Home Sales Slump, Rental Market Rises

Home sales have slowed in recent months and according to this article in the Wall Street Journal, the culprits contributing to the slowdown in the for-sale market are rising prices, rising mortgage rates and the Trump administration’s tax bill that reduced incentives to own homes. That could be good news for the apartment industry:

Yet other analysts argue that all the gloom hanging over housing is good news for owners of apartments, like AvalonBay Communities , which is up 7.4% over the past six months, andEquity Residential , which has added 5.7% in that time. Rental-home companies have also gained, with American Homes 4 Rent climbing 3.8%.

“Having pressure on home sales is a positive for the rental side of the industry,” David Singelyn,  American Homes chief executive, told investors recently. “It should all fare very, very well for pricing power going forward.”

Source: Wall Street Journal

In fact, we could also see room for rents to rise in the near future:

Not only is the added cost likely to keep some renting longer, $135 is about 8% of the average monthly rent collected by American Homes, suggesting that there is room for these companies to raise rents and remain less expensive than comparable homes for sale, he said.

To that end, Freddie Mac said last week that about 78% of Americans view renting as more affordable than owning, a rise of 11 percentage points since the mortgage company released similar survey data six months ago. Freddie also said the proportion of respondents who said they have no plans to buy homes also rose.

A Chat with Maria Barker, COO of Phillips Management Group

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This episode of Not a Complex podcast features an interview with Maria Barker, COO of Phillips Management Group and Immediate Past President of PTAA’s Board of Directors where she recently finished serving a 3-year term as President. Among other things, we talked about Maria’s distinguished career in property management – which includes time spent working in Charlotte, Atlanta, and the Piedmont Triad – the importance of continually educating yourself and your staff, how to stay in touch with your team, and how storytelling can help with all of it.

Over the coming months, you’ll see (hear?) more interviews with members of PTAA’s Board of Directors. There are multiple reasons we’ve kicked off this series, but the two big ones are:
1. These folks have a wealth of knowledge to share
2. We hope this will allow PTAA’s members to get to know their leadership a little better.

So, sit back and enjoy the show. If you have any questions or comments please feel free to email them to us at info@piedmonttaa.org

Subscribe via: iTunesStitcher

Show Notes:

Phillips Management Group

Apartment Life

Maria’s Favorite Author,  Movie and Vacation Destinations:

Author Patrick Lencioni

Fried Green Tomatoes

Turks & Caicos Islands

Ireland

Future Looks Good for Apartment Industry for Years to Come

From the 6/8/15 Wall Street Journal:

The U.S. homeownership rate is below where it stood 20 years ago when President Bill Clinton launched a national campaign to encourage Americans to buy homes. Conventional wisdom says the rate, at 63.7%, is leveling off to where it was for decades before the housing-market peak.

But this is probably wrong, according to research from the Urban Institute, which predicts homeownership will continue to slip for at least 15 years.

Demographics tell the story.

Urban Institute researchers predict that more than 3 in 4 new households this decade, and 7 of 8 in the next, will be formed by minorities. These new households—nearly half of which will be Hispanic—have lower incomes, less wealth and lower homeownership rates than the U.S. average.

The upshot is that fewer than half of new households formed this decade and the next will own homes. By contrast, almost three-quarters of new households in the 1990s became homeowners.

The downtrend would push homeownership below 62% in 2020, and it would hold the rate near 61% in 2030, below the lowest level since records began in 1965.

You really should read the whole article. A couple of people who disagree with this assessment are quoted, but even they see the rate of home ownership stabilizing and staying lower than it was before the recession. There’s also some discussion about the impact on housing affordability, and interestingly it’s led by Ron Terwilliger who was the keynote speaker at this year’s Apartment Association of North Carolina education conference. He has some interesting ideas about reducing the mortgage deduction and moving some of those dollars over to help with rental housing. That would be a political hot potato, but it’s a sign of how different times are these days.
All in all, those signs bode will for the apartment industry from years, maybe even decades to come.

Ten Influential Women in the Apartment Industry

Multifamily Executive’s list of “The 10 Most Influential Women in Multifamily” includes PTAA member Bell Partners CIO Lili Dunn. Here’s an excerpt from her profile:

As Bell’s CIO, Dunn has committed herself to growing the firm’s investment platform, which typically delivers about $1 billion in transactions annually. Her recent accomplishments include the $1.8 billion sale of 64 properties with Bell joint-venture partner DRA ­Advisors, in only 60 days. Also under Dunn’s leadership, Preqin, a data research firm for alternative assets, has ranked Bell Partners as having one of the most consistent top-­performing funds in the world for the past two years…

Dunn also played an integral role early on at AvalonBay, assisting in an IPO that grew the firm’s assets from $300 million to $12 billion and helping coordinate the merger of its predecessors, Avalon Properties and Bay Apartment Communities, in 1998.

Having experienced two major downturns, Dunn knows the business cycle changes quickly and one has to be ready for anything.

“Fiscal and geo-political events can dramatically affect our economy and industry very quickly,” she says. “I take time to appreciate the good moments, because, in a blink, things can change.”

Cindy Clare, President of Kettler Management and Vice-Chairman of the National Apartment Association Board of Directors was also profiled.  Those are just two of ten very impressive people on this list.

 

Judge Tosses HUD “Disparate Impact” Rule

Judge Richard Leon of the D.C. District Court issued a ruling on Monday that will be of particular interest to housing providers. From the article in The Hill:

Judge Richard Leon of the D.C. Circuit Court ruled Monday that the Department of Housing and Urban Development’s “disparate impact” rules were not justified by existing law, and ordered the rules vacated.

The ruling marks the latest in an ongoing debate about the controversial regulatory principle, which is used to build discrimination cases based on statistical models, rather than overt examples of unequal treatment…

Civil rights groups have hailed the initiative, saying it will help expose and punish institutional discrimination that may not be easily observed.

But many industry groups have cried foul at its use, arguing that the law does not permit the government to charge discrimination when there are no clear examples of it, but rather just data that shows some groups may be treated differently.

The judge dismissed the government’s argument that existing laws permitted the government to apply the method to fair housing laws by calling it “wishful thinking on steroids.”

Rather, Leon wrote in his decision that the language of the Fair Housing Act, which provides the legal basis for challenges in housing discrimination, only permits claims based on intentional discrimination.

Housing Market Holding Back the Economy?

The New York Times has a piece exploring the impact that the housing market is having on the economy:

Investment in residential property remains a smaller share of the overall economy than at any time since World War II, contributing less to growth than it did even in previous steep downturns in the early 1980s, when mortgage rates hit 20 percent, or the early 1990s, when hundreds of mortgage lenders failed.

If building activity returned merely to its postwar average proportion of the economy, growth would jump this year to a booming, 1990s-like level of 4 percent, from today’s mediocre 2-plus percent. The additional building, renovating and selling of homes would add about 1.5 million jobs and knock about a percentage point off the unemployment rate, now 6.7 percent. That activity would close nearly 40 percent of the gap between America’s current weak economic state and full economic health.

But what about the burgeoning apartment market?

So there is something of a boom underway in the nation’s housing market. It just isn’t for single-family homes.

Building of rental multifamily properties, as the industry calls them — buildings with five or more housing units as part of one construction — was higher last year than it was even at the peak of the housing boom. Some 34 percent of all housing permits issued nationwide were for multifamily properties in 2012 and 2013, the highest since 1984…

On average, it cost $102,000 to build each of those new apartment units last year, according to census data, compared with $224,000 for each single-family home. Moody’s Analytics estimates that every single-family home that is started creates 3.7 jobs over the ensuing year, compared with 1.8 jobs for a unit in each multifamily home.

That’s a pretty common refrain when discussing the economic impact of housing – that apartments don’t generate the same number of jobs as houses – but that doesn’t take into account the ongoing management jobs those apartment communities generate.

A more fundamental question prompted by the article is this: Is a housing model based on the suburban, single family home subdivision what’s best for the country? Sure there are more construction jobs generated per “door” with single family houses than multifamily units, but in the long run do they cost more in delivery of utility service, traffic/sprawl impact and demand placed on municipal services?

Mid-America and Colonial Merge

From the Wall Street Journal:

Mid-America Apartment Communities Inc. (MAA) and Colonial Properties Trust (CLP) have agreed to merge, creating a Sunbelt-focused real estate investment trust with a total market capitalization of $8.6 billion.

The adjusted market capitalization is about $5.1 billion…

The transaction is expected to close during the third quarter.

The pair noted that their combination brings together two complementary multifamily portfolios with a combined asset base consisting of about 85,000 multifamily units in 285 properties. “The combined company will maintain strategic diversity across large and secondary markets within the high growth Sunbelt region of the U.S.,” said the pair in a statement.

The combined company’s ten largest markets will be Dallas/Ft. Worth, Atlanta, Austin, Raleigh, Charlotte, Nashville, Jacksonville, Tampa, Orlando and Houston.

Rating Agency Slightly Bearish on Archstone Deal

From the Wall Street Journal:

Equity Residential EQR -0.72% may be pleased with the purchase of apartment giant Archstone that it is making with AvalonBay Communities Inc. AVB -0.09% But Fitch Ratings needs some convincing.

The ratings agency Tuesday placed Equity Residential on watch for a possible downgrade that could lower the company from its current investment-grade BBB+, which is three notches above junk, says Steven Marks, head of Fitch’s U.S. REITs group…

Mr. Marks says Fitch is concerned that Equity Residential’s balance sheet may get strained if it runs into problems selling assets.

What Happens When It Happens to You?

In a compelling post on the NAA blog about the impact of Superstorm Sandy on New Jersey, Mike Beirne, Executive Vice President of The Kamson Corporation, shares what it’s like to be in a disaster rather than an observer of one:

By nature, we are problem-solvers. What do you do when the problems are so ominous, and the best of us simply do not have answers? You learn, you adapt and you overcome. I have seen people become desperate. Over the past few weeks, I have seen the best of human kind and the worst. When an emergency hits your area, which side will you fall on?

Do you in your business include worst-case scenario planning? My suggestion is you should. I have been reminded of them many times over the past few years. Tornados, earthquakes, hurricanes, blizzards: the worst-case scenario does happen—and never so as starkly as in this most current event.

Where do you start? And once you start, what are some really important things you learn? How can you infuse them into your business plan? We thought we were smart and had portable generators everywhere, ready to go. But are they useful when you cannot get gas?

Folks, it’s not all about business. First and foremost, it’s about human beings. You have to adjust your decision-making to comprehend and understand that it’s for both your residents and your employees.