Tag Archives: Real estate

Dr HousingBubble: 4 current trends in the housing market

4 current trends in the housing market: Rents holding steady nationwide, young home buyers, bidding war trends, and going after strategic defaulters.

The big motivation for large real estate investors was the yield they could potentially receive from purchasing real estate in depressed markets.  Early adopters entered the market in 2008 and 2009 and by 2010 the market was flood by big money investors.  Today we are seeing a saturation in terms of investors and yields are not worth the time for many large funds.  For example, rents in Arizona and Nevada are down from where they were in 2010 in spite of the rapid rise in housing values.  It could be because there is a saturation of rentals in these markets or simply because incomes are weak in these areas.  One thing is certain and some investors are losing their appetite for rental real estate.  Another interesting trend involves higher inventory and subsequently and ease in the volume of bidding wars.  What are some of the trends in the current housing market?

Rental analysis

us rent prices

One interesting trend is the large rise in rents for New York since 2010.  Los Angeles rents appear to be steady or falling somewhat according to the median list price.  The rental trend in Los Angeles appears the same as it does for the nation.

What is interesting is when comparing housing values:

zillow home price index

Los Angeles is one of the markets that has turned around quickly.  The trend isn’t evenly distributed as the chart above highlights.  The big jump in New York rents is interesting since home values according to the above seem to be fairly stable.  Unlike Arizona and Nevada with falling rents and incredible jumps in home values, New York would seem to justify a move up in prices when looking at rents.

The young and in debt

Americans overall receive a large portion of their reported net worth through real estate equity.  Since many young Americans bought near or at the peak, they never really had the chance to accumulate any equity growth.  Many also bought with FHA insured mortgages or low down payment loans stretching their budgets.  Because of this, net worth for older households has largely recovered from the peak but for younger households, they are still down by a whopping 40 percent from the peak:

age of household net worth

Source:  New York Times

The main reason?  Negative equity.  The debt still remains connected to peak housing values and while stocks are near record levels, real estate values nationwide still have a long way to go to reach those previous peaks.

Bidding wars easing up

Redfin has an interesting report on bidding wars. Of course the most competitive markets seem to be in California.  Take a look at the bidding war trend:

redfin bidding wars

Source:  Redfin

The main reason for this?  The largest monthly inventory increase in three years might help to ease off some of the insanity in the current market.   This might offer some wiggle room around the country but the heat is still on in manic California:

competition markets

Look how crazy the San Francisco market is in terms of competition.  In May, over 96 percent of winning bids were over asking price!  Orange County and San Diego had very high numbers here as well.  So if you are out there in this mania and are losing out, this is probably why.

Going after strategic defaulters

A large number of people strategically defaulted during the height of the bust and many thought they were off free and clear.  Now that prices are up, banks are looking into those strategic defaults from the past:

“(WaPo) [Freddie Mac spokesman Brad German] said Freddie Mac is targeting “strategic defaulters,” which the agency defines as “someone who had the means but chose to go into default, that there were no extenuating circumstances that affected their ability to pay. If you’re choosing not to pay off your mortgage, but you’re paying other bills, we would consider that strategic default.”

In 2011, Fannie and Freddie flagged 12 percent of 298,327 properties they had foreclosed on — more than 35,000 — for deficiency judgments in an attempt to collect $2.1 billion in unpaid mortgage debt, according to an inspector general’s report released in October from the Federal Housing Finance Agency.”

Americans seemed to be shocked that data was being collected on them while they post their entire lives chronicled by the minute on Facebook voluntarily.  So it should be no surprise that our GSEs were also tracking those strategic defaulters.  Now that times are good and equity is back up, you might be receiving a letter if you strategically walked away from your mortgage and had assets in other investment vehicles.

The trends suggest that rents are tight because incomes are tight.  You also see that bidding wars might be reaching an apex in terms of manic fever in some markets.  In the end, the momentum is still on the upside but for how long?  Can the Fed continue to purchase MBS and risk inflating that $3.3 trillion balance sheet even further?  The fact that inventory is rising is a good sign for most Americans.

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JCHS: Strong Demand for Rental Housing Driving Gains in Multifamily Construction

Strong Demand for Rental Housing Driving Gains in Multifamily Construction

by Ellen Marya
Research Assistant
As the housing recovery gains momentum, one encouraging sign has been the strong return of multifamily construction. According to the Census Bureau’s Survey of Construction and Building Permits Survey, construction on 245,300 multifamily units was started in 2012, the most since 2008. (Figure 1) The surge in construction activity is only beginning to result in new supply on the market given the long lags from the time a project is conceived until construction is completed (only 166,000 units in multifamily buildings were completed in 2012, just slightly above the low point in 2011). But looking ahead, multifamily construction will continue to accelerate, as permits for over 310,000 multifamily units were issued in 2012, also the highest level since 2008.

 061313_marya_figure1
Source: US Census Bureau, New Residential Construction.
Gains in permitting have been widespread: three-quarters of the 100 largest metro areas accelerated their multifamily permitting in 2012. Nationwide, the multifamily rebound is outpacing improvement in the single-family market. Multifamily permitting was up over 51 percent between 2011 and 2012, more than twice the gain in single-family permits and the third consecutive double-digit increase. The rapid recovery in the multifamily sector has led to speculation that some markets may be in danger of overbuilding. But while recent gains are dramatic, a longer-term view of both supply and demand indicates that such concerns are likely overblown—at least for now.
Current increases in multifamily permitting are from historically low levels. From a peak of over 473,000 units in 2005, multifamily permits decreased by more than 70 percent to 142,000 in 2009, the fewest in 25 years. In the context of these drastic swings, permitting is just beginning to return to levels in line with long-term averages. Nationwide, in 2012, nearly 81,000 fewer multifamily units were permitted than the average annual level from 2000 to 2009. Permitting in 34 of the 100 largest metros did top average levels from the 2000s in 2012, including seven of the top ten highest permitting areas (Figure 2).

 061313_marya_figure2
Source: JCHS tabulations of US Census Bureau, New Residential Construction.
This boost in supply is occurring in conjunction with rapidly growing demand for rentals. Nearly 93 percent of multifamily units completed in 2012 were rentals, the highest level in decades. According to the Housing Vacancy Survey, the number of renter households increased by over 1.1 million between 2011 and 2012, marking the eighth straight year of renter growth. Rentership was especially strong in each of the top ten highest permitting areas, where growth in renter households outpaced overall household growth between 2010 and 2011, the most recent years with metro-level data available from the American Community Survey. In total, these ten metros added 154,000 households between 2010 and 2011, but the number of renter households increased by nearly 268,000.

Additional signs indicate strong rental markets in these highest permitting areas. According toMPF Research, vacancy rates in professionally-managed apartment complexes were near or under 5 percent in eight of these markets as of the fourth quarter of 2012. Monthly rents in the ten markets were up an average of 3.6 percent in the fourth quarter of 2012 from the same quarter a year earlier, compared to 3.0 percent nationwide. As construction timelines for multifamily buildings often span several years, market conditions will continue to develop during the lag between permitting and completion of new units. However, generally tight markets and enduring renter growth suggest that the robust return of multifamily construction currently represents a response to rising demand, rather than the formation of a new bubble.

 

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