A Lot Of Investors Aren’t Happy
A report from the Business Insider. “An inconvenient math for housing is beginning to dog Chicago: The third largest city in the US has been losing population for years. Since 2012, nearly 26,000 multifamily rental units have been completed in the city, according to Fannie Mae, which for 2017 sees ‘elevated volume of new supply, particularly in the Loop/River North/Gold Coast submarkets.’ This does not include condos and single-family homes that were bought by investors and have reappeared on the rental market. Over the same five-year period, Chicago’s population has dropped by 9,000 people.”
“According to Zumper’s National Rent Report for August, the median asking rent in Chicago dropped by 13.7% year-over-year to $1,510 for a one-bedroom apartment, and by 15.7% to $2,200 for a two-bedroom. From their peaks in late 2015, asking rents have plunged 26% and 17% respectively. These are asking rents in multifamily apartment buildings. Single-family houses or condos for rent are not included. And they do not include incentives, such as ‘one month free’ or ‘two months free,’ which effectively slash the rent for the first year by another 8% or 17%.”
“In San Francisco, the most expensive major rental market in the US, the median asking rent for a one-bedroom apartment dropped 1.5% year-over-year to $3,390 and is down 7.6% from the peak in October 2015. For a two-bedroom, the median asking rent dropped 5.0% year-over-year to $4,560 and is down 8.8% from the peak. In New York City, the median asking rent for a one-bedroom dropped 8.9% year-over-year to $2,850. For two-bedrooms, it dropped 8.3%. Measured from the peak in March 2016, asking rents — not including incentives — have plunged 15% and 20%.”
“In formerly red-hot Oakland, which received the San Francisco housing refugees, median one-bedroom and two-bedroom rents plunged 16% and 14% from their peak. And Honolulu, with an 18% and 23% plunge from the peak, nearly rivaling Chicago.”
The Herald Tribune in Florida. “Multi-family housing has been on a hot streak throughout Southwest Florida. Rental real estate here has drawn investors from New York to California, as well as local buyers. Ian Black Real Estate has handled four multi-family deals during what its owner called ‘a very busy summer,’ with $15.6 million in sales in complexes totaling 156 units.”
“‘Demand from buyers is as strong as ever and shows no signs of abating,’ said Ian Black, head of the Sarasota-based firm. ‘Most of our sales are to local privately funded investors due to the size of the complexes. Our buyers are typically well funded and, in a lot of cases, are reinvesting sales proceeds to defer taxes. No question that sellers who have owned complexes for a number of years are recognizing it is a good time to sell and become liquid in the event of a market correction.’”
“The flurry of sales of existing complexes, some of them decades old, comes as developers are building or have plans for more than 1,700 new rental housing units in the city of Sarasota, plus several sizable new complexes closer to I-75. Rent increases appear to have slowed down. Industry players are watching to see whether the new apartment communities coming on line will impact sales of older complexes. ‘The jury is out on the question,’ Black said. ‘The big question is the depth of demand for not only the new complexes downtown but in the region and may well have an impact when you increase supply over demand.’”
From OU Daily in Oklahoma. “OU moved 30 freshmen into empty rooms in the new Residential Colleges as unoccupied apartments and rental houses around campus continue to linger on the market. The inclusion of freshmen in the Residential Colleges comes at a time when the university is competing with other upperclassman rental options in a market where there is a surplus of student housing. OU also announced a public-private partnership in July for more on-campus housing that is currently under construction.”
“Norman-based realtor Brian Eddins said he believes this surplus stems from an overdevelopment of rental apartments in the area, which has decreased demand for traditional rental houses. Older apartment complexes in Norman have also felt the strain of this housing surplus. Cindy Martinez, leasing manager for the Crimson Park apartment complex, said the complex is at 71 percent occupancy — less full than last year. Amanda Barth, leasing manager at Millennium Apartments, said Millennium has a current occupancy of 55 percent. Millennium opened in 2015.”
“‘I do think the opening of the Residential Colleges and Callaway House played a part in (the competition),’ Barth said. ‘I just think there’s a lot of cheap housing options coming up.’”
“Eddins said he predicts more students will return to renting properties near campus as these new housing options wear down over the years. ‘I can’t blame OU for getting into the real-estate business,’ Eddins said. ‘I know there are a lot of investors in town who aren’t happy about it.’”
From San Francisco Curbed in California. “At last, rents are really dropping in San Francisco, at least on this one block. Change is in the air at 570 Jessie in SoMa, and not just because it’s a new building. Last time this place popped up on Comparisons less than two weeks ago the advertised price was $3,750/month for a one bed, one bath apartment. This week, all of sudden, new ads pop up with a whopping discount down to $2,850/month. Is it a scam? Leasing agent Kory Powell-McCoy tells Curbed SF no. ‘We decided to do a little restructuring of the pricing to get things moving,’ says Powell-McCoy.”
‘From their peaks in late 2015, asking rents have plunged 26% and 17% respectively. These are asking rents in multifamily apartment buildings. Single-family houses or condos for rent are not included. And they do not include incentives, such as ‘one month free’ or ‘two months free,’ which effectively slash the rent for the first year by another 8% or 17%’
Sounds kinda crashy. Last week we read there are 12,000 new apartments on the way in downtown Chicago alone.
‘Our buyers are typically well funded and, in a lot of cases, are reinvesting sales proceeds to defer taxes’
This Herald Tribune article includes the usual stuff: out of towners paying over asking, doing value add stuff to raise rents, new construction is all luxury. And as we see here, buying to avoid capital gains on their last flip.
It’s interesting to read corporate housing (which is what I call apartment complexes, also gulag housing will do) reviews on line. Actually, it is tragic. Walls and floors so thin it seems like your neighbors are right in the room with you. Lousy maintenance, too. But they’ve got those exercise rooms and business centers! And that gazebo out in front of the leasing office. The leasing offices seem to be staffed with people who are Dr. Jekyll with prospective tenants, Mr. Hyde with tenants who signed up.
Also interesting to read reviews from long time tenants who were very happy until new management took over.
Lol, also the complexes with pools that no one can use because there are problems like murky, dirty water, or because some little kid had a digestive accident or faulty diaper.
Because nothing says luxury like a pool with a floating plop in it.
https://m.youtube.com/watch?v=TPxiXGr9nFM
Great clip there. ROTFLMFAO!!
I love that clip. The highlight of the movie.
Andover, MA Housing Prices Crater 11% YOY
https://www.zillow.com/town-of-andover-ma/home-values/
‘Last time this place popped up on Comparisons less than two weeks ago the advertised price was $3,750/month for a one bed, one bath apartment. This week, all of sudden, new ads pop up with a whopping discount down to $2,850/month. ‘We decided to do a little restructuring of the pricing to get things moving’
Ring ring!
Hello?
Ms Rental Watch?
Speaking.
This is Bob Sweatypalms with California Life and Pensions.
Yes, Bob, how can I help you?
Are you sitting down Ms Rental Watch?
This is interesting and hopeful. How many flippers do uou suspect purchase multi family to avoid taxes? And will these be the sad bag-holders of overpriced multifamiky units once a widespread correction happens?
It’s just 1031 exchanges. That creates churn. A seller becomes a buyer. They can’t resist the tax savings. It creates an artificial demand.
Arden-Arcade, CA Housing Prices Crater 5% YOY
https://www.zillow.com/arden-arcade-ca/home-values/
From yesterday:
Comment by palmetto
2017-09-03 16:35:54
“Thousands of files containing the personal information and expertise of Americans with classified and up to Top Secret security clearances have been exposed by an unsecured Amazon server, potentially for most of the year.”
https://gizmodo.com/thousands-of-job-applicants-citing-top-secret-us-govern-1798733354
So, they’re saving hyper sensitive information on the cloud? Smart.
Methinks that the prediction of the end of on premise data centers might be premature.
“exposed by an unsecured Amazon server,”
What a disaster of an outfit.
Total disaster, total ponzi.
If you have developed a product and it sells successfully on Amazon, watch out. Chinese sellers will sell defective copycats and ruin the brand and all your hard work. And Amazon will blithely permit it, until threatened with legal action.
http://mywifequitherjob.com/the-dangers-of-selling-on-amazon/
Amazon had nothing to do with the security breach. Their cloud services provided the storage, the client didn’t properly secure it.
The local radio station ion DC is chock full of ads for small outfits angling for juicy government contracts to provide cybersecurity and “cloud solutions.”
The “cloud” is a crock. All you do is store stuff on someone else’s hard drive instead of your own.
Wait, what? Companies advertise on radio stations in DC to solicit gummint contract work? Seriously? What’s the justification? Some procurement slug stuck on the Beltway during drive time might call them because they heard the ad?
Probably for the same reason Oracle paid Marvel to have Tony Stark use Oracle gear in the movies.
Hey hey
He he ,get off of my cloud (oxide)
Zillow only predicting .5% increase in n va
Hey dude, have you been hearing those ads on WTOP too? Still a bunch of BS. Lots of defense contractor ads too, all using buzzword like “mission capability.”
By the way, looks like Irma is going to destroy the Florida Keys. 5 ft elevation, potential 15+ foot storm surge. None of this “I’m staying here, this is my home” nonsense. You stay, you die. I feel for all the stay cats and stray wild chickens. Few if any will survive.
“Lots of defense contractor ads too, all using buzzword like “mission capability.”
Israel will soon take delivery of the first fifty F-35 jet fighters costing taxpayers $100 million dollars each.
Lots of multi family rental price information In these articles. I wonder what the single-familyrental market is doing right now?
I’ve looked at numerous turnkey deals across the country in the single family market in the last year. The return on investment was only two to $300 per month. Roughly 20% of gross rent per month. These articles indicate that multi family property rents have dropped at least 20%. If single-family rents do the same or worse, then there will probably be a lot of investors turning in the keys to their rental houses in the next few years.
The vast majority of these multi-family deals, and we’re just off record years, are single digit cap rates. Cap rates exclude financing costs and as we’ve read, leverage is the name of the game. These guys in the formerly oh so hot markets mentioned above are getting cut off at the knees.
Any idea if SFR generally follows MFR or is there even a corollation between the two at all?
‘OU moved 30 freshmen into empty rooms in the new Residential Colleges as unoccupied apartments and rental houses around campus continue to linger on the market…Norman-based realtor Brian Eddins said he believes this surplus stems from an overdevelopment of rental apartments in the area, which has decreased demand for traditional rental houses’
Missed that connection. It makes sense in most any market that low prices of MFR compared to SFR will entice a certain portion of the market away from SFR.
Not to mention contractors are undercutting resale asking prices by large margins.
The guys who are into SFR in a big way have it down to a science. There’s one company (family owned) north of here in a somewhat depressed, working class area that owns over 75 rental homes, that they rent to desperate lower middle class families. They hit them with big fees and upfront deposits and leases no person in their right mind would sign. The rents in and of themselves are just slightly beyond affordable, the houses neat and clean, so they get hooked in easy, just to have a decent place for the family.
“Cap rates exclude financing costs…”
My hunch is that they exclude maintenance costs and vacancy allowances as well.
Reality only matters when prices stop going up.
They aren’t supposed to. There should be a reserve requirement for big ticket repairs but I’ve seen it mentioned as 5 or 10%. What if it turns out to be 10 instead of 5? Oops! Some cap rates exclude property taxes too. You can see how stuff could slip by and how serious deferred maintenance can be. And of course nobody is counting on 20-45% vacancies like these Oklahoma outfits are seeing, much less a recession. Almost all of the oversupplied major markets have thousands of units on the way.
A property manager I know sends me reports on multi-tenant housing he thinks I might be interested in buying. His numbers are almost always whack and way under reality. This is for very low-end, cheap housing. His numbers always show about a 35% expense ratio. For the type of housing he sends me, the expense ratio should be much closer to 60%. I see something from him that would actually pencil out about every 1.5 years…Keep your powder dry.
‘Keep your powder dry’
Amen.
Lake Forest, IL Housing Prices Crater 9% YOY
https://www.zillow.com/lake-forest-il/home-values/
How could anyone predict IL up for next year
Just the tax increases will kill them
Lake Forest, IL is closer and prettier than ever.
https://www.youtube.com/watch?v=Ddz0GWcPUjM
IRRATIONAL EXUBERANCE
Shiller wrote the book on bubbles. He says “the best example right now is bitcoin.”
John Detrixhe
5 hours ago
One pinch and it might pop. (Reuters/Michelle McLoughlin)
Yale economics professor Robert Shiller won the Nobel prize for his work on bubbles. He wrote a seminal book on speculative manias, Irrational Exuberance, a deep analysis of the dramas over the centuries when otherwise sane people drove prices for tulips, stocks, and houses to inexplicable heights.
Shiller developed some of the tools that are considered vital for taking a sober look at markets. He helped create indexes for measuring real estate prices and his stock market valuation indicator, the cyclically adjusted price-earnings ratio, or CAPE ratio, is seen as one of the best forecasting models for stock returns.
As Shiller sees it, “big things happen if someone invents the right story and promulgates it.” Quartz spoke with him about some of the frothiest assets today, from bitcoin to tech stocks. The conversation was edited and condensed for clarity.
…
If they ever come up with a way to identify and quantify “speculative demand” and “consumption demand”, rather than simply aggregating it as “demand”, the question of identifying bubbles will become much clearer.
Also, we here touch on this issue when we talk about the housing bubble, and whether the current rapid price increases are due to consumption factors like low inventory and population growth and wage increases, or are they due to speculative factors like investors seeking yield in a low interest rate environment, and flipping numbers, and hot foreign money investing in real estate.
Well….. we know there is record high inventory, record low population growth and housing demand at 20 year lows.
“In formerly red-hot Oakland, which received the San Francisco housing refugees, median one-bedroom and two-bedroom rents plunged 16% and 14% from their peak. And Honolulu, with an 18% and 23% plunge from the peak, nearly rivaling Chicago.”
With rents falling at double digit rates in major markets across the land, it is hard to argue that the GSEs have failed in their affordable housing mission.
Opinion: The world is becoming desperate about deflation
By Vitaliy Katsenelson
Published: Sept 5, 2017 5:20 a.m. ET
If the outlook was bright, interest rates would not be where they are today
The Great Recession may be over, but eight years later we can still see the deep scars and unhealed wounds it left on the global economy.
In an attempt to prevent an unpleasant revisit to the Stone Age, global governments have bailed out banks and the private sector. These bailouts and subsequent stimuli swelled global government debt, which jumped 75%, to $58 trillion in 2014 from $33 trillion in 2007. (These numbers, from McKinsey & Co., are the latest, but it’s fair to say they have not shrunk since.)
There’s a lot about today’s environment that doesn’t fit neatly into economic theory. Ballooning government debt should have brought higher — much higher — interest rates. But central banks bought the bonds of their respective governments and corporations, driving interest rates down to the point at which a quarter of global government debt now “pays” negative interest.
The concept of positive interest rates is straightforward. You take your savings, which you amass by forgoing current consumption — not buying a newer car or making fewer trips to fancy restaurants — and lend it to someone. In exchange for your sacrifice, you receive interest payments.
With negative interest rates, something quite different happens: You lend $100 to your neighbor. A year later the neighbor knocks on your door and, with a smile on his face, repays that $100 loan by writing you a check for $95. You had to pay $5 for forgoing your consumption of $100 for a year.
The key takeaway: negative and near-zero interest rates show central banks’ desperation to avoid deflation. More important, they highlight the bleak state of the global economy.
In theory, low- and negative interest rates were supposed to reduce savings and stimulate spending. In practice, the opposite has happened: The savings rate has gone up. As interest rates on their deposits declined, consumers felt that now they had to save more to earn the same income. Go figure.
…
for negative intestine why bothering with repaying it. Just postpone your loan for another year, let it accumulate more negative interest. Year after year, eventually the borrower does not need to pay anything back. But for sure, I would not lend my money that way.
we embraced deflation in 1921 and then had the fastest growth ever
The key takeaway: negative and near-zero interest rates show central banks’ desperation to avoid deflation.
The key takeaway is to go down the rabbit hole further. WHY are they desperate to avoid deflation? And why did they buy those bonds if it’s causing the deflation they are so desperate to avoid? Who is benefiting from this situation?
“Who is benefiting from this situation?”
+1 ^This is right question.
The Fed’s conceit is that because it can crash the economy, the opposite is then true, that it can grow the economy.
But it’s like saying that because I can kill a person, I can then create a person. Obviously untrue.
All the Fed can do is redistribute. And redistributions which make the bulk of consumers poorer is unlikely to spark a demand-pull inflation (as opposed to a cost-push inflation as would be caused if they broke the currency).
Looks as if Florida, or part of it, is about to get a serious enema.
I hate hurricanes. Especially Charlie, Frances, Jeanne, Ivan, and Wilma. Andrew was a major d!ck too.
Stay safe, Palmetto, and all the other posters here who call Florida home.
Rents going down???? By a lot????
I thought that never happened…..
some day you’ll be able to buy a house for 120x rent
like from 1800 to 1976
…..or in 2009-2011. My sole purchase offer would sit on the lender’s desk for 3-6 months before they finally accepted it! Those were interesting times.
I just agreed to sell one of those houses. It went into contract 16 days after it was listed for sale. It closes tomorrow.
…..or in 2009-2011.
I’d love to see the price-to-rent multiple for each of your purchases, Jingle.
How many were really at 120x?
What’s really crazy about these declines is the economy isn’t hurting, or at least not too bad. To see these drops in California is something.
Well, consider how out of whack rents (and home prices) are relative to medium household incomes….then the CA drops seem, well, pretty mild.
My comment was aimed at those posters who claim that rents never decline significantly….which might be a reasonable assumption if you look at long term rents (over decades) starting from a reasonable base (it makes sense that rents should, on average, rise with the rate of inflation), but is definitely not always true.
As I’ve posted before, I’ve personally had a 30% rent reduction in the past (after the dot-bombs exploded)
is there a market w rising rents- if Portlandia is week,weren’t they the last great housing hope?
name one
I’m wondering what Irma will do to rents in any part of Florida that gets hit. Assuming there’s anything to rent, that is.
Outside insurance money will create a localized, temporary shot in the arm.
I guess. I have a feeling that after Harvey, the insurance money might not flow quite so generously, though.
We’re gonna stick it out, if our rental gets trashed, we’re outta here.
Palmetto, do you live in a storm surge zone? At category 4 or 5 strength, one of the projected hurricane tracks, right up the Gulf Coast and passing over Tampa Bay, easily could wipe parts of Tampa off the map. I’ve seen a projection that all of south Tampa up to I-275 would be under water. We do have flood insurance — procured for just this eventuality — but “having insurance” is just the first step in the process as we all know.
We’ll be evacuating if the hurricane comes this way, but only out of the surge zone.
We’re east of 75, so no risk of storm surge. Wind and local flooding is another matter. A few weeks ago, our nabe got hit with a tornado. We were fine, but one of the houses in the area had the roof peeled off. It’s really weird how a tornado can do that, affect only a couple of homes.
Best of luck to both of you.
Nasty tough to read storm.
I always said if we were in the cone of a Cat 5 we would leave but so far this path makes the decision to leave or where to go difficult.
Yep. The non-MSM models are starting to trend east, showing Miami getting grazed and then parallel to the Florida coast, making landfall in the Carolinas.
because the have no land there
rising rents w sweaty neighbors
http://www.orlandosentinel.com/classified/realestate/os-orlando-rents-rise-20170104-story.html
Yep. Confirms what I’ve been seeing in this part of Florida. Rents are way high for what is being offered, in most cases. Even ghetto housing is unbelievable. Heck, even tin-can mobile homes are high.
It’s interesting, though. SFRs are in demand, the corporate/gulag housing, not so much.
Orlando is a complete dump, IMO. I sure don’t understand the attraction.
cultural and architectural wonders
I grew up in Sarasota and return every winter from my northern spot and I cannot stand downtown Sarasota! It’s as if I am suffocating from the tightness of the buildings that now rise to the sky. The uniqueness, charm, and small town feeling that Sarasota is long gone. Is that progress? I’m not so sure
I was thinking about this exact thing the other day. A formerly decent area becomes popular and the reasons for living there no longer exist.
Where I live now, when we first moved here, you could swing a cat and not hit anything on the main drag that goes east-west. Now? Some days it’s stop n’go. With fire trucks and ambulances going night and day, sometimes. And don’t get me started on the drek that now populates the surrounding area.
Seeing this happen long distance in the Asheville/Hendersonville area of North Carolina. From all reports, it’s become a traffic nightmare with high prices.
Whenever my wife and I go on vacation, two things are certain to occur:
1. The weather will be great.
2. The stock market will tank.
I offer no explanation, merely an observation.
2. The stock market will tank.
Long bonds are doing great though! Still waiting for that crash everyone was sure was coming….
Idaho City, ID Housing Prices Crater 22% YOY
http://www.movoto.com/idaho-city-id/market-trends/
Idaho City is closer and prettier than ever.
https://www.youtube.com/watch?v=Ddz0GWcPUjM
Re the rents in Chicago… Someone finally noticed that folks are leaving… For good!!! Sheesh.
“This does not include condos and single-family homes that were bought by investors and have reappeared on the rental market.”
I can’t wait until this segment of latent inventory lands on coastal California rental markets.
You may have to wait for a long time…..there is not much new SFR inventory in CA to meet the increasing demand. While overbuilding apartments and condos will dampen the enthusiasm, the SFR market rarely sees vacancies above 3-4%. Declining rents for SFR may take another couple of years, if it happens at all.
….on the other hand, condos in San Diego listed in 92101 (marina) are numbering 254….up from 225 just 2 months ago……an increase of 12.8%.
Condos are always the first fall. I am guessing this may be a leading indicator of a downturn. Time will tell.
“Condos are always the first fall.”
+1 The canary in the RE coal mine.
Houses in California are in demand because they make you rich. All you have to do is borrow a bunch of money, buy them and watch the profits grow to the sky. Who wouldn’t want several?
This is the biggest bubble of all time. You won’t believe how many houses will be available when it bursts.
Why wouldn’t I believe it? I saw it first hand in 2008-2011. Properties sat in the market for years! THAT was a great time to be a buyer!
Alameda, CA Housing Prices Crater 10%YOY On Ballooning Housing Inventory
http://www.movoto.com/alameda-ca/market-trends/