Tag Archives: Renting

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.

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).

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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CR: HVS: Q1 2013 Homeownership and Vacancy Rates

HVS: Q1 2013 Homeownership and Vacancy Rates

by Bill McBride on 4/30/2013 

The Census Bureau released the Housing Vacancies and Homeownership report for Q1 2013 this morning.

This report is frequently mentioned by analysts and the media to track the homeownership rate, and the homeowner and rental vacancy rates.  However, there are serious questions about the accuracy of this survey.

This survey might show the trend, but I wouldn’t rely on the absolute numbers.  The Census Bureau is investigating the differences between the HVS, ACS and decennial Census, and analysts probably shouldn’t use the HVS to estimate the excess vacant supply, or rely on the homeownership rate, except as a guide to the trend.

Homeownership Rate Click on graph for larger image.

The Red dots are the decennial Census homeownership rates for April 1st 1990, 2000 and 2010. The HVS homeownership rate decreased to 65.0%, down from 65.4% in Q4.

I’d put more weight on the decennial Census numbers and that suggests the actual homeownership rate is probably in the 64% to 65% range.

Homeowner Vacancy RateThe HVS homeowner vacancy rate was increased to 2.1% in Q1 from 1.9% in Q4.

The homeowner vacancy rate has peaked and is now generally declining, although it isn’t really clear what this means. Are these homes becoming rentals? Anyway – once again – this probably shows that the trend is down, but I wouldn’t rely on the absolute numbers.

Rental Vacancy RateThe rental vacancy rate declined in Q4 to 8.6%, from 8.7% in Q4.

I think the Reis quarterly survey (large apartment owners only in selected cities) is a much better measure of the overall trend in the rental vacancy rate – and Reis reported that the rental vacancy rate has fallen to the lowest level since 2001.

The quarterly HVS is the most timely survey on households, but there are many questions about the accuracy of this survey. Unfortunately many analysts still use this survey to estimate the excess vacant supply. However this does suggest that the housing vacancy rates have declined sharply.

Read more at http://www.calculatedriskblog.com/2013/04/hvs-q1-2013-homeownership-and-vacancy.html#TkBWIoQoKuxIY0rc.99

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JCHS: Are Renters Less Energy Efficient than Homeowners?

Are Renters Less Energy Efficient than Homeowners?

According to data from the Energy Information Administration, American renters use nearly a third more energy per square foot than homeowners. What accounts for this difference?
In part it’s because rental units are typically smaller, and are therefore more energy intensive. For example, a family in a small apartment needs a refrigerator, stove, and water heater the same way a family in a larger apartment (or a homeowner) does.  These things require a basic amount of energy, regardless of square footage.  Rental units also tend to be older; 75 percent of renters live in units built before 1990 while 68 percent of owners live in older units.
Source: US Department of Energy, Energy Information Administration, 2009 Residential Energy Consumption Survey.
That said, the above chart shows that the amount of energy used by renters can vary depending on whether their utility costs are fixed (built into their rent) or if they pay for utilities themselves.  As the chart illustrates, renters consume considerably more energy when some or all of their utility costs are fixed.  This shows the general tendency of people to consume more of something when there is no added cost for doing so. Such excess energy consumption drives up the amount of energy renters use overall, further accounting for the efficiency gap between owners and renters.
Even so, renters who pay for utilities separate from their rent still use slightly more energy per square foot than owners.  This suggests a real, structural efficiency gap between rental and owner units. In fact, a recent study found that multifamily rentals in 2009 had 34% fewer energy efficiency features on average than other housing types. Consumer fuels and utility costs have risen over 50 percent over the past decade, outstripping overall inflation, which makes energy efficiency improvements (insulation, energy efficient windows, compact fluorescent lighting, HVAC upgrades, energy efficient appliances) appealing to people wanting to lower their energy bills.  But when tenants pay for their metered energy usage, a property owner’s incentive to perform energy efficiency retrofits is lower, since any cost savings will benefit the tenants, not the owner. Rental property managers also have less control over how their tenants respond to an energy retrofit (e.g. more efficient windows might still be left open in the winter).  These things can keep rental property owners from performing energy efficiency retrofits at the same rate as homeowners which, in turn, keeps energy usage by renters high.The gap between energy usage between owners and renters suggests that there are real opportunities for savings through some combination of added incentives for property owners to make these investments in retrofits and greater incentives for tenants to conserve energy. Lowering energy use would have the additional benefit of bringing down the cost of rental housing at a time when more renters are paying very high shares of their incomes for housing as a new study by the National Low Income Housing Coalition shows.

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Single-Family Built-for-Rent Share Remains Elevated

Single-Family Built-for-Rent Share Remains Elevated

by Robert Dietz — Eye on Housing

Despite some recent ups and downs, the share of single-family homes built for rental purposes remains higher than historical norms.

According to data from the Census Bureau’s Quarterly Starts and Completions by Purpose and Design, the market share of single-family homes built for rental purposes, as measured on a one-year moving average, stands at 4.3% for the 2nd quarter of 2012. This is lower than the recent peak of 5.35% set at the beginning of 2011, but considerably higher than the 20-year average of 2.69%.

In general, with the onset of the Great Recession, the share of such homes rose, with a dip during the homebuyer tax credit period.

Despite the elevated market share, the total number of single-family starts built for rental purposes remains fairly low – only 21,000 homes started over the past year.

 Of course, the built-for-rent share of single-family homes is considerably smaller than the single-family home portion of the rental housing stock, which is 27% according to the 2010 American Community Survey. As single-family homes age, they are more likely to transition from the owner-occupied to the rental housing stock.

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Housing Recovery: Hope and Reality — PRAGCAP



By Lance Roberts, StreetTalk Advisors

Every year for the past three years there have been recurring calls for a housing bottom and recovery. The importance of an eventual recovery in housing should not be dismissed as it is a critical component of an economic recovery due to the large multiplier effect of each dollar spent. The recovery in housing would signal that a foundation for a more lasting economic recovery would be in place. That is the hope anyway.

However, as we have discussed in the past (see herehere, and here) the reality is that while housing construction and sales may have bottomed after the largest decline in history, it is highly likely that a correction in prices likely has further to fall particularly if interest rates rise for any reason. The one overlooked issue is that while it is likely that housing may have found its natural bottom — a bottom and a recovery areentirely different things.

During the past couple of weeks there has been a tremendous amount of ink spilled in the press about home sales, both new and existing, starts and permits which all showed some very modest improvement. It is important to note that the improvement in the data is welcome news. It is a bit premature, however, for it to be called a recovery. With mortgage rates currently below 4%, employment somewhat stable, major banks continuing to stall the foreclosure process and the home buying season moving into full swing — we should see improvement in the housing data. If we weren’t — that would be very bad.

The current “bottom,” and I use that word loosely, in housing appears to have occurred in late 2010. However, we also saw a “bottom” in 2009 as well. With continued support to housing from artificially depressed interest rates, bailouts, write downs, forgiveness, tax credits and incentives — housing data does appear to show a bottom.

The most recent release of April’s data, on the surface, appears to support the media’s proposition that housing is in a continued recovery process. Not so fast. The problem with the April data, on a seasonally adjusted basis, is that this was the warmest April in six years and the second warmest in the past 31 years. The unseasonably warm weather, combined with the lowest amount of precipitation in a decade, has artificially influenced the adjusted data in much the same way as we have previously discussed regarding the employment data. While April did show a rebound it came on the heels of two monthly declines and failed to fully recoup the previous losses. What was worse is that on a non-seasonally adjusted basis this was one of the weakest Aprils in the past decade for existing home sales.

If you look at the first chart you can see that even with the many supports discussed above combined with depressed prices and unseasonably warm weather it takes a rather strong magnifying glass, and much “hope,” to say that a recovery is here.

Apart from new and existing home sales the housing starts, permits and completion data does not look much better. Considering these data points are still at the lowest levels since data began to be collected there is very little evidence that a recovery is officially underway. When these data points are combined with new and existing home sales we can argue the case for a housing bottom. However, a bottom and a recovery in housing, as stated previously, are two vastly different things.

This is evident by the data coming from the home building companies themselves as they continue to curb their inventory. This is a needed but defensive posture by the homebuilders and inventory has declined to a 5.1 month supply. Even given lower inventory levels it is still taking nearly 8 months to complete a sale. The reality is that the demand for homes remains extremely constrained and any negative shock to the economy could quickly turn the recent modest improvements back on their head.

Digging Into The Real Housing Situation

In order to really know what is going on in housing we need to look at the proverbial “forest for the trees” by examining what is happening to the total number of houses. We know that many housing units have been converted into rental properties in recent months as excess homes are sitting vacant. As full-time employment remains elusive, a large and available labor pool suppresses wages and access to credit remains tight – the dream of “home ownership” has slipped from the grasp of many Americans. However, as the population continues to expand, “renting” becomes the preferred choice. The chart shows the percentage of homes that are “occupied”, either by a renter or homeowner, as a percentage of the total number of housing units in the U.S. There are two important issues in this chart. The first, and most obvious, is surge in homes being rented versus owned. The second is that home occupancy rates are only 1/2% higher today than they were during the recession. As I stated before — you must look very hard to find a housing recovery here.

One issue that will continue to confound the real estate market in the near term is the level of inventory that is being held off market for various reasons. This does not include the shadow inventory held by banks which is an additional issue. As we have stated in previous reports the housing market is driven by the activity “at the fringes”between those actively seeking to buy a house versus those with “for sale” signs in their yard. Today, roughly 1/3 of all homeowners are under water on their mortgages. Therefore, it is no surprise that many are holding homes as long as possible hoping for a price recovery. However, at some point these “vacant” houses, along with the excess shadow inventory and trapped homeowners, will come to market either due to force or desperation. The excess supply will continue to pressure home prices, more supply than demand, in the future further exacerbating the problem for those already drowning in their home.

Ultimately there is only one truth to whether there is really a housing recovery or not. How many people own a home? If new and existing home activity, as seen in recent reports, is truly on the rise then we should see the number of individuals that are “home owners” on the rise as well.

The chart shows the home ownership rate in the U.S. As of the latest quarter the level of home ownership has declined back to levels last seen in 1980 before the Savings & Loan crisis. That particular real estate related debacle had a profound effect on the real estate market at that time as homeowners mailed their keys back to the banks. It was then that the government set up the Resolution Trust Corporation to efficiently dispose of the houses that were required to be foreclosed on. While the level of home ownership “bottomed” in the early 80′s it took more than a decade before housing, and consequently home “ownership” truly began to recover.

While there is a tremendous amount of hope for a housing recovery in 2012, just as there has been during the last 3 years, the simple reality is that a “real recovery” may be a very long time away. A weak economic environment growing at a sub-par rate, burdened by excessive debt levels which sap potential growth, high unemployment and rising temporary work suppressing wages, tight credit standards and trapped borrowers all work against a housing recovery at the current time. Unfortunately, for many Americans, the dream of home ownership turned into a horrifying nightmare. The psychological impact caused by the housing bust is also something that will impede a real housing recovery in the future until the painful memories have faded into the mist.

Is there a bottom in housing? It is entirely possible. However, for all the reasons stated herein, both financial, economic and psycholgoical, the “calls” for a housing recovery may be a bit premature. This is particularly true if our estimation of an economic recession in the next 18 months comes to fruition. The strains on the housing market caused by a recession will cause a secondary decline in housing. The reality of a recession is not a question of “if” — it is only a question of “when” and how bad will it be?

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Who Lives in New Housing?

Who Lives in New Housing?

by Robert Dietz — Eye on Housing

April is New Homes Month, so we thought we would take a look at the demographic data from the most recent edition of the American Housing Survey (AHS) to see who lives in newly constructed homes. The AHS defines new construction as housing units no more than four years of age.

Typically, larger households are relatively more likely to live in new homes. This is a finding that complements previous NAHB analysis that examined home size and geography.

The graph above reports the percentages of various types of housing (owner-occupied, renter-occupied and newly constructed, both owner and rental) with respect to the number of people who reside in each. For example, the first blue bar shows that about 22% of owner-occupied homes contain one person, while thse second blue bar notes that 36% of owner-occupied homes contain two people.

It is clear that renters are most likely to be one person households. Similarly, two-person households are the most common type for homeowners. The two-person household is also the most common form for new construction, with 33% of newly constructed homes holding two-person households.

On a relative basis, a greater share of new construction houses three persons or more compared to homes of  homeowners or renters. This can be seen by noting that the green bars in the chart above are higher than the blue and red bars for households with 3 or more people. In fact, 47% of all new construction houses three or more people.


The short answer is that new construction is more likely to house children than other types of housing on a unit-by-unit basis. As can be seen on the graph above, new construction has the largest shares of homes for all counts of children.  Specifically, 44% of newly constructed units house children. Only 35% of rental units and 34% of owner-occupied units house children.

And this in turn helps explain the age distribution of people who live in new homes. The AHS data indicate large relative shares for new housing with respect to households headed by people aged 30 to 44. And it is worth noting, this is the age segment for whom, as a share of household income, the mortgage interest deduction offers the largest benefits. It is also prime parenting years. Renting households tend to be younger and owner-occupiers as a class tend to be older.

Overall, 78% of heads of households who live in new construction are aged 54 or younger, compared to 56% for all owner-occupied housing. However, these statistics may change in the coming years as more 50+ new housing construction gains strength.

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