WSJ: Apartment Values on Rise, and Rents Up With Them

From an article in the October 26, 2011 Wall Street Journal:

At the end of the third quarter, 5.6% of the nation’s apartments were vacant, down from 5.9% in the second quarter, and the lowest level since 2006, according to Reis Inc., a real-estate data service…

Effective rents, which include landlord discounts in some markets, rose to $1,004 a month in the third quarter, up 2.3% from a year earlier, according to Reis. Of the 82 major markets that Reis tracks, only Las Vegas saw rents decline compared with a year earlier.

Forecasters say rent increases could slow or stop if the economy weakens further. But for now, these trends are producing outsized returns for real-estate companies, compared with other commercial-property classes…

The apartment sector has been insulated from high unemployment because it continues to inhabit a sweet spot in the economy created by demographic factors and the anemic home sales market. The U.S. is expected to see 1.5 million rental household formations in 2011, a record year, according to Green Street. (emphasis editor’s)

The main reason for the rental increase is a faster-than-expected decline in the home ownership rate, according to Green Street. The nation’s rate came in at 66% in the second quarter, down from 66.4% in the first quarter and 66.9% in the second quarter a year ago, according to the Census Bureau.

Some industry watchers say the rate could fall to as low as 60%. Each 1% decline in the home-ownership rate represents the movement of one million households to rentals…

If another recession hits and unemployment rises, millions of renters could likely double up or move home with their parents, putting a crimp in demand. “People just aren’t going to write bigger and bigger rent checks into infinity,” warns Andrew McCulloch a Green Street analyst.

The high rents are also being supported by a lack of new supply. Developers have scrambled to launch new projects, but most of them won’t start hitting the market until late 2012. Roughly 8,200 new apartments hit the market in the third quarter, the second lowest number since Reis began tracking data in 1999.

UNCG Economist Asks, “Is the Housing Bubble Over?”

UNCG economist Dennis Leyden makes an interesting observation on the current housing situation in the U.S.:

The current economic depression has a long way to go until we get back to something approaching normalcy.  My best guess is we won’t pick up much speed until the massive housing debt is cleared up.  While it appears there is still a lot of debt (and hence still a lot of foreclosures), a recent look at theCase-Shiller Home Price Index (after adjusting for inflation) reveals that we are approaching the “normal” post-WWII price levels…

 

Buy a House, Get a Visa

Congress is getting creative, trying to goose the housing market while also addressing immigration:

The reeling housing market has come to this: To shore it up, two Senators are preparing to introduce a bipartisan bill Thursday that would give residence visas to foreigners who spend at least $500,000 to buy houses in the U.S…

Foreigners have accounted for a growing share of home purchases in South Florida, Southern California, Arizona and other hard-hit markets. Chinese and Canadian buyers, among others, are taking advantage not only of big declines in U.S. home prices and reduced competition from Americans but also of favorable foreign exchange rates.

To fuel this demand, the proposed measure would offer visas to any foreigner making a cash investment of at least $500,000 on residential real-estate—a single-family house, condo or townhouse. Applicants can spend the entire amount on one house or spend as little as $250,000 on a residence and invest the rest in other residential real estate, which can be rented out…

International buyers accounted for around $82 billion in U.S. residential real-estate sales for the year ending in March, up from $66 billion during the previous year period, according to data from the National Association of Realtors. Foreign buyers accounted for at least 5.5% of all home sales in Miami and 4.3% of Phoenix home sales during the month of July, according to MDA DataQuick.

Winston-Salem Rooming House Ban

As of January 1, 2012 Winston-Salem will have an ordinance banning rooming houses:

The houses, where several people can rent rooms in a single-family home, will soon violate city zoning ordinance. The new ordinance requires the houses to revert back to single-family homes or remove locks on all inside doors.

“I feel that there’s not enough affordable housing in regards to the working poor and the students in town, and I feel this ordinance is going to make this difficult condition even worse,” landlord Reiner Kamper said.

Kamper owns four such houses in Winston-Salem. He said many people can’t afford to live elsewhere.

“For $100 a week rent including utilities, where are these people going to? They can’t even afford an apartment. They need to live in an apartment where people can take care of them. They help each other out, and I provide everything else for them,” Kamper said.

 

Winston-Salem Among 23 Housing Markets Showing Sustained Improvement

According to this report from NAHB Winston-Salem is one of twenty three housing markets in the US showing sustained improvement:

The IMI is designed to track housing markets throughout the country that are showing signs of improving economic health. The index measures three sets of independent monthly data to get a mark on the top improving Metropolitan Statistical Areas. The three indicators that are analyzed are employment growth from the Bureau of Labor Statistics, house price appreciation from Freddie Mac, and single-family housing permit growth from the U.S. Census Bureau. NAHB uses the latest available data from these sources to generate a list of improving markets. A metro area must see improvement in all three areas for at least six months following their respective troughs before being included on the improving markets list.

Almost 1 in 3 Adults Live With Relatives

This is an interesting article about the continued reticence of people to buy homes right now:

A sinking economy and declining home prices are eliminating urgency for most homeowners and renters to buy homes, despite record low the mortgage rates, according to a new study. But doubling up or living with adult children, relatives or parents has increased more than since the days of the Great Depression.

Nearly one in three or 30% of respondents to the Hanley Wood housing survey taken by more than 3,000  U.S. homeowners and renters said they had doubled up their living arrangements with relatives. The study provides insight on the changing dynamics in the  U.S.  housing market and the broader economy as the nation copes with the worst economic downturn since at least the Great Depression…

Both renters and homeowners strongly felt that now is a good time to buy a home with lower home prices. Slightly more than one in four or 29% of renters and 19% of owners who responded to the survey say they are considering the purchase of a new home in the next two years…

The survey also found that up to 2-million potential home buyers are waiting to purchase a home when they feel the time is right. Nearly one in four or 72% of homeowners said it was a good time to purchase a home, while only 59% of renters said they felt it was a good time to buy property.

Apartment Builders Stymied by Wait for US Government Loans

We recently posted a link to an article about GSE’s trying to get more private sector action for the single family market and in that story there was mention of Freddie Mac’s earlier efforts to do the same in multifamily.  According to this article it looks like there might be a need to get more aggressive:

A surge in single-family foreclosures combined with tighter credit markets has given the federal government a dramatically expanded role in financing new construction and rehabilitation of multifamily units.

The result is a backlog of applications. Government officials and developers say the FHA — constrained by government austerity — has had a tough time handling the demands of its new role as a cornerstone of apartment lending.

Government-sponsored enterprises including Fannie Mae and Freddie Mac now hold 41 percentof outstanding multifamily mortgage debt, up from 34 percent in 2008, according to the Mortgage Bankers Association. And the FHA expects to endorse a record $12 billion in multifamily loans in fiscal year 2011, up from about $2 billion in 2008…

As its loan volume has quadrupled, the number of FHA staff devoted to multifamily loans has dropped through attrition to 1,414 nationwide, down 13 percent since 2005. In addition, the agency tightened underwriting standards last year and began requiring more documentation.

These factors have created a traffic jam of loans waiting for approval, according to David B. Cardwell, a vice president of the National Multi Housing Council, a Washington trade group representing apartment builders. Loans that should take 60 to 90 days are delayed as long as 18 months. Builders have told the group they are frustrated by the difficulty of determining the status of their loan applications and with the lengthy approval process, complicated by tighter underwriting…

Reliance on the government isn’t likely to decrease any time soon, Cardwell said. The Mortgage Bankers Association reported last week that outstanding commercial and multi-family mortgage debt increased in the second quarter of this year for the first time in seven quarters. Government agencies increased their holdings of multifamily mortgages by $4 billion, while commercial banks increased their holdings by just $1 billion.

“The dominance of the government participation in the market is still a major component of owners’ access to reliable debt,” Cardwell said. “I think that our members and the industry as a whole still have some concern about the way banks are going to respond to the current and near-term economic conditions.”

Click here to read the whole article.

Associated Estates Realty Corp. Bullish on Apartment Biz

In a Wall Street Journal story on Associated Estates Realty Corp.’s aggressive moves in the apartment sector, it’s CEO was quoted as saying:

“I don’t recall ever being more optimistic about the apartment sector,” said Jeffrey Friedman, longtime chief executive of the company, based in suburban Cleveland.

From the same story we find a note of caution from industry analysts:

Analysts caution that, if the economy takes a nose-dive, the apartment sector will suffer with falling rents and occupancy levels.

That would likely depress the share price of Associated and other apartment-building owners.

But the apartment sector so far has been one of the strongest in commercial real estate, thanks in part to the millions of would-be homeowners deciding to rent.

In the third quarter, the national vacancy rate fell to 5.6% from 7.1% a year earlier, according to Reis Inc. That is the lowest rate since 2006.

Fannie and Freddie Floating a Plan to Juice More Private Mortgage Action

From the Wall Street Journal:

The Obama administration and a federal housing regulator are considering a program to draw private investment back into the government-dominated mortgage market by having Fannie Mae and Freddie Mac sell slices of securities that wouldn’t carry a federal guarantee but would pay a higher interest rate than current mortgage-backed bonds…

Officials see it as a step toward reducing the $10.4 trillion U.S. mortgage market’s dependence on government-controlled mortgage companies Fannie Mae and Freddie Mac.

The move would test the willingness of private investors to share the risk of funding home loans that are packaged by Fannie and Freddie. If the program were expanded significantly, it would likely raise mortgage rates over time because private investors would require greater returns than Fannie and Freddie currently do.

Under the pilot program, a small piece—perhaps 5% or 10%—of a bond issued by Fannie or Freddie would be sold without a federal guarantee, according to people familiar with the matter.

This plan for the single-family sector is similar to what Freddie’s done in multifamily:

Mr. Haldeman said the pilot program idea is “still in the talking stage.” Freddie Mac has tried the approach since 2009 with bonds issued to fund multifamily housing developments.

Administration officials say that by getting private investors involved, they will receive feedback on how much Fannie and Freddie should raise the fees they charge to guarantee mortgages. Those fees are expected to increase gradually next year.

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