The federal government is trying to unload some real estate, and your buyers can now start the bidding in online auctions on various government properties, including residential homes in sought-after areas.
GSA (the U.S. General Services Administration), which assists federal agencies with unloading properties that they no longer need, is selling government properties through its online auction site, realestatesales.gov.
The auction site includes all types of property for-sale, ranging from residential homes and vacant land to commercial buildings, warehouses, and even historic lighthouses. You can use the site to search by property type and state.
“In addition to giving the public an opportunity to bid on government assets, the disposing of unneeded properties is helping to create a more sustainable government by reducing the federal real estate footprint,” writes Ralph Conner, director of GSA's Office of Property Disposal Utilization, in a recent blog post announcing the auction site.
Recently, the site auctioned off a former U.S. Coast Guard Admiral’s 3,000-square-foot home in the Seattle area suburbs for $635,000. The home featured views of Lake Washington, Mount Rainer, and the Seattle skyline.
Last year, President Obama directed federal agencies to get rid of unneeded government properties in an effort to curb costs. The goal is a $3 billion in savings from government properties by Sept. 30, 2012.
Source: “Federal Property for Sale on Realestatesales.gov,” GSA (Nov. 9, 2011)
Thursday, November 10, 2011
Falling Rates Send Mortgage Apps Soaring 10%
More borrowers are taking advantage of record low interest rates. Mortgage applications increased 10.3 percent last week over a week earlier, the Mortgage Bankers Association reported.
The purchase index, a gauge of future home buying, increased 4.8 percent while refinancing activity jumped 12.1 percent from the previous week to its highest level in a month, MBA reported.
"Treasury rates dropped last week, as renewed turmoil in Europe once again led to a flight to quality, and 30-year mortgage rates dropped to their second lowest level of the year," Mike Fratantoni, MBA's vice president of research and economics, said in a statement.
Source: “Mortgage Applications Jump 10.3% as Interest Rates Decline,” HousingWire (Nov. 9, 2011)
The purchase index, a gauge of future home buying, increased 4.8 percent while refinancing activity jumped 12.1 percent from the previous week to its highest level in a month, MBA reported.
"Treasury rates dropped last week, as renewed turmoil in Europe once again led to a flight to quality, and 30-year mortgage rates dropped to their second lowest level of the year," Mike Fratantoni, MBA's vice president of research and economics, said in a statement.
Source: “Mortgage Applications Jump 10.3% as Interest Rates Decline,” HousingWire (Nov. 9, 2011)
Buy a HUD Home for Only $100 Down?
In several states, the U.S. Department of Housing and Urban Development is offering home buyers foreclosed homes with only a $100 down payment, in trying to unload some of its inventory. The incentive runs until October 2012.
To qualify, purchasers must be an “owner-occupant,” intending to live in the property and not rent it out. They also will have to qualify for Federal Housing Administration financing, and have to offer the full list price for the home.
Some additional eligibility requirements:
The home purchased must be a HUD home. Visit the HUD Homes For Sale Web site for a list of homes.
Buyers must use a HUD-registered real estate broker or agent in order to get the incentive.
The property must be purchased “as-is.”
Also, home buyers must request the offer and it needs to be written in the contract in order to get it. For more information about the program and a list of states offering the HUD $100 incentive, visit Realty Times.
Source: “Get a HUD Home for $100 Down,” Realty Times (Nov. 10, 2011)
To qualify, purchasers must be an “owner-occupant,” intending to live in the property and not rent it out. They also will have to qualify for Federal Housing Administration financing, and have to offer the full list price for the home.
Some additional eligibility requirements:
The home purchased must be a HUD home. Visit the HUD Homes For Sale Web site for a list of homes.
Buyers must use a HUD-registered real estate broker or agent in order to get the incentive.
The property must be purchased “as-is.”
Also, home buyers must request the offer and it needs to be written in the contract in order to get it. For more information about the program and a list of states offering the HUD $100 incentive, visit Realty Times.
Source: “Get a HUD Home for $100 Down,” Realty Times (Nov. 10, 2011)
Home Owners’ Monthly Mortgage Down About 40%
Improving housing affordability mixed with low mortgage rates means that home owners are paying a lot less for their monthly mortgage payment than they did just a few years ago. In fact, they’re paying nearly 40 percent less on their monthly mortgage payment than home owners paid in 2006.
According to Fiserv, the monthly mortgage payment for a median-priced single-family home today is $700 — a drop of close 40 percent from 2006, when it was $1,140 .
“Housing affordability has improved dramatically because of declines in both prices and mortgage interest rates," David Stiff, chief economist at Fiserv, said in a statement. “Nationally, purchase mortgage payments now account for only 13 percent of monthly median family income, the lowest percentage on record (since 1971), and compared to 23 percent in the first quarter of 2006."
Source: “Monthly Mortgage Payment Almost 40% Cheaper Than 2006,” HousingWire (Nov. 9, 2011) and Fiserv
According to Fiserv, the monthly mortgage payment for a median-priced single-family home today is $700 — a drop of close 40 percent from 2006, when it was $1,140 .
“Housing affordability has improved dramatically because of declines in both prices and mortgage interest rates," David Stiff, chief economist at Fiserv, said in a statement. “Nationally, purchase mortgage payments now account for only 13 percent of monthly median family income, the lowest percentage on record (since 1971), and compared to 23 percent in the first quarter of 2006."
Source: “Monthly Mortgage Payment Almost 40% Cheaper Than 2006,” HousingWire (Nov. 9, 2011) and Fiserv
Housing Is Key in 2012 Elections, Voters Say
Nearly seven out of 10 American — seven more so for the millennial younger generation — say that candidates’ positions on housings will be very important to them in the 2012 presidential and congressional elections, according to a new survey by Move Inc. of 1,000 adults.
Survey respondents identified the following top housing priorities for the next president’s first 100 days in office:
Helping home owners avoid foreclosure.
Keeping interest rates low.
Making more affordable mortgage credit available.
The survey also found that four out of five Americans say a strong real estate market is key to an economic recovery.
"After four years of living in a housing downturn, American voters clearly want answers and are looking to our elected leaders for solutions,” Errol Samuelson, chief revenue officer of Move Inc., said in a statement. “Our survey found that while some people may be frustrated or pessimistic, 27.3 percent of Americans still plan on buying a home. The survey illustrates candidates who share the concerns of the American people and make housing a top priority will win their confidence."
Source: “2012 Presidential Elections: 69.6% of Americans Said Housing Will Influence Their Vote,” Move Inc. (Nov. 8, 2011)
Survey respondents identified the following top housing priorities for the next president’s first 100 days in office:
Helping home owners avoid foreclosure.
Keeping interest rates low.
Making more affordable mortgage credit available.
The survey also found that four out of five Americans say a strong real estate market is key to an economic recovery.
"After four years of living in a housing downturn, American voters clearly want answers and are looking to our elected leaders for solutions,” Errol Samuelson, chief revenue officer of Move Inc., said in a statement. “Our survey found that while some people may be frustrated or pessimistic, 27.3 percent of Americans still plan on buying a home. The survey illustrates candidates who share the concerns of the American people and make housing a top priority will win their confidence."
Source: “2012 Presidential Elections: 69.6% of Americans Said Housing Will Influence Their Vote,” Move Inc. (Nov. 8, 2011)
Fiserv: Home Prices Will Continue to Fall into 2012
In the second quarter of 2011, single-family home prices fell 5.9 percent on an annual basis, according to the latest national Fiserv Case-Shiller home price indexes released Wednesday. This continuation of the double-dip that started in 2010 is not the end, according to Fiserv.
In fact, Fiserv predicts prices will continue to fall into the coming year — dropping another 3.6 percent by the first half of 2012.
However, Fiserv does see a light at the end of the tunnel. According to its predictions, prices will rise 2.4 percent from the second quarter of 2012 to the second quarter of 2013.
Capital Economics agrees with Fiserv’s forecast of further price declines in the short term, predicting “prices will continue to edge a little lower over the coming months,” according to its monthly housing report released Wednesday.
The timeline for clearing the current inventory of homes on the market rose from 8.2 months in August to 8.3 months in September, according to Capital Economics. “This is consistent with further falls in prices over the coming year,” the firm states.
Falling prices and mortgage rates have increased housing affordability. The monthly mortgage payment for a median-priced, single-family home is currently about 40 percent lower than at its peak.
“Nationally, purchase mortgage payments now account for only 13 percent of monthly median family income, the lowest percentage on record (since 1971), and compared to 23 percent in the first quarter of 2006,” said David Stiff, chief economist at Fiserv.
The markets that experienced the largest home price bubbles and ensuing crashes have experienced the greatest rises in affordability. Las Vegas saw a 32 percent drop in the ratio of monthly mortgage payment to family income.
Also notable, Miami has experienced a 23 percent drop in the mortgage payment to family income ratio, and Los Angeles has experienced a 32 percent drop.
“Although homes have become much less expensive, housing demand remains depressed with existing home sales back to 1998 levels, averaging 4.3 million units per year since June,” Stiff said.
Stiff continued, “Many households cannot finance first-time or trade-up home purchases to take advantage of lower home prices because of much stricter mortgage lending standards. But even households with access to mortgage credit are hesitant to buy homes while job growth is weak and consumer confidence is low.”
Stiff believes that if economic growth increases through the end of 2011, home prices could stabilize in early 2012. “But we should not expect a rapid rebound in home prices,” he said.
Prices fell in 340 of the 384 metro areas tracked by the Fiserv Case-Shiller indexes. In 302 of these metros, prices recorded new lows in the second quarter.
Fiserv predicts 372 of the 384 metros will rise over the next 12 months, while 12 metros will see declines.
Thirty metros recorded double-digit drops in the most recent indexes, and over the next year, prices are expected to fall by double digits in 16 metro areas.
At the same time, prices are expected to rise by double digits in only two metros-Madera-Chowchilla, California and Carson City, Nevada.
In fact, Fiserv predicts prices will continue to fall into the coming year — dropping another 3.6 percent by the first half of 2012.
However, Fiserv does see a light at the end of the tunnel. According to its predictions, prices will rise 2.4 percent from the second quarter of 2012 to the second quarter of 2013.
Capital Economics agrees with Fiserv’s forecast of further price declines in the short term, predicting “prices will continue to edge a little lower over the coming months,” according to its monthly housing report released Wednesday.
The timeline for clearing the current inventory of homes on the market rose from 8.2 months in August to 8.3 months in September, according to Capital Economics. “This is consistent with further falls in prices over the coming year,” the firm states.
Falling prices and mortgage rates have increased housing affordability. The monthly mortgage payment for a median-priced, single-family home is currently about 40 percent lower than at its peak.
“Nationally, purchase mortgage payments now account for only 13 percent of monthly median family income, the lowest percentage on record (since 1971), and compared to 23 percent in the first quarter of 2006,” said David Stiff, chief economist at Fiserv.
The markets that experienced the largest home price bubbles and ensuing crashes have experienced the greatest rises in affordability. Las Vegas saw a 32 percent drop in the ratio of monthly mortgage payment to family income.
Also notable, Miami has experienced a 23 percent drop in the mortgage payment to family income ratio, and Los Angeles has experienced a 32 percent drop.
“Although homes have become much less expensive, housing demand remains depressed with existing home sales back to 1998 levels, averaging 4.3 million units per year since June,” Stiff said.
Stiff continued, “Many households cannot finance first-time or trade-up home purchases to take advantage of lower home prices because of much stricter mortgage lending standards. But even households with access to mortgage credit are hesitant to buy homes while job growth is weak and consumer confidence is low.”
Stiff believes that if economic growth increases through the end of 2011, home prices could stabilize in early 2012. “But we should not expect a rapid rebound in home prices,” he said.
Prices fell in 340 of the 384 metro areas tracked by the Fiserv Case-Shiller indexes. In 302 of these metros, prices recorded new lows in the second quarter.
Fiserv predicts 372 of the 384 metros will rise over the next 12 months, while 12 metros will see declines.
Thirty metros recorded double-digit drops in the most recent indexes, and over the next year, prices are expected to fall by double digits in 16 metro areas.
At the same time, prices are expected to rise by double digits in only two metros-Madera-Chowchilla, California and Carson City, Nevada.
Americans Consider Housing Policy in 2012 Election
As Americans consider the best candidates for the 2012 presidential and congressional elections, housing is at the forefront of the debate for many. About 70 percent of Americans say a candidate’s position on housing could sway their vote, according to a survey released Tuesday by Move, Inc.
However, Americans differ in their views of what the housing market needs most.
The survey found 30.9 percent of Americans believe the next president’s priority for his or her first 100 days in office should be helping homeowners avoid foreclosures.
Keeping interest rates low was also a high priority with 26.4 percent of Americans responding that it should be the president’s priority in the first 100 days, while 14 percent of Americans believe the president’s first priority should be making affordable mortgage credit available.
As for the future of the government in the housing market — 21.3 percent of survey respondents said the govern-
ment’s role in the housing market should be increased, while 42 percent said it should be decreased.
Thirty-one percent of survey respondents believe the government should maintain its current level of involvement in the market.
A little more than two-thirds, 67.4 percent, of Millennials – the next generation of homebuyers, according to Move, Inc. – believe the president and Congress should either reduce or maintain their current level of involvement in the housing market.
“After four years of living in a housing downturn, American voters clearly want answers and are looking to our elected leaders for solutions,” said Errol Samuelson, chief revenue officer of Move, Inc.
The Move Inc., survey also examined Americans’ perceptions of the market, finding pessimism among many.
About 73 percent of Americans expect home buying conditions to stay the same or get worse over the next year.
“Perceptions as much as the realities of homeownership are standing in the way of boosting demand for housing,” Samuelson said
Despite an increase in affordability, the perception of affordability has declined, according to Move Inc.
While the qualifying income for a median priced home in August was less than the median household income in 2010, only 32 percent of Americans believe a median income family can afford a median income home in their area.
However, Americans differ in their views of what the housing market needs most.
The survey found 30.9 percent of Americans believe the next president’s priority for his or her first 100 days in office should be helping homeowners avoid foreclosures.
Keeping interest rates low was also a high priority with 26.4 percent of Americans responding that it should be the president’s priority in the first 100 days, while 14 percent of Americans believe the president’s first priority should be making affordable mortgage credit available.
As for the future of the government in the housing market — 21.3 percent of survey respondents said the govern-
ment’s role in the housing market should be increased, while 42 percent said it should be decreased.
Thirty-one percent of survey respondents believe the government should maintain its current level of involvement in the market.
A little more than two-thirds, 67.4 percent, of Millennials – the next generation of homebuyers, according to Move, Inc. – believe the president and Congress should either reduce or maintain their current level of involvement in the housing market.
“After four years of living in a housing downturn, American voters clearly want answers and are looking to our elected leaders for solutions,” said Errol Samuelson, chief revenue officer of Move, Inc.
The Move Inc., survey also examined Americans’ perceptions of the market, finding pessimism among many.
About 73 percent of Americans expect home buying conditions to stay the same or get worse over the next year.
“Perceptions as much as the realities of homeownership are standing in the way of boosting demand for housing,” Samuelson said
Despite an increase in affordability, the perception of affordability has declined, according to Move Inc.
While the qualifying income for a median priced home in August was less than the median household income in 2010, only 32 percent of Americans believe a median income family can afford a median income home in their area.
Foreclosure Activity Increases for Third Straight Month
Foreclosure filings in October rose 7 percent from the previous month, RealtyTrac reported Thursday.
Including default notices, scheduled auctions, and bank repossessions – which all increased month-over-month – filings were reported on 230,678 U.S. properties in October.
That grand total is down nearly 31 percent from a year earlier, when servicers began putting the brakes on foreclosure actions due to paperwork issues. But RealtyTrac has documented a rise in filings for three consecutive months now – a sign that servicers are working through the backlog of cases that have been delayed.
While the October numbers indicate unpaid mortgages are finally making their way through the pipeline, James Saccacio, RealtyTrac’s CEO, says he’s concerned other forces at work could throw a wrench in foreclosure processing.
“[R]ecent state court rulings and new state laws keep changing the rules of the foreclosure game on the fly,” Saccacio said, “creating more uncertainty in the housing market and threatening to prolong the road to a robust real estate recovery.”
Nevada is one example of a change in foreclosure rules. It saw a 34 percent decrease in filings, driven by a new state
law that took effect in October and requires lenders to sign and record an affidavit with key information about any pending foreclosure.
The foreclosure hotbed of Las Vegas recorded a 36 percent decrease in overall foreclosure activity, caused by an 80 percent drop in new default notices from September to October. Las Vegas had held onto the title of highest metro foreclosure rate for 22 consecutive months, but with October’s decline, it slipped to the No. 5 spot.
The 1,201 new defaults in the whole state of Nevada last month was its lowest since June 2006. Even with the sharp drop-off in activity, Nevada posted the nation’s highest state foreclosure rate for the 58th straight month.
Defaults in California, Florida, and Michigan – on the other hand – all rose to their highest levels in at least a year.
California default notices increased 17 percent from the previous month to 29,240, pushing the state’s foreclosure rate to the second highest in the nation.
A sharp monthly increase in both new default notices and scheduled auctions boosted the foreclosure rate in Florida to fourth highest among the states. A total of 15,234 new default notices were reported in Florida last month, up 28 percent from the previous month. Scheduled auctions in Florida hit 10,655 in October, up 57 percent from September.
New default notices in Michigan also reached a 12-month high, increasing 13 percent from the previous month. The state posted the nation’s fifth highest foreclosure rate for in October.
Wedged in there at No. 3 was Arizona. Total foreclosure activity there increased nearly 18 percent from the previous month, but was still down 36 percent from October of last year.
Other states with foreclosure rates ranking among the top 10 were Georgia, Illinois, Idaho, Oregon, and Colorado
Including default notices, scheduled auctions, and bank repossessions – which all increased month-over-month – filings were reported on 230,678 U.S. properties in October.
That grand total is down nearly 31 percent from a year earlier, when servicers began putting the brakes on foreclosure actions due to paperwork issues. But RealtyTrac has documented a rise in filings for three consecutive months now – a sign that servicers are working through the backlog of cases that have been delayed.
While the October numbers indicate unpaid mortgages are finally making their way through the pipeline, James Saccacio, RealtyTrac’s CEO, says he’s concerned other forces at work could throw a wrench in foreclosure processing.
“[R]ecent state court rulings and new state laws keep changing the rules of the foreclosure game on the fly,” Saccacio said, “creating more uncertainty in the housing market and threatening to prolong the road to a robust real estate recovery.”
Nevada is one example of a change in foreclosure rules. It saw a 34 percent decrease in filings, driven by a new state
law that took effect in October and requires lenders to sign and record an affidavit with key information about any pending foreclosure.
The foreclosure hotbed of Las Vegas recorded a 36 percent decrease in overall foreclosure activity, caused by an 80 percent drop in new default notices from September to October. Las Vegas had held onto the title of highest metro foreclosure rate for 22 consecutive months, but with October’s decline, it slipped to the No. 5 spot.
The 1,201 new defaults in the whole state of Nevada last month was its lowest since June 2006. Even with the sharp drop-off in activity, Nevada posted the nation’s highest state foreclosure rate for the 58th straight month.
Defaults in California, Florida, and Michigan – on the other hand – all rose to their highest levels in at least a year.
California default notices increased 17 percent from the previous month to 29,240, pushing the state’s foreclosure rate to the second highest in the nation.
A sharp monthly increase in both new default notices and scheduled auctions boosted the foreclosure rate in Florida to fourth highest among the states. A total of 15,234 new default notices were reported in Florida last month, up 28 percent from the previous month. Scheduled auctions in Florida hit 10,655 in October, up 57 percent from September.
New default notices in Michigan also reached a 12-month high, increasing 13 percent from the previous month. The state posted the nation’s fifth highest foreclosure rate for in October.
Wedged in there at No. 3 was Arizona. Total foreclosure activity there increased nearly 18 percent from the previous month, but was still down 36 percent from October of last year.
Other states with foreclosure rates ranking among the top 10 were Georgia, Illinois, Idaho, Oregon, and Colorado
Retail Demand Continues Steady Recovery, Some Pockets of Pain Persist
With the holiday shopping season getting under way in earnest this month, recession-weary American consumers are setting aside their worries about stagnant U.S. employment, a soft housing picture and the debt crisis in Europe to go shopping. That's providing fuel for the slow-but-steady improvement in retail property fundamentals that has emerged in recent quarters.
Consumers rode out a slow-but-not-stalled economic expansion during the spring, and annualized GDP growth edged up in the third quarter, with lower interest rates beginning to have their intended effect -- encouraging purchases of durable goods like autos and stronger spending by consumers on home improvements, food and beverage and electronics, furniture and appliances, according to data presented at CoStar Group’s Third-Quarter 2011 Retail Review and Outlook.
"Retail spending started out with ‘needs’-based items like health care and general merchandise at Target and Wal-Mart, and it's now widened to include more of the ‘wants’ by consumers," said Senior Real Estate Strategist Suzanne Mulvee, who co-presented the quarterly review with Real Estate Economist Ryan McCullough.
Even as shopping centers and malls logged their ninth consecutive quarter of positive absorption nationally at 17 million square feet, the pace of increase in the third quarter remained muted compared with absorption during the market peak back in 2007. Cautious retailers are leasing space at a much slower rate than they did at the height of the housing boom, and many have weeded-out underperforming stores.
"We’re seeing very light absorption given this period of the recovery, especially considering the retail sales volume," said McCullough. But those retailers that survived the downturn are performing well, reporting higher sales per square foot, he added.
Other chains, such as Best Buy, are shrinking their footprints at existing properties, Mulvee noted.
"They’re looking at demographics and trends like online shopping and wondering how they’re going to grow their top line, and they haven’t quite figured it out yet. Until they do, I don’t think we’ll see a major ratcheting up in demand for physical space," Mulvee said.
CoStar sent questions to retail webinar respondents prior to the event last week to sample their views on the economic forces shaping their local markets, along with which types of product are hot and which are not. Predictably, participants representing core markets were fairly bullish, while many of those doing business in secondary and tertiary locations continued to be discouraged by the retail real estate environment.
Follow me on Twitter for live news updates.
"Gyrations in sales volume appears to be driven primarily from discounting and bargains offered by retailers and are not a reflection of any true improvement," with confidence-lacking consumers still buying what they need and not their desires, said Michael Berube of Berube Company in San Mateo, CA, a view expressed by several other respondents.
Some retailers such as Wal-Mart are rolling out smaller format stores in urban centers to reach out to new customers. As suburban housing expansion has come to a standstill and urban core centers enjoy a rebirth, especially among renters in their 20s and 30s, retailers are finding an tapped market in undersupplied areas.
Restaurant growth is reported as especially strong, with residents eating fewer meals at home, a trend reflected in Census figures that show declining sales of food consumed at home. Sit-down and fast-food restaurants are taking an increasing role on large retail leases, and not just in urban locations, McCullough said.
Wal-Mart and other retailers are adding food to their offerings to take advantage of these shoppers, a trend noted by several e-mail respondents.
"Food has become more prominent at a variety of chains as it brings shoppers in more frequently, driving sales gains. For example, Target at The Pavilions at Talking Stick added fresh foods," said Linda Whitlow, director of public relations, De Rito Partners, Inc. in Phoenix. Whitlow added that unemployment in the area is still high and consumers have fewer discretionary dollars to spend, and are looking for more value for those dollars spent.
"My experience as of late is that retail leasing is very slow, with two distinct exceptions. Restaurant activity has been and continues to be very strong. Also, leasing activity for general retail is very active for large, over 10,000-square-foot, very well situated spaces that have all the other important attributes such as parking and visibility," added Norman Lotstein, vice president, Pyramid Real Estate Group, a retail specialist working primarily in southern Fairfield County, CT.
"Target just added grocery and expanded their stores in this region while Wal-Mart seems to be opening a new SuperCenter every 3-6 months," said David Doerr of Realty USA Commercial Division in Buffalo, NY.
Strip centers and neighborhood centers have been the slowest to see absorption gains, while power centers have performed strongly, with competition and tightening vacancies in some core markets for larger floor plates, CoStar's McCullough said.
Respondents reported that many of the abandoned Circuit City and Borders stores are being replaced by such tenants as fitness centers, seasonal Halloween and Christmas stores and in one case in the San Francisco area, a 10-year lease of a Circuit City store to the Peninsula Ballet Theatre and Conservatory.
However, "I have yet to see any abandoned big box stores replaced by like-kind credit worthy tenants, which was perceived of Borders, Circuit City, etc.," said Jeff Rigg, assistant vice president, Wells Fargo Bank - RETECHS, in Columbus, OH. "A number are temporary season tenants ... but very few national retailers have filled these spaces, most likely due to market overlap."
Denver, a metro at the intersection of technology and energy employment, has seen especially strong gains in absorption, leading the country with 1.3% of total retail inventory, with other strong markets including Seattle/Puget Sound, Boston, Washington, D.C., Houston and South Florida, the CoStar economists said.
In contrast, several metros plagued by large amounts of vacant "zombie" retail space such as Phoenix and Atlanta are plodding along with 25-35% vacancies.
While the national vacancy rate has ticked down slightly in recent quarters from its peak in early 2010, the availability rate -- space being marketed by landlords in anticipation of a tenant’s departure -- is improving at a slower pace, which is not encouraging given that some national chains are still announcing they will close more stores, Mulvee said.
Power centers are the only retail category where vacancies are continuing to edge down, with strip centers, neighborhood center and even community centers, many populated by mom-and-pop businesses, grappling with stubbornly higher vacancy rates.
That said, while the vacancy improvements are modest, they’re also broad-based. About two-thirds of the thousands of submarkets that CoStar tracks saw declining vacancies in the third quarter.
In one interesting exception to the lack of strength in non-core markets, Doerr said the strength of the Canadian dollar and loonie-toting tourists is providing an extraordinary boost to tourism and malls in his area, which includes Niagara Falls.
"In the Buffalo and Western New York retail market, we are uniquely positioned at the Canadian border and have approximately 6 million people within a 90-minute drive which includes the greater Toronto area," Doerr said. "We closely watch the value of the Canadian dollar against ours."
"I think retailers tend to only look at demographics and fail to know how strong our retail sector actually is beyond straight demos," he said.
In fact, in one of the largest investment sales of the third quarter, AWE Talisman sold Fashion Outlets of Niagara Falls to The Macerich Company for $200 million, or $377 per square foot. The 530,000-square-foot center right on the border is 95% leased, taking advantage of the strong cross-border trade.
Consumers rode out a slow-but-not-stalled economic expansion during the spring, and annualized GDP growth edged up in the third quarter, with lower interest rates beginning to have their intended effect -- encouraging purchases of durable goods like autos and stronger spending by consumers on home improvements, food and beverage and electronics, furniture and appliances, according to data presented at CoStar Group’s Third-Quarter 2011 Retail Review and Outlook.
"Retail spending started out with ‘needs’-based items like health care and general merchandise at Target and Wal-Mart, and it's now widened to include more of the ‘wants’ by consumers," said Senior Real Estate Strategist Suzanne Mulvee, who co-presented the quarterly review with Real Estate Economist Ryan McCullough.
Even as shopping centers and malls logged their ninth consecutive quarter of positive absorption nationally at 17 million square feet, the pace of increase in the third quarter remained muted compared with absorption during the market peak back in 2007. Cautious retailers are leasing space at a much slower rate than they did at the height of the housing boom, and many have weeded-out underperforming stores.
"We’re seeing very light absorption given this period of the recovery, especially considering the retail sales volume," said McCullough. But those retailers that survived the downturn are performing well, reporting higher sales per square foot, he added.
Other chains, such as Best Buy, are shrinking their footprints at existing properties, Mulvee noted.
"They’re looking at demographics and trends like online shopping and wondering how they’re going to grow their top line, and they haven’t quite figured it out yet. Until they do, I don’t think we’ll see a major ratcheting up in demand for physical space," Mulvee said.
CoStar sent questions to retail webinar respondents prior to the event last week to sample their views on the economic forces shaping their local markets, along with which types of product are hot and which are not. Predictably, participants representing core markets were fairly bullish, while many of those doing business in secondary and tertiary locations continued to be discouraged by the retail real estate environment.
Follow me on Twitter for live news updates.
"Gyrations in sales volume appears to be driven primarily from discounting and bargains offered by retailers and are not a reflection of any true improvement," with confidence-lacking consumers still buying what they need and not their desires, said Michael Berube of Berube Company in San Mateo, CA, a view expressed by several other respondents.
Some retailers such as Wal-Mart are rolling out smaller format stores in urban centers to reach out to new customers. As suburban housing expansion has come to a standstill and urban core centers enjoy a rebirth, especially among renters in their 20s and 30s, retailers are finding an tapped market in undersupplied areas.
Restaurant growth is reported as especially strong, with residents eating fewer meals at home, a trend reflected in Census figures that show declining sales of food consumed at home. Sit-down and fast-food restaurants are taking an increasing role on large retail leases, and not just in urban locations, McCullough said.
Wal-Mart and other retailers are adding food to their offerings to take advantage of these shoppers, a trend noted by several e-mail respondents.
"Food has become more prominent at a variety of chains as it brings shoppers in more frequently, driving sales gains. For example, Target at The Pavilions at Talking Stick added fresh foods," said Linda Whitlow, director of public relations, De Rito Partners, Inc. in Phoenix. Whitlow added that unemployment in the area is still high and consumers have fewer discretionary dollars to spend, and are looking for more value for those dollars spent.
"My experience as of late is that retail leasing is very slow, with two distinct exceptions. Restaurant activity has been and continues to be very strong. Also, leasing activity for general retail is very active for large, over 10,000-square-foot, very well situated spaces that have all the other important attributes such as parking and visibility," added Norman Lotstein, vice president, Pyramid Real Estate Group, a retail specialist working primarily in southern Fairfield County, CT.
"Target just added grocery and expanded their stores in this region while Wal-Mart seems to be opening a new SuperCenter every 3-6 months," said David Doerr of Realty USA Commercial Division in Buffalo, NY.
Strip centers and neighborhood centers have been the slowest to see absorption gains, while power centers have performed strongly, with competition and tightening vacancies in some core markets for larger floor plates, CoStar's McCullough said.
Respondents reported that many of the abandoned Circuit City and Borders stores are being replaced by such tenants as fitness centers, seasonal Halloween and Christmas stores and in one case in the San Francisco area, a 10-year lease of a Circuit City store to the Peninsula Ballet Theatre and Conservatory.
However, "I have yet to see any abandoned big box stores replaced by like-kind credit worthy tenants, which was perceived of Borders, Circuit City, etc.," said Jeff Rigg, assistant vice president, Wells Fargo Bank - RETECHS, in Columbus, OH. "A number are temporary season tenants ... but very few national retailers have filled these spaces, most likely due to market overlap."
Denver, a metro at the intersection of technology and energy employment, has seen especially strong gains in absorption, leading the country with 1.3% of total retail inventory, with other strong markets including Seattle/Puget Sound, Boston, Washington, D.C., Houston and South Florida, the CoStar economists said.
In contrast, several metros plagued by large amounts of vacant "zombie" retail space such as Phoenix and Atlanta are plodding along with 25-35% vacancies.
While the national vacancy rate has ticked down slightly in recent quarters from its peak in early 2010, the availability rate -- space being marketed by landlords in anticipation of a tenant’s departure -- is improving at a slower pace, which is not encouraging given that some national chains are still announcing they will close more stores, Mulvee said.
Power centers are the only retail category where vacancies are continuing to edge down, with strip centers, neighborhood center and even community centers, many populated by mom-and-pop businesses, grappling with stubbornly higher vacancy rates.
That said, while the vacancy improvements are modest, they’re also broad-based. About two-thirds of the thousands of submarkets that CoStar tracks saw declining vacancies in the third quarter.
In one interesting exception to the lack of strength in non-core markets, Doerr said the strength of the Canadian dollar and loonie-toting tourists is providing an extraordinary boost to tourism and malls in his area, which includes Niagara Falls.
"In the Buffalo and Western New York retail market, we are uniquely positioned at the Canadian border and have approximately 6 million people within a 90-minute drive which includes the greater Toronto area," Doerr said. "We closely watch the value of the Canadian dollar against ours."
"I think retailers tend to only look at demographics and fail to know how strong our retail sector actually is beyond straight demos," he said.
In fact, in one of the largest investment sales of the third quarter, AWE Talisman sold Fashion Outlets of Niagara Falls to The Macerich Company for $200 million, or $377 per square foot. The 530,000-square-foot center right on the border is 95% leased, taking advantage of the strong cross-border trade.
Tuesday, November 8, 2011
3 Red Flags When Applying for a Mortgage
More lenders are scrutinizing mortgage applications since the financial crisis fallout, which has triggered fears of borrowers who will default or walk-away from their mortgage or mortgage fraud.
Here are the triggers that may cause the most lender scrutiny of loan applications, according to a recent article at The New York Times:
Large deposits of money: Lenders are required to account for any cash gifts for down payments, such as from relatives. So if a borrower earns $5,000 a month and suddenly deposits an extra $10,000 beyond that, lenders may question where the money came from when applying for a loan.
The home’s new address: Buyers who are purchasing a primary home three hours from where they work may also draw increased scrutiny from lenders, according to The New York Times article. Borrowers may even need a letter from their employer stating that they work from home a few times a week. That’s because lenders may want to ensure the borrower plans to be an owner-occupant and not buying the property to rent or flip, which must be disclosed.
Signing up for new credit cards: Borrowers should avoid taking on extra debt when applying for a loan — so they may want to wait to buy all the new furniture. Extra debt can be a red flag to a lender and could even jeopardize closing on a new home if the debt pushes the borrower’s total debt levels beyond lender-accepted limits.
Source: “Mortgages: Triggers of Lender Scrutiny,” The New York Times (Nov. 3, 2011)
Here are the triggers that may cause the most lender scrutiny of loan applications, according to a recent article at The New York Times:
Large deposits of money: Lenders are required to account for any cash gifts for down payments, such as from relatives. So if a borrower earns $5,000 a month and suddenly deposits an extra $10,000 beyond that, lenders may question where the money came from when applying for a loan.
The home’s new address: Buyers who are purchasing a primary home three hours from where they work may also draw increased scrutiny from lenders, according to The New York Times article. Borrowers may even need a letter from their employer stating that they work from home a few times a week. That’s because lenders may want to ensure the borrower plans to be an owner-occupant and not buying the property to rent or flip, which must be disclosed.
Signing up for new credit cards: Borrowers should avoid taking on extra debt when applying for a loan — so they may want to wait to buy all the new furniture. Extra debt can be a red flag to a lender and could even jeopardize closing on a new home if the debt pushes the borrower’s total debt levels beyond lender-accepted limits.
Source: “Mortgages: Triggers of Lender Scrutiny,” The New York Times (Nov. 3, 2011)
Number of ‘Underwater’ Home Owners Grows
In the third quarter, the number of U.S. home owners who owe more than their homes are currently worth continued to rise, according to new housing data by Zillow Inc.
Borrowers with negative equity on their homes increased to 28.6 percent -- that’s up from 26.8 percent in the second quarter and 23.2 percent a year prior.
“We still have very high negative equity rates; that’s putting extreme pressure on households because temporary job losses translate into foreclosures at much higher rates when the household is in negative equity,” Stan Humphries, Zillow’s chief economist, told Bloomberg.
Zillow also reported that home values dropped from the previous three months in 105 of the 157 housing markets it tracks, according to its most recent Home Value Index. The cities bucking the trend and posting some of the largest gains were Detroit, Boston, Denver, and Pittsburgh, according to the index.
Source: “U.S. ‘Underwater’ Home Owners Increase to 28.6%, Zillow Reports,” Bloomberg (Nov. 8, 2011)
Borrowers with negative equity on their homes increased to 28.6 percent -- that’s up from 26.8 percent in the second quarter and 23.2 percent a year prior.
“We still have very high negative equity rates; that’s putting extreme pressure on households because temporary job losses translate into foreclosures at much higher rates when the household is in negative equity,” Stan Humphries, Zillow’s chief economist, told Bloomberg.
Zillow also reported that home values dropped from the previous three months in 105 of the 157 housing markets it tracks, according to its most recent Home Value Index. The cities bucking the trend and posting some of the largest gains were Detroit, Boston, Denver, and Pittsburgh, according to the index.
Source: “U.S. ‘Underwater’ Home Owners Increase to 28.6%, Zillow Reports,” Bloomberg (Nov. 8, 2011)
lonForeclosures on Rise Again, More Trouble for Home Values?
Foreclosure starts are reversing course and are back on the rise, which is expected to continue to put downward pressure on home prices, a new report released Monday from Fitch Ratings says. With a jump in the inventory of distressed homes, Fitch predicts home prices to dive another 10 percent nationally before stabilizing.
Foreclosures on delinquent loans have nearly doubled compared to this time last year, when a robo-signing scandal temporarily brought foreclosures to a standstill in many parts of the country.
According to Fitch’s most recent report, foreclosure starts on severely delinquent loans have jumped more than 10 percent in a month. In fact, the spike is nearing the average rate of 14 percent that was seen between 2000 and 2010, according to Fitch’s RMBS (residential mortgage-backed security) Performance Metric.
Foreclosure initiation rates on borrowers who haven’t made a mortgage payment in more than six months also have nearly doubled in the last five months.
"Rising foreclosure start rates are likely a sign that servicers are playing catch-up on actions that have been delayed over the past year," Diane Pendley, Fitch managing director, said in the report. "Mortgage servicers now generally feel they have implemented the corrective actions that they determined were needed."
Source: Fitch Ratings; “Rising Foreclosure Rates to Impact Home Prices, Fitch Says,” HousingWire (Nov. 7, 2011); and “Fitch Ratings Says Foreclosure Rate of 10 Percent is Almost Twice as High as Last Year’s Level,” Associated Press (Nov. 7, 2011)
Foreclosures on delinquent loans have nearly doubled compared to this time last year, when a robo-signing scandal temporarily brought foreclosures to a standstill in many parts of the country.
According to Fitch’s most recent report, foreclosure starts on severely delinquent loans have jumped more than 10 percent in a month. In fact, the spike is nearing the average rate of 14 percent that was seen between 2000 and 2010, according to Fitch’s RMBS (residential mortgage-backed security) Performance Metric.
Foreclosure initiation rates on borrowers who haven’t made a mortgage payment in more than six months also have nearly doubled in the last five months.
"Rising foreclosure start rates are likely a sign that servicers are playing catch-up on actions that have been delayed over the past year," Diane Pendley, Fitch managing director, said in the report. "Mortgage servicers now generally feel they have implemented the corrective actions that they determined were needed."
Source: Fitch Ratings; “Rising Foreclosure Rates to Impact Home Prices, Fitch Says,” HousingWire (Nov. 7, 2011); and “Fitch Ratings Says Foreclosure Rate of 10 Percent is Almost Twice as High as Last Year’s Level,” Associated Press (Nov. 7, 2011)
Monday, November 7, 2011
The Coming Rental Housing Wave
While widespread recovery continues to elude the housing sector, the apartment market has become one of the real estate industry's -- and the broader economy's -- best hopes for a return to the good old days, with robust property values attracting keen investor interest. And it has the Great Recession to thank for it.
The multifamily market is benefitting from changing demographics and consumer attitudes toward renting resulting from the growing number of financially stressed households. The increase in young and newly formed households that have decided to postpone or even reject homeownership in favor of the lower debt and flexibility afforded by renting during these last unsettled economic years.
"It's an exciting time to be in this growing sector where it is projected that $1 trillion in capital and 10 million additional apartment units are needed in the next 10 years as more individuals turn to apartment living," said Freddie Mac Multifamily Senior Vice President David Brickman.
Renters now make up more than 40 million households - about one-third of total U.S. households, according to Brickman. For every 1% that the current homeownership level of 66% decreases, one million individuals become renters.
The changing demographics also show a significant increase in immigrants, 20-34 year olds, and baby boomers entering the rental market.
"The bottom line is that the multifamily market is poised for growth due to strong demand, healthy fundamentals, and limited supply," Brickman said. "These trends have renewed interest in the sector and investors are returning as evidenced by an increase in acquisition and refinancing activity."
Another 1.4 Million Renters This Year Alone
Through the 12 months ending mid-2011, the Census Bureau reported a net increase of 1.4 million households that moved into rental housing, a 4% rise in the number of tenant households in just one year.
The U.S. homeownership rate has fallen about 1.5% over the past year (from 66.9% to 65.9% during the second quarter of 2011) with owner rates falling by 4.4% (to 21.9%) for those under 25 years of age and by 7% (to 34.7%) for those aged 25 to 29 years.
Apartment rents, which had been flat to falling in many projects during the 2008-2009 recession, have begun to rise, albeit slowly, Freddie Mac reported.
New construction starts of apartments in buildings with at least 20 dwellings have picked up this year and in the second quarter were the highest since the end of 2008.
"New construction starts are slowly picking up and multifamily lending appears to be rising as well with this year's origination volume stronger than 2010's," said Frank Nothaft, Freddie Mac, vice president and chief economist. "In part, the rise in originations is related to the low-level of mortgage rates, improving apartment-sector economics, and the return of traditional lenders that had curtailed activity during the recession."
Apartment Development Ramps Up as Demand Swells
After a surprising delay, the increased demand for rental housing has finally led to a considerable uptick in multifamily construction, the National Multi Housing Council (NMHC) reported in its latest Quarterly Survey of Apartment Market Conditions.
The pace of development activity has increased in most markets. Two-thirds (67%) of respondents noted considerable activity, either in the planning stage or actual new construction.
In particular, 20% said developers are breaking ground on new projects at a rapid clip. The other 47% reported an increase in pre-construction activities-acquiring land, lining up financing, getting building permits-but not much actual construction yet.
Even with this increased activity, more than half (54%) think new development remains considerably below demand.
"Powerful demographic trends, along with changing attitudes about homeownership and tighter mortgage underwriting, continue to drive a shift toward renting, which is fueling a ramp up in new construction," noted NMHC chief economist Mark Obrinsky. "While some survey respondents expressed concern over sporadic overbuilding, others noted that the lack of construction financing may prevent some developments from actually breaking ground."
Rents, Vacancies Benefiting from New Demand
Preliminary third-party data for the third quarter of 2011 suggest that the vacancy rate for institutional investment-type apartment properties has fallen and asking rents have now likely risen for six consecutive quarters, according to Fannie Mae.
Vacancy levels are firmly back to historical norms at an estimated 6.5% for the third quarter of 2011. Asking rents also likely rose again in the third quarter of 2011 by 1% quarter-over-quarter. It appears that full-year 2011 national average asking rent growth remains robust and on track to reach 4%, with effective rents perhaps reaching 5%, or even 6% annualized growth, Fannie Mae said.
While the strength of declining vacancy levels and increasing rental rates will vary by metro area, on a national basis the multifamily sector should continue to see steady improvement for the remainder of the year, Fannie Mae said. It expects average asking rents to experience an annualized increase of 4% and the vacancy rate to stay fairly stable, perhaps declining to 6.25% by the end of the year.
States with Opportunities
CoStar Group senior real estate economist Erica Champion has been tracking the changing housing attitudes during and following the Great Recession.
"For those of us with a special interest in the multifamily sector, we are chomping at the bit to find conclusive answers to questions that have been plaguing us since the collapse in the housing market," Champion said. "Has apartment demand really been that strong? Yes. Are there really that many more people renting apartments? Yes."
With the newest U.S. Census data issued this year, Champion has found some answers.
" 'Robust' is definitely the word for the rise in rental demand that took place over the decade from 2000 to 2010. In line with the drop-off in homeownership that started in 2006, 4.5 out of every 10 households added during the first decade of the new millennium are renters. This is compared to an average rental propensity of 34% in 2000," she said.
The trend has not been evenly apparent from state to state, she said.
"Of the states that added renter households at a faster rate than the national average, some are not a surprise. California and Nevada have been poster children of the housing bust and they remain top-ranking states in foreclosure activity, with rates twice the national average. Investors and developers that have been in love with North Carolina and Oregon can congratulate themselves for jumping on the right bandwagon," Champion said.
"The other states are surprises because they are not necessarily the top-of-mind locations for apartment development or investment," Champion added. "Developers and investors may have overlooked some areas with promising demand fundamentals. States such as Ohio, West Virginia, Pennsylvania, and Alabama saw enormous gains in the number of renters - more than six of every 10 households added over the decade were renters. Kentucky, Kansas, Indiana, Missouri, and Oklahoma adding more renters than the national average are also surprises. And there is no evidence to suggest that this boom is driven primarily by the housing bust. The foreclosure rate in West Virginia, Pennsylvania, Alabama, and Kentucky remains one-third the national rate. The rest are on par with or below the U.S. average," she said.
"With one in every two new households renting their homes, these surprise states may present an opportunity worth pursuing to build in a hidden gem location and, in some, to exercise a first-mover advantage," Champion state.
Unmet Demand for Middle Aged
Where Champion sees geographic opportunities, CoStar Group's senior real estate strategist Michael Cohen sees opportunities in an overlooked group.
Few concepts are tossed around more frequently at apartment conferences than the fact that younger households have the greatest propensity to rent, Cohen said.
However, while true, "researchers (and investors) who focus exclusively on the potential impact of the Echo Boomers, are missing a substantial piece of the overall apartment demand story," Cohen said. "The total number of middle-aged households in the U.S. - 35 to 64 years old - outnumbers households under 35 years old by three to one. In turn, 20 million, or half the total number of renter households in the U.S., can be found in this middle-aged demographic."
"Interestingly, as we begin a new wave of apartment construction as evidenced by a steady increase in multifamily starts, I wonder whether developers truly understand the contours of their renter base," Cohen said. "After all, is it the 22-year-old fresh out of college at the leasing office inquiring about stainless-steel appliances and granite countertops? Quite the contrary: more likely than not (well, at least 50% of the time), it's a middle-aged household."
The multifamily market is benefitting from changing demographics and consumer attitudes toward renting resulting from the growing number of financially stressed households. The increase in young and newly formed households that have decided to postpone or even reject homeownership in favor of the lower debt and flexibility afforded by renting during these last unsettled economic years.
"It's an exciting time to be in this growing sector where it is projected that $1 trillion in capital and 10 million additional apartment units are needed in the next 10 years as more individuals turn to apartment living," said Freddie Mac Multifamily Senior Vice President David Brickman.
Renters now make up more than 40 million households - about one-third of total U.S. households, according to Brickman. For every 1% that the current homeownership level of 66% decreases, one million individuals become renters.
The changing demographics also show a significant increase in immigrants, 20-34 year olds, and baby boomers entering the rental market.
"The bottom line is that the multifamily market is poised for growth due to strong demand, healthy fundamentals, and limited supply," Brickman said. "These trends have renewed interest in the sector and investors are returning as evidenced by an increase in acquisition and refinancing activity."
Another 1.4 Million Renters This Year Alone
Through the 12 months ending mid-2011, the Census Bureau reported a net increase of 1.4 million households that moved into rental housing, a 4% rise in the number of tenant households in just one year.
The U.S. homeownership rate has fallen about 1.5% over the past year (from 66.9% to 65.9% during the second quarter of 2011) with owner rates falling by 4.4% (to 21.9%) for those under 25 years of age and by 7% (to 34.7%) for those aged 25 to 29 years.
Apartment rents, which had been flat to falling in many projects during the 2008-2009 recession, have begun to rise, albeit slowly, Freddie Mac reported.
New construction starts of apartments in buildings with at least 20 dwellings have picked up this year and in the second quarter were the highest since the end of 2008.
"New construction starts are slowly picking up and multifamily lending appears to be rising as well with this year's origination volume stronger than 2010's," said Frank Nothaft, Freddie Mac, vice president and chief economist. "In part, the rise in originations is related to the low-level of mortgage rates, improving apartment-sector economics, and the return of traditional lenders that had curtailed activity during the recession."
Apartment Development Ramps Up as Demand Swells
After a surprising delay, the increased demand for rental housing has finally led to a considerable uptick in multifamily construction, the National Multi Housing Council (NMHC) reported in its latest Quarterly Survey of Apartment Market Conditions.
The pace of development activity has increased in most markets. Two-thirds (67%) of respondents noted considerable activity, either in the planning stage or actual new construction.
In particular, 20% said developers are breaking ground on new projects at a rapid clip. The other 47% reported an increase in pre-construction activities-acquiring land, lining up financing, getting building permits-but not much actual construction yet.
Even with this increased activity, more than half (54%) think new development remains considerably below demand.
"Powerful demographic trends, along with changing attitudes about homeownership and tighter mortgage underwriting, continue to drive a shift toward renting, which is fueling a ramp up in new construction," noted NMHC chief economist Mark Obrinsky. "While some survey respondents expressed concern over sporadic overbuilding, others noted that the lack of construction financing may prevent some developments from actually breaking ground."
Rents, Vacancies Benefiting from New Demand
Preliminary third-party data for the third quarter of 2011 suggest that the vacancy rate for institutional investment-type apartment properties has fallen and asking rents have now likely risen for six consecutive quarters, according to Fannie Mae.
Vacancy levels are firmly back to historical norms at an estimated 6.5% for the third quarter of 2011. Asking rents also likely rose again in the third quarter of 2011 by 1% quarter-over-quarter. It appears that full-year 2011 national average asking rent growth remains robust and on track to reach 4%, with effective rents perhaps reaching 5%, or even 6% annualized growth, Fannie Mae said.
While the strength of declining vacancy levels and increasing rental rates will vary by metro area, on a national basis the multifamily sector should continue to see steady improvement for the remainder of the year, Fannie Mae said. It expects average asking rents to experience an annualized increase of 4% and the vacancy rate to stay fairly stable, perhaps declining to 6.25% by the end of the year.
States with Opportunities
CoStar Group senior real estate economist Erica Champion has been tracking the changing housing attitudes during and following the Great Recession.
"For those of us with a special interest in the multifamily sector, we are chomping at the bit to find conclusive answers to questions that have been plaguing us since the collapse in the housing market," Champion said. "Has apartment demand really been that strong? Yes. Are there really that many more people renting apartments? Yes."
With the newest U.S. Census data issued this year, Champion has found some answers.
" 'Robust' is definitely the word for the rise in rental demand that took place over the decade from 2000 to 2010. In line with the drop-off in homeownership that started in 2006, 4.5 out of every 10 households added during the first decade of the new millennium are renters. This is compared to an average rental propensity of 34% in 2000," she said.
The trend has not been evenly apparent from state to state, she said.
"Of the states that added renter households at a faster rate than the national average, some are not a surprise. California and Nevada have been poster children of the housing bust and they remain top-ranking states in foreclosure activity, with rates twice the national average. Investors and developers that have been in love with North Carolina and Oregon can congratulate themselves for jumping on the right bandwagon," Champion said.
"The other states are surprises because they are not necessarily the top-of-mind locations for apartment development or investment," Champion added. "Developers and investors may have overlooked some areas with promising demand fundamentals. States such as Ohio, West Virginia, Pennsylvania, and Alabama saw enormous gains in the number of renters - more than six of every 10 households added over the decade were renters. Kentucky, Kansas, Indiana, Missouri, and Oklahoma adding more renters than the national average are also surprises. And there is no evidence to suggest that this boom is driven primarily by the housing bust. The foreclosure rate in West Virginia, Pennsylvania, Alabama, and Kentucky remains one-third the national rate. The rest are on par with or below the U.S. average," she said.
"With one in every two new households renting their homes, these surprise states may present an opportunity worth pursuing to build in a hidden gem location and, in some, to exercise a first-mover advantage," Champion state.
Unmet Demand for Middle Aged
Where Champion sees geographic opportunities, CoStar Group's senior real estate strategist Michael Cohen sees opportunities in an overlooked group.
Few concepts are tossed around more frequently at apartment conferences than the fact that younger households have the greatest propensity to rent, Cohen said.
However, while true, "researchers (and investors) who focus exclusively on the potential impact of the Echo Boomers, are missing a substantial piece of the overall apartment demand story," Cohen said. "The total number of middle-aged households in the U.S. - 35 to 64 years old - outnumbers households under 35 years old by three to one. In turn, 20 million, or half the total number of renter households in the U.S., can be found in this middle-aged demographic."
"Interestingly, as we begin a new wave of apartment construction as evidenced by a steady increase in multifamily starts, I wonder whether developers truly understand the contours of their renter base," Cohen said. "After all, is it the 22-year-old fresh out of college at the leasing office inquiring about stainless-steel appliances and granite countertops? Quite the contrary: more likely than not (well, at least 50% of the time), it's a middle-aged household."
Home Price Growth Has Dissipated With the Summer Heat: Clear Capital
Temperatures are falling, and so are home prices in most local markets. Clear Capital says it’s expecting another long winter as the housing industry tries to cope with the downward forces of weak demand, record-low consumer confidence, and distressed inventory.
Quarterly home price gains through October retreated to near-flat levels with only 0.6 percent growth at the national level, compared to the 3.5 percent quarterly increase reported by Clear Capital in September.
The California-based valuation company says the seasonal gains seen during the stronger spring and summer months have not been enough to push year-over-year home prices into the black.
Clear Capital’s October index reading puts national home prices 2.8 percent below a year ago. It marks the 13th consecutive month that annual price changes have fallen on the minus side of the data chart.
“October home price gains have leveled out, confirming what our data has pointed to over the last several months,” said Dr. Alex Villacorta, director of research and analytics at Clear Capital. “Short term gains have been nearly eliminated while longer term performance
measures point to mostly negative territory through the turn of the year.”
Across the nation, local markets experienced a general downward trend in October as the highest performing markets posted softer gains and the lowest performing markets experienced stronger declines.
The West is showing continued weakness and Clear Capital says it is the first region to dip into negative territory coming off the summer months, posting a loss of 1.0 percent quarter-over-quarter in October, compared to a 0.3 percent quarterly increase the month before.
On an annual basis, the West is also posting the largest decline, with home prices down 5.5 percent.
The Midwest checked in with solid quarterly growth of 2.6 percent last month, but when compared to the previous month’s growth of 7.2 percent, Clear Capital says it’s clear the strong Midwestern markets are also starting to feel that oncoming winter chill.
Looking at individual metro areas, Clear Capital’s data show Cleveland, Ohio, was the highest quarter-over-quarter performer last month with a 6.2 percent price increase, while Las Vegas, Nevada, was the lowest performing market with a 3.4 percent decrease.
Price differentials between high-performing and low-performing markets can largely be attributed to the number of distressed properties changing hands.
As a whole, the REO saturation rate – calculated as the percentage of bank-owned homes sold as compared to all properties sold – for the highest performing markets is less than 23 percent, according to Clear Capital. It averages 30 percent for the lowest performing counterparts.
Some lowest performing markets are dealing with REO saturation rates close to the 50 percent mark, including Las Vegas (49%) and Detroit (47%).
Quarterly home price gains through October retreated to near-flat levels with only 0.6 percent growth at the national level, compared to the 3.5 percent quarterly increase reported by Clear Capital in September.
The California-based valuation company says the seasonal gains seen during the stronger spring and summer months have not been enough to push year-over-year home prices into the black.
Clear Capital’s October index reading puts national home prices 2.8 percent below a year ago. It marks the 13th consecutive month that annual price changes have fallen on the minus side of the data chart.
“October home price gains have leveled out, confirming what our data has pointed to over the last several months,” said Dr. Alex Villacorta, director of research and analytics at Clear Capital. “Short term gains have been nearly eliminated while longer term performance
measures point to mostly negative territory through the turn of the year.”
Across the nation, local markets experienced a general downward trend in October as the highest performing markets posted softer gains and the lowest performing markets experienced stronger declines.
The West is showing continued weakness and Clear Capital says it is the first region to dip into negative territory coming off the summer months, posting a loss of 1.0 percent quarter-over-quarter in October, compared to a 0.3 percent quarterly increase the month before.
On an annual basis, the West is also posting the largest decline, with home prices down 5.5 percent.
The Midwest checked in with solid quarterly growth of 2.6 percent last month, but when compared to the previous month’s growth of 7.2 percent, Clear Capital says it’s clear the strong Midwestern markets are also starting to feel that oncoming winter chill.
Looking at individual metro areas, Clear Capital’s data show Cleveland, Ohio, was the highest quarter-over-quarter performer last month with a 6.2 percent price increase, while Las Vegas, Nevada, was the lowest performing market with a 3.4 percent decrease.
Price differentials between high-performing and low-performing markets can largely be attributed to the number of distressed properties changing hands.
As a whole, the REO saturation rate – calculated as the percentage of bank-owned homes sold as compared to all properties sold – for the highest performing markets is less than 23 percent, according to Clear Capital. It averages 30 percent for the lowest performing counterparts.
Some lowest performing markets are dealing with REO saturation rates close to the 50 percent mark, including Las Vegas (49%) and Detroit (47%).
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