased by the potential loss in value as they’re hoping to hold onto their family home beyond 2020, when prices are predicted to rise again. ‘We weren’t really concerned about whether the property market would go up or down,’ Mr Lewis said. ‘The Sydney property market has had a stellar run, people shouldn’t be alarmed if a little bit of air comes out of the market. Over the longer term I could not imagine this area (Randwick) would significantly underperform in the market in any way.’”

From Oregon Business. “According to the American Community Survey there are appoximately 352,000 rental units in the Portland metro area. The census Housing Vacancy survey estimates a 4.8% vacancy rate for the metro area during the second quarter of 2018. Combining these figures would imply roughly 16,000-17,000 vacant units, said Chris Salviati, housing economist for the rental site ApartmentList.”

“The community survey rental stock estimates are based on 2016 data and do not take into account new apartment construction over the past year and a half. Another disclaimer: The vacancy rate may include apartments that have been rented to a tenant who has yet to move in.”

“In a city grappling with affordable housing and homelessness crises, the big question is whether vacancy rates, which everyone agrees are rising, will continue to exert downward pressure on rents. Portland rents have already fallen 2.2% in the past year.”

Pulling A Rabbit Out Of A Hat

A report from the Bellingham Herald in Washington. “Rents in Bellingham and other Whatcom County cities have declined in the past several months according to a new study, but local observers say they’re not seeing rent declines and don’t see the housing crisis easing. Average monthly rent for the Bellingham metro area was $1,547 in June, according to Zillow. That’s an annual countywide drop of 2.2 percent and it shows a steady decline in metro-area rental prices from a peak of $1,672 a month in October 2017. Bellingham rents have been falling steadily since a peak of $1,734 in October 2017, according to Zillow.”

“Tom Follis, a Bellingham real estate appraiser and broker, said he suspects that the Zillow report is an aberration. ‘I think it’s an anomaly rather than a trend,’ Follis said. ‘There a lot of ‘for rent’ signs out, no question. But they’re aimed at the college students.’”

The Tribune Star in Indiana. “As two more large-scale apartment projects prepare to open, there are indications the Terre Haute rental market may have reached capacity, especially for certain demographics. Another housing development that has been on hold for more than a year is now undergoing closer scrutiny and a veteran local builder cautions against further investment in rental properties. ‘Anyone building rental units right now is making a mistake,’ said Rick Jenkins, who has constructed apartments as well as single-family homes. ‘The market is very soft in newer, higher-priced units … that are renting for $1,000 per month or more.’”

“Some apartments are offering discounts on monthly rental rates and move-in specials, actions that suggest they are responding to competition.”

From Press Connects in New York. “New York City-sized rents — backed in part by a government grant and tax breaks — have arrived in Binghamton. The first wave of an expected 122 apartments at 50 Front St. is now being marketed at prices rarely before seen in the region. One- and two-bedroom units at the city’s newest apartment complex are being listed between $1,720 and $2,440. Three-bedroom units are also planned, though pricing on those has not been disclosed.”

“Those rents are raising eyebrows among some in the local real estate market. ‘I don’t know who’s going to rent these things,’ said Eric Strong, a Binghamton real estate agent who specializes in rental properties. ‘It will be pulling a rabbit out of a hat. They are setting a new standard if they can get that.’”

“Among the amenities of this development on the west banks of the Chenango River are a fitness center with cardio machines and free weights; a business center; an outdoor terrace with fireplace; a dog park; in-apartment washer and dryer; quartz countertops; stainless-steel appliances; secure parking below the building; and wifi in all common areas. Rental rates for the apartments are comparable to the mortgage payments on a huge Binghamton home.”

The Denver Channel in Colorado. “Residential builders in the Denver area are set to complete more than 15,000 new apartments this year, a substantial increase over last year’s numbers, according to RentCafe. RentCafe estimates that metro Denver will see about 15,187 new apartments completed in 2018. That’s an increase of 150 percent compared to 2017’s numbers and puts Denver among the top three metros in the country for new apartment construction.”

“The metro area with the largest number of new apartments entering the market this year is also the country’s biggest city overall: New York. The Big Apple will see nearly 20,000 new apartments by year’s end. Coming in second place is the Dallas-Fort Worth metro area, which is expected to complete construction on more than 17,000 apartments in 2018.”

The Colorado Springs Gazette. “Apartment dwellers dug deeper into their pocketbooks during the second quarter as Colorado Springs-area rents hit another record high. Monthly rents averaged $1,156.76 during the April-June period, about $15 more than the previous record set during the same quarter last year, according to the Colorado Division of Housing and the Apartment Association of Southern Colorado. Some of the newest apartments that were opened during the first quarter and being filled in the second quarter were higher-end, amenity-filled units that carry higher rents — likely helping to push up the overall rental costs, said Laura Nelson, the Apartment Association’s executive director.”

“‘When you get some more of those luxury units coming on line, you do see that bit of a spike,’ she said.”

“The area’s apartment vacancy rate of 6.3 percent in the second quarter was unchanged from the first quarter and nearly identical to that of a year ago, the report showed. With a total of 49,494 apartments in the Springs area, the 6.3 percent rate translated to just 3,139 vacant units in the second quarter. ‘When you take 6.3 (percent) of 49,000 units, that’s not a whole lot for a city our size,’ Nelson said.”

“The number of units added by builders and developers in the second quarter totaled just 222. During the first half of this year, 234 apartments have been added; a year ago during the same period, the number of new units totaled 770. More units are on the way. ‘We need thousands more,’ Nelson said. ‘It is a complete supply and demand issue. I know people don’t like to see the high-end ones come on line, but really, they still add to the supply. Those folks who can afford them will move up and that will open up a unit that maybe is more affordable for someone else.’”

From USA Today. “Here’s an alternative to both a hotel and an Airbnb: a pop-up hotel. That’s the concept that startup WhyHotel has introduced to Washington, D.C., and Baltimore and hopes to expand across the country. Last year, WhyHotel began operating these pop-up hotels within newly-built luxury rental apartment buildings that have yet to lease out all their units. Once a building is completed, it can take a year or two to fill up. WhyHotel has swooped in to offer owners the ability to make money off their empty units.”

“Guests, in turn, can enjoy amenities of the apartment. Some, such as pools, gyms or dry-cleaning services, might even overlap with services offered at a hotel. Jason Fudin, WhyHotel’s CEO, says they can charge a decent premium because ‘these are the newest and nicest buildings in the city.’ The company recently received $3.94 million in seed funding, which it will use toward opening one or two more hotels this year and another six to 12 next year.”

From Patch Illinois. “The owner of a 221-unit apartment tower on Howard Street has put the building on the market less than two years after purchasing the property for $46 million, Crain’s Chicago Business reported. The 2008-built building has been sold three times since falling into foreclosure during the Great Recession, Crain’s reported. Due to increasing supply of rental property along the North Shore, the median cost of apartments has grown at less than half of the rate of the Chicago suburbs overall.”

“There are nearly 1,000 new apartment units currently planned or being built in Evanston, which has increased the risk of oversupplying the market, according to Crain’s. HFF is marketing the 415 Premier property as an opportunity for new buyers to carry out improvements and charge higher rents, Crain’s reported.”

The Journal Sentinel in Wisconsin. “A Walker’s Point upscale apartment project that’s been decades in the making has started converting its third historic building — with one more to go. River Place Lofts will eventually total about 150 units when that final building is completed on Milwaukee’s near south side. River Place Lofts was initially planned as condominiums. Developer Peter Moede began converting the Beam House in 2001, when new condos were going up throughout the downtown area.”

“Work on the Beam House stopped for three years while Moede fought a raze order issued by city building inspectors. By the time that dispute was resolved, the condo market was starting to become overbuilt. Moede repaired the fire damage, which was covered by insurance, but put his development plans on hold. Several years after the 2007-2008 housing market collapse and the related global recession, work began on converting the Beam House to apartments. By then, there was strong demand for high-end rental housing throughout the downtown area. The apartments at River Place Lofts’ four buildings are being constructed with enough space and high-quality finishes to some day convert to condos, Moede said.”

“‘It’s going to come back,’ he said about the condo market. ‘But there’s still people who want to rent. People want flexibility. They don’t want to be tied down.’”

“One-bedroom apartments in the Finishing House will be around 1,000 square feet, commanding about $1,500 to $2,000 in monthly rents. The Dock House also has features not found in most downtown area apartments, such as a lounge where residents can store wine in refrigerated cases; a cigar lounge with a humidor; and a pontoon boat docked along the canal.”