Apartments boost amenities to attract, retain ownership-shy tenants

Sunday, July 3, 2011  03:16 AM 

By Jim Weiker

Fred Squillante | DISPATCH PHOTOS

A lousy housing market has driven hundreds of affluent central Ohioans to apartment complexes.
Now, can community gardens, sports bars, granite countertops and trips to Ikea keep them there?
New high-end complexes from Groveport to Hilliard are offering a bevy of amenities to attract and retain tenants, many of whom are paying more in rent than they might on a mortgage."The same people who rent today might have bought three years ago," said Sam Stark, the sales manager with Lifestyle Communities, whose newest apartment complex - the Paddock at Hayden Run - boasts a 7,000-square-foot sports bar called the Goat.
"There's still fear in the housing market. People want to be mobile, and they're willing to pay a premium for living in an apartment."
Adding to the appeal, the Paddock offers a beach volleyball court, a staffed workout facility, hardwood floors, stainless-steel appliances and 9-foot ceilings.
Down Hayden Run Road, the new Hilliard Grand complex provides a dog park, a community garden, a car wash, 9-foot ceilings, Wi-Fi, a fire-pit terrace and washer-dryer hookups.
Those perks and others are in addition to once-luxurious features now considered a must in high-end rentals: fitness centers, movie rooms, clubhouses, pools, business centers and open floor plans.
To those in the industry, such amenities are more than just brochure fodder: They are tools in what could be a watershed moment in modern housing.
The U.S. homeownership rate has dropped to 66.4 percent of households, its lowest level in 13 years and down from a peak of 69.2 percent in 2004. Although many of America's new renters might be eager to hop back into a home when their finances allow, others are choosing to pay rent instead of a mortgage.
"In the past five or six years, we could have bought a home," said Sri Thokala, 36, who moved into Hilliard Grand in June with his wife, Preeti Kawatra, 30. "But especially looking the last two years at the housing market, and the uncertainty of the job market, I don't want to take that plunge."
The couple was drawn to Hilliard Grand by its proximity to Thokala's software engineering job in Dublin, and by the gym, clubhouse and new appliances. They pay $1,005 a month for a two-bedroom flat.
John Scruggs, a 21-year-old model who recently moved into the Paddock at Hayden Run, doesn't plan to buy a home for "five or six years."
Scruggs' $975-a-month rent could cover a mortgage, but instead of buying, he is considering upgrading to the three-floor town house plan for $1,275 a month.
"It's like living in a condo here. You've got a gym, a bar, a full restaurant and the pool," he said. "It's very classy; there's a lot of young professionals here."
Anthony Verrilli and Noelle Carusillo were drawn to the Paddock by the pool, the workout facilities and their apartment's washer and dryer.
"Not having to have gym or pool memberships, that was huge for us," said Verrilli, whose rent is $800 a month for a one-bedroom unit.
Rent at seven new central Ohio complexes to open in the past 12 months starts in the $700 range and tops out from $1,200 to $1,400 (although some units in Flats on Vine in the Arena District cost more than $1,800) - enough at today's interest rates to buy a $200,000 home.
Stark notes that some Paddock tenants are paying $200 to $300 more to rent a unit than it would cost to buy an almost identical condo in the same complex. Other builders could say the same.
"Tenants now realize they can't sell quickly and move on," said Debbie Rurik-Goodwin, president of the management arm of Edwards Communities, which opened Arlington Park apartments in Hilliard this year. "They're renters by choice, and I think that will continue to be the case for a long time."
Renters also seem to be unpacking their bags for longer stretches.
"I talk to a lot of people in the industry and ask them all this question and, almost uniformly, they tell me retention rates are up 10 to 15percent from the housing collapse," said Greg Willett, vice president of research and analysis at MPF Research, an apartment consulting firm in Texas.
DRK & Co., which has opened three central Ohio complexes in the past year (Prescott Place in Worthington, Albany Landings in New Albany and Winchester Park in Groveport) is finding that tenants stay longer than they did before the housing crash, said company President Tre Geller.
To draw tenants and encourage them to stay, DRK focused on features in its new communities.
"We made a determination a few years ago that the amenities the customers are looking for will be a paramount concern," Geller said. "We upgraded our clubhouse and offer the standard amenities like a pool and exercise facility, but we also have pool tables, 10- to 15-seat movie theaters in the clubhouse, kitchenettes in the clubhouse, and we upgraded the pool and patio areas."
The Edwards Communities, which offered an upscale fitness center in its Quarry community in 1999 and built the Barn restaurant and bar in 2004, pioneered many high-end apartment amenities in central Ohio.
In its new Arlington Park community, the company provides granite countertops, undermount sinks, pendant lighting, side-by-side refrigerators, and, in town house units, screened porches.
The perks seem to have worked: The complex, which opened in January, has rented all but 30 of its 284 units, the fastest lease-up that Rurik-Goodwin has seen in her decade of managing Edwards' apartment communities.
"I think those amenity expectations are only going to grow," she said.
Rurik-Goodwin and others say they are seeing some empty nesters and middle-aged divorced men and women, but renters continue to be dominated by professionals in their 20s and early 30s.
To keep them, complexes are also using tactics beyond physical amenities.
The Paddock and other Lifestyle complexes offer ski clubs and trips to the Cincinnati-area Ikea store.
Hilliard Grand's "purposeful living" is designed to remedy one of renting's main shortcomings: the lack of a sense of community.
"We want to provide opportunities for people ... that will give them more of a purpose than just coming and going, and become attached to others here," said Brett Kaufman, president of the Schottenstein Real Estate Group, which developed the complex.
"Based on what we're seeing in other communities, people who in the past may have seen homeownership as a goal are seeing rental as a long-term option."


Source: The Columbus Dispatch

Rents Rise, Vacancies Go Down

By WESLEY LOWERY 

July 7, 2011

Apartment landlords are enjoying rising rents and falling vacancies.

The average effective rent, the amount paid after discounting, was $997 in the second quarter of the year, up from $974 a year earlier, according to a report scheduled for release Thursday by Reis Inc., which tracks leasing data for 82 markets. Second-quarter rents rose in all but two markets.

Rent levels rose fastest in San Jose, Calif., to $1,501 in the second quarter. The average effective rent in San Francisco was $1,806; Wichita, Kan., $495, and New York, $2,826.

Vacancies, meanwhile, fell in 72 of the 82 markets during the second-quarter vacancy rate to 6%, the lowest since 2008 and compared with 7.8% a year earlier, according to Reis. Vacancies declined fastest in Charleston, W.Va., Greensboro/Winston-Salem, N.C., and Richmond, Va.

"Rising rents and falling vacancies are the perfect situation for landlords," said Rich Anderson, an analyst for BMO Capital Markets. "It's like drinking without the hangover."

But there were some cautious signs in the data. Landlords filled a net 33,000 units in the second quarter, a slowdown from the 45,000 units they filled in the first quarter. That was somewhat surprising because typically, the net "absorption" rate falls faster during the summer as college graduates leave campus and descend on cities in search of jobs. Some analysts said the slower absorption rate could be linked to slower job growth, although it is too soon to know for sure. The peak apartment renting season runs from May to September.

"When you're going from big numbers and getting gradually smaller it's tough to determine if things are in fact cooling," says Haendel St. Juste, an analyst at Keefe, Bruyette & Woods.

Meanwhile, supply remains constrained. Roughly 8,700 new apartment units opened during the second quarter, the second-lowest quarterly tally for new completions since Reis began collecting data in 1999.

But there is new construction in the pipeline. The CoStar Group, a Washington, D.C.-based real-estate research firm, expects about 22,500 units to be added this year, followed by 94,600 in 2012 and more than 109,000 in 2013.

But as long as employers keep adding jobs to the economy, analysts say, they expect vacancy rates to keep falling and rents to keep rising. "Barring some unexpected shock from the global economy, we expect the recovery to continue through 2011," Reis wrote in the report. "Vacancies should continue to decline while rents rise at an even faster pace than we observed in the first half of the year."

Source: The Wall Street Journal

 

Apartment Market Pushing toward 6 Percent Annual Rent Growth

By Joshua Pringle, Online News Editor

Jun 30, 2011

Dallas–Axiometrics Inc., a multifamily data and analysis providor, released a research report today that shows the national apartment market continuing to heat up in May, with effective rents (rents net of concessions) increasing 0.7 percent from April levels. Axiometrics estimates that effective rents will rise 5.9 percent in 2011, which would be the largest annual increase since a rate of 5.8 percent in 2005.

Year-to-date, effective rents nationally have risen 3.17 percent, as compared to 2.55 percent in 2010. Top performing submarkets for annual effective rent growth in May included San Jose (13.0 percent), San Francisco (9.7 percent), Austin (8.7 percent), Seattle (8.5 percent), Boston (7.4 percent) and Dallas (6.5 percent).

Axiometrics President Ron Johnsey says, “With year-to-date increases in effective rents, and continued strong occupancy levels, renters who are able might be wise to sign longer term leases as property owners in most markets will maintain pricing power at least through the rest of 2011.”

Additionally, the national occupancy rate increased for the 12th time in the past 16 months, rising from 93.3 percent in April to 93.96 percent in May. From January through May 2011, the occupancy rate has increased 86 basis points (bps), which is below the rate of 136 bps for the same period of 2010. Axiometrics says that the slowdown in absorption can be attributed partially to the increase in effective rents year-to-date. But occupancy in May was still above the previous peak of 93.5 percent reached in August 2008.

From May 2010, eight major markets increased occupancy by more than 100 bps and have rates above 95 percent: New York, Minneapolis, Austin, San Jose, Cleveland, Orange County, Chicago and Denver. Some of the most overbuilt markets are recovering rapidly as well. Six major markets that had low occupancy rates in May of 2010 have increased their occupancy levels between 142.5 and 333.4 bps: Charleston, Charlotte, Dallas, Orlando, Phoenix and Houston.

Source: Multi-Housing New Online

Employers Are Occupying More Space, but at a Slower Pace

By Eliot Brown

July 7, 2011

In a sign the economic recovery's recent stumbles may be spilling over into the real-estate market, employers took on less office space during the second quarter than earlier in the year.
In all, the amount of occupied office space rose by 3.7 million square feet from April to June, according to real-estate research firm Reis Inc. While that was the third consecutive quarter in which firms added space, the gains were down from the first quarter, when occupied space rose 5.5 million square feet. Reis tracks the office markets in 79 U.S. metropolitan areas.
Rents, meanwhile, rose an average of 0.2% during the second quarter. The office data come as U.S. job growth—always a prerequisite for improvement in the office sector—has been slower than anticipated. In May, the economy added just 54,000 jobs, according to the Bureau of Labor Statistics, and economists predict the figure for June may not top 100,000.
The measured pace of growth in the office sector has only begun to chip away at the vast quantities of unfilled space across the country. Between January 2008 and September 2010, tenants emptied out of 138 million square feet, pushing the vacancy rate from 12.6% to 17.6%, according to Reis. Since October 2010, the amount of occupied space has grown by just 11.9 million square feet.
The amount of new leasing, "relative to the overall inventory, it's not a large amount," said Ryan Severino, an economist at Reis. "We are generally trending in the right direction, even if it is a slower, more inconsistent recovery than market participants would like to see."
The sector's improvements have been led by resilient markets such as New York and Washington, where job growth has been relatively steady and outpaced that of the nation.
"We had a big first quarter from a leasing perspective, and it still was solid for the second quarter," said Ric Clark, chief executive of Brookfield Office Properties, which owns office buildings in many major U.S. cities. While many firms are keeping to their existing sizes, Mr. Clark said some energy and law firms have been looking to expand. "It's not huge expansion, but it's some," he said.
Late last month, Nomura Holding America Inc. signed a lease for 900,000 square feet of space at Worldwide Plaza in Midtown Manhattan, opting to leave its home in the World Financial Center in lower Manhattan. The move, which is slated for 2013, speaks to the ambitions of expansion in Manhattan for the Japanese investment bank, which currently has 545,000 square feet in New York. Overall, rents in the New York City region were up 0.6% from the first quarter, and 3.6% from a year earlier, according to Reis.
Washington, with the nation's lowest vacancy rate of 9%, has benefitted from government-fueled job growth, which has spurred growth in a variety of related industries. In April, law firm Skadden, Arps, Slate, Meagher & Flom LLP announced it was signing new leases for about 415,000 square feet, expanding its presence by about 50,000 feet.
New office construction—which was all but nonexistent for the better part of three years—has also begun to emerge in the stronger markets. Multiple developers have announced projects in the Washington, D.C., area, including a venture led by office landlord Hines Interests LP, which this spring announced a groundbreaking on a mixed-use development slated to contain 520,000 square feet of office space.
In New York, Boston Properties Inc. in May announced its intention to start construction on a 39-story Skidmore Owings & Merrill-designed office tower on Eighth Avenue, after signing law firm Morrison & Foerster LLP as a tenant.
While major coastal cities have been performing well, some of the cities hardest hit by the recession have yet to see conditions hit bottom. Las Vegas, which has one of the highest vacancy rates in the nation at 24.9%, saw rents paid by tenants fall by 0.3% compared with the prior quarter, according to Reis. Rents in Phoenix, with a vacancy rate of 26.5%, fell 0.1%.

Source: The Wall Street Journal

Multifamily market limps forward; small uptick seen in rents

By ANDREW KEATTS, The Daily Transcript

Friday, June 24, 2011

 

 

The news isn’t all good in San Diego’s multifamily housing market, but it’s better than in many other markets, and it’s only going to improve, according to a panel of local experts.

The San Diego chapter of the California Apartment Association hosted a panel discussion on the state of the local multifamily market on Thursday, with panelists essentially saying, “Things could be a lot worse.”

Rents here are expected to increase between 2 and 4 percent this year on an annual basis, according to Darcy Miramontes, executive vice president of Jones Lang LaSalle.

That would lead to more pronounced growth in 2012 and 2013, she said, citing a Moody’s estimate of rent growth in those years approaching 5 percent. Even if that estimate is a bit aggressive, property owners can be sure rent growth wouldn’t fall below its 2011 level.

Renters who’ve moved in with family members during the lean years of the recession are expected to uncouple and look to live on their own again, according to Nathan Moeder, principal of London Group Realty Advisors. Since there’s been virtually no new projects delivered to the market recently, those renters will put upward pressure on rents.

“Even if only 20 percent of the people who’ve doubled and tripled up return to the market, that’s still a significant amount of demand,” he said.

Josh Harnett, senior manager of asset management for Irvine Company Apartment Communities, marked Escondido and Carlsbad as markets poised for an uptick in traffic and leasing, leading to rising rents.

He expects Torrey Hills to continue as one of the region’s strongest markets, but said Mission Valley will see the biggest year-over-year increase in rental rates.

North County beach markets are expected to remain the tightest in the region, Miramontes said, pointing to the area’s comparatively low 3.7 percent average vacancy rate.

She added that the vacancy rate downtown is artificially high. More than 600 units came into the market at the same time, due to the Vantage Point building, skewing the statistics.

The only large-scale project of note on the horizon is Sudberry’s Civita in Mission Valley, the three panelists agreed.

The master-planned community just north of Friars Road will bring nearly 5,000 housing units to market. After being discussed for more than a decade, it broke ground earlier this year. Two townhouse buildings by Shea Homes, and an apartment complex by Sudberry are scheduled to be delivered this year.

Other than Civita, the only other projects breaking ground are for affordable housing, according to Moeder.

“There’s just not a lot of inventory we’re going to see built immediately,” he said.

Small investors looking to purchase apartment buildings in the area are learning they need to get farther away from San Diego to find deals that make financial sense, according to Moeder. Some are now looking as far as El Centro.

But San Diego is largely seen as a safe market, and multifamily units in general are seen as a safe investment nationwide, he said.

Miramontes said investors like that San Diego development is constrained by its three physical borders, Camp Pendleton, Mexico and the Pacific.

“Investors like that, because it helps keep the area in check,” she said. “During the darkest part of the recession, San Diego wasn’t going too bad.”

Driven by the cost of debt the current state of capital markets, cap rates are low, according to Miramontes.

Roughly speaking, she said core, A-level product carries a 4.5 percent cap. That’s closer to 5 percent for class B, and it ranges widely after that. Class C could be anywhere from 5 to 7.5 percent.

“It depends on the individual story, and the position you want to take it to,” she said.

The apartment market fared far better than the for-sale housing market during the recession, according to Moeder. It’s currently down 4 percent from its peak, while the housing market remains 20 to 30 percent lower than its peak years, he said.

Diversity in San Diego’s employment market allowed it to fare better as well, he said.

Victims of foreclosure ended up in the rental market, according to Harnett, softening the effect of the downturn on the multifamily market.

Moeder said cities in the county are much more approachable when it comes to entitling projects.

“You can get the cities’ ears these days,” he said. “You can go back to the city and re-entitle for more economic uses. They’re interested in asking what they can do to revive a project.”

But he was highly skeptical that SANDAG’s estimations that 85 percent of new home construction will be multifamily. Historically, 60 percent of the county’s housing has been single-family homes.

“You can’t force people into that product,” he said.

Source: The Daily Transcript 

Survey: County has lowest apartment vacancy rate in nation

By THOR KAMBAN BIBERMAN, The Daily Transcript

Thursday, June 23, 2011

 

A new PricewaterhouseCoopers and Reis Inc. investor survey states San Diego has the lowest apartment vacancy rate of any major metropolitan area in the country and even has a strengthening office market.

The investor survey report subtitled "Optimism Prevails Despite Economic Unease" said the average apartment vacancy rate here was 3.9 percent during the first quarter of 2011 -- a full percentage point stronger than the 4.9 percent recorded during the like period a year earlier.

The 3.9 percent figure was stronger than all other major metropolitan areas surveyed. It was followed by Los Angeles at 4.5 percent and Baltimore at 4.7 percent, according to the survey that examined 18 of the largest metropolitan areas in the United States.

The survey said San Diego County's apartment investment market is in a strong recovery period for this year and next and will see a significant growth in demand in 2013 and 2014 -- likely fueling significant construction in those years.

San Diego's MarketPointe Realty Advisors has reached similar conclusions, but placed the average vacancy rate at 5.06 percent as of the end of March, with a 5 percent level considered to be ideal by the industry. Even at that, San Diego would still rank among the top five apartment markets in the country.

The PricewaterhouseCoopers report said the county absorbed 446 rentals in the first quarter of 2011, compared to 679 units in the fourth quarter of 2010 and 422 in the first quarter of 2010.

The report didn't stop at apartments. It said San Diego's office market, while decidedly less impressive, demonstrated some surprising strength during the first quarter of the year.

"Strengthening economic conditions, positive net absorption and a decline in sublease space are creating momentum in the San Diego office market," the report states.

The report adds that the technology services, hospitality, and education/health employment sectors are showing signs of growth in San Diego.

"In particular, the biotechnology and renewable energy sectors are attracting attention from venture capitalists, leaving these sectors poised for near-term expansion," the report continues.

It also helps that the unemployment rate has been on a slow but steady decline, currently at 9.6 percent, according to the state Employment Development Department.

The office vacancy rate tightened by a full 100 basis points to 16.8 percent year-over-year in March, according to Cushman & Wakefield. The amount of sublease space declined by 26.2 percent, while the total net absorption increased by 17.3 percent during the same one-year period.

Not everything is as office landlords would wish, however.

"The leasing market is remarkably slow for owners marketing 2,000- to 10,000-square-foot spaces," describes a survey participant.

That hasn't stopped landlords from seriously considering significant rent increases to augment their balance sheets.

"Further evidence of investors' optimistic outlook for this market is the growing use of rent spikes. The percentage of surveyed participants using rent spikes in their cash flows rose from 60 percent to 80 percent over the past three months," the report said.

San Diego's office market is presently in a recovery mode that will strengthen in 2013 and 2014, according to the report.

Retail is a mixed bag. Although many formerly empty large retail boxes continue to be refilled by such retailers as Kohl's, Best Buy, Dick's Sporting Goods and Discount Tire, the PricewaterhouseCoopers report said the retail market is still effectively in recession here and will continue to be so through next year. The report is projecting a retail recovery happening in San Diego County in 2013 and 2014.

Nationally, the report says stabilized real estate investment trust retail assets are faring the best in this economy, though malls have had their troubles. While there are many high-quality assets, few high-quality retail properties are being placed on the market -- at a time when "a flood of lower quality malls are being offered for sale ..."

In one case, Fashion Valley mall owner Simon Property Group (NYSE: SPG) has placed four malls for sale in Florida and Tennessee that have an average age of 27 years. What's more, it has been an average of 13 years since a major renovation occurred at the malls.

Power centers have been trading. In one of some 70 power centers that have traded thus far this year, Rancho Bernardo-based Excel Trust acquired the 325,431-square-foot Gilroy Crossing in Gilroy for about $210-per-square foot.

Source: The Daily Transcript

 

5 signs a Craigslist rental listing is fake

By Lily Leung

5:24 p.m., June 10, 2011

Screenshot of the Craigslist landing page for San Diego, taken June 10, 2011.

You're on Craigslist looking for a rental. As you're skimming listings in the $2,000 range for one particular area, you suddenly see one for $1,200 a month.

Too good to be true? In many cases, yes.

Real estate agents and property managers in San Diego County come across scammer listings on Craigslist and other websites from time to time. What usually happens is someone lifts the information from an existing sales or rental listing and makes a duplicate featuring a drastically lower price and different contact number.

Sometimes, the scammer asks respondents for cash up-front or an application with their Social Security number and other sensitive information -- then never follows up. The ads often are taken down after the consumer inquires about the status of the transaction, agents and property managers say.

Century 21 Award agent Nancy Beck, who specializes in University City properties, came across this just three months ago. Someone cloned one of her sales listings in that area, taking everything from the specs to property photos. What changed was the home's price and its status from a sale to a rental.

"People would call me after seeing my listing for a super-low price," Beck said. "It would create a frenzy, and people would drive by the listing, see that it was for sale" and follow up with a phone call to Beck.

"That's how I became aware," said Beck, who went through two other similar incidents within a year.

The Union-Tribune talked to Kayla Roeder, vice president of Cambridge Management Group in San Diego, who shared some signs that a rental listing is likely a scam.

The person renting out the property:

1. Does not have the keys to the home and cannot show it to you.
2. Doesn't do credit checks.
3. Deals only in cash, which makes fraud untraceable.
4. Tells you to fill out an application without letting you see the home first.
5. Lists the property at a price that's drastically lower than those of comparable homes in the area.

What others are saying:

This is a terrible scam. (Renters) go out to properties thinking they're going to get something for $1,000, and they're disappointed when they don't.

--Marilyn Lewis, office manager at Park Place Realty & Asset management in San Diego, who's recently come across cloned listings of her company's properties.

These scams drastically reduce the rent and make the rentals way below market value. People are not thinking with their heads and instead with their wallets. They have this need to snap (the deal) up. It's out of desperation.

--Jennifer Newton, president of Walters Home Management in San Diego.

Craigslist did not respond to a request for comment.

Some agents and managers said they normally flag the cloned listings, and they're usually taken down within a timely manner.

Source: SignOnSanDiego

Quote of the day: California's housing market

By Lily Leung

6:37 p.m., June 13, 2011

A year ago we were talking about sales reaching a four-year high as buyers rushed to take advantage of expiring federal homebuyer tax credits. Now sales are stuck at a three-year low. The government stimulus is long gone and some of the fundamental drivers of housing demand have yet to strengthen enough to lift sales to even average levels. Some of the key culprits are weak job growth, tight credit and a hesitancy among potential buyers and sellers, who question whether this is the best time to make their move.

 --John Walsh, president of San Diego-based DataQuick Information Systems, which culls and analyzes real estate data.

Source: SignOnSanDiego

Quote of the day: mortgage rates down, again

By Lily Leung

4:50 p.m., June 9, 2011

Long-term Treasury yields moved lower following a weak jobs report and mortgage rates followed suit. The economy added 54,000 jobs in May, the fewest in eight months, and factories cut payrolls for the first time in seven months. As a result, the unemployment rate rose to 9.1 percent, representing the highest rate since December.

Frank Nothaft, the chief economist of Freddie Mac, on this week's average mortgage rates, which fell to their lowest levels this year.

The 30-year fixed this week was 4.49 percent, down from 4.55 percent last week. A year ago, it averaged 4.72 percent.

The 15-year fixed this week was 3.68 percent, down from 3.74 percent last week. A year ago, it was 4.17 percent.

Source: SignOnSanDiego

Rental Demand Brightens Dark Housing Outlook

By Jann Swanson

Jun 7, 2:31PM

The gloomy picture painted by The State of the Nation's Housing report released yesterday by Harvard's Joint Center on Housing Studies has but one bright spot - the improving rental housing market. 

On virtually every other level it appears that a housing recovery is still months if not years away. Rather than leading the country out of the recession as it has done in prior downturns, the housing industry is holding back economic growth. The report details a number of housing areas where, rather than the outlook improving as the economy began to pick up, things actually got worse.

First of all, household growth has dropped precipitously since 2007.  In the four years since, an average of 500,000 new households have formed each year compared to the 1.2 million annual pace averaged between 2000 and 2007.  This is even more disheartening as the "echo boomer" generation, those born after 1986, is the largest generation in our history to reach its 20s, peak household formation years.   Instead of forming households, many in this age group have stayed in or returned to their parents' homes.  At the same time, for the first time in decade the rate of immigration as slowed.  From 2004 to 2007 the number of new households headed by foreign born citizens increased by 200,000 per year but since 2007 the number foreign-born non-citizen households have declined by the same amount. 

The rental and the homeowner market have diverged.  There has been a net shift of 1.4 single family homes from owned to rental property between 2007 and 2009, almost twice as many as in the previous two year period.  Still, rental vacancies are down, dropping from about 3.5 million to less than 2 million between 2009 and 2010, and rents have begun to move up.  At the same time homeowner vacancies, which dropped from over 9.5 million in 2008 to about 7.8 million in 2009 has declined only fractionally since even though new home construction has slowed considerably and banks appear to be holding large numbers of foreclosed homes off of the market.  Still, housing prices, unlike rents, have resumed their decline. Unusually large numbers of households are switching from owner to renter and the ownership rate has fallen from 69 percent in 2004 to 67 percent in 2010.  The report says that the continuing foreclosures and reluctance on the part of owners to buy as long as prices are unstable will cause home ownership to continue its decline through 2011. 

The Harvard report cites a Fannie Mae study showing that while attitudes toward homeownership have become more negative over the last few years, 74 percent of renters and 87 percent of the general population still view homeownership as safe investment.

While many households aspire to homeownership, tightened underwriting standards may stand in their way and the report speculates that the proposed 20 percent down payment requirement for qualified residential mortgages could sharply curtail homeownership unless the borrower obtains a government guarantee.  "Over the longer term, it is unclear how the impending reform of the housing finance system, (...) will influence the cost and availability of mortgage loans.

The number of rental households accelerated in the second half of the last decade, swelling by an estimated 3.9 million between 2004 and 2010 but rental vacancy rates increased and rents fell during the same period as new units were added and homes were converted from ownership to rentals.  In 2010, however, the rental market moved into high gear and the vacancy rate dropped from 10.6 percent to 9.4 percent over the course of the year.  MPF Research reported vacancy rates below 5 percent in almost one third of the 64 markets it studied and more than half had rates below 6 percent.   As vacancies declined, rents rose.  Rents in professional managed apartments were up 2.3 percent last year with most of the growth in metropolitan areas.  As employment grows, especially among younger persons, and homeownership continues to decline there will be pressure on the rental market, pushing rents up and encouraging multi-family construction.   Given the time line for new construction, however, rents are likely to remain tight in the short term and will present increased affordability challenges for low-income renters.

There is much uncertainty in the market regarding access to mortgage credit, home buying attitudes, immigration trends and laws, and household formation, but there is certainty about some factors related to demographics.  It is known that the aging baby boomers will drive up the number of older households by some 8.7 million by 2020.  This tends not to be a mobile population and will provide "ballast" for the owner market, offsetting in part the lower homeownership rates among younger households.

While the senior population is likely to age in place, if boomers follow the pattern of the preceding generation some 3.8 million will downsize their homes over the next ten years, lifting demand for smaller housing units and having a major impact on the housing markets in preferred retirement destinations.  The large pre-boomer population will create a similar demand for assisted and independent living developments.

The echo-boomer generation will have a less predictable impact on housing markets.  There are questions involving their homeownership attitudes and the net impact of immigration.  There is reason to believe that this generation will be large enough to boost household formation and the demand for starter homes and apartments.  The report states that if household formation (headship) rates return to their pre-recession average and if immigration is just half of what the Census Bureau projects, the number of households under age 35 will grow to nearly 26.5 million in the next decade.

Affordability is another challenge facing the housing market.  In 2009 10.1 million renters and 9.3 million owners paid more than half their income for housing.  While this hits low-income households the hardest, households with incomes under $15,000 pay over 80 percent of their incomes for shelter, the cost pressures have been moving up the income scale.  Households earning $30 to $45 thousand increased the proportion of their incomes spent on housing from 30 percent to 40 percent over the ten year period ending in 2010.

The recent crash has wiped out household wealth, ruined credit ratings and devastated communities with foreclosures and has left nearly 15 percent of homeowners in homes that are "under water".  This has reduced the amount that owners can cash out of their homes by selling or refinancing.

The report concludes by saying that the strength of the housing recovery, when it does finally occur, will depend on how fully employment bounces back, and then local markets will revive in proportion to the increase in jobs, the depths housing fell during the recession, and the amount of overbuilding that occurred before the downturn.  But the most critical factor for housing recovery in the resumption of household growth and it may be that the unemployment rates on top of the long-term housing affordability issues may have lowered the baseline trend of household growth itself.  "To match the 1.12 million annual rate average in the 2000s, household formation rates must return to their 2007-2009 average and net immigration must reach at least half of Census Bureau projections," the report says.

In the near term it will be rental markets that are likely to lead the housing recovery, but once consumers decide that a floor has formed under house prices, their reentry into the market could quickly burn through the lean inventory of unsold new homes and reduce the excess supply of existing homes on the market.  There is also the danger that government programs to address rent affordability and assisting distressed neighborhoods will feel the budget axe just as affordability problems are escalating.

Related MND comments....

From: HUD Focused on Rebuilding America's Dilapidated Housing Inventory

"Take note of HUD-sponsored initiatives aimed at rebuilding America's dilapidated housing stock." says MND's Managing Editor Adam Quinones. "This is where housing professionals will find the most opportunity in years ahead.  The FHA should reopen the 203(k) program to investors if they want to encourage private investment in the U.S. housing market."

From: Home Remodeling a Forward Indicator of Housing Bottom?

"With so many foreclosed properties sitting empty on the market we can expect remodeling and rehabbing to be a leading indicator of a bottom in the housing market", says MND's Managing Editor Adam Quinones. "We already know there is dearth of affordable rental housing available to low income renters. From that perspective, FHA should open its 203(k) program to investors if they want to accomplish their affordable housing goals."

Source: Mortgage News Daily

Unemployment Falls in 39 US States

Published: Friday, 20 May 2011 | 11:46 AM ET 

By: AP

Unemployment rates fell last month in more than three-quarters of nation's states, evidence that companies are feeling more confident in the U.S. economy.

The Labor Department said Friday that unemployment rates dropped in 39 states in April. That's an improvement from March when 34 states had reported decreases. Rates rose in three states and the District of Columbia. They were unchanged in eight states.

Employers added workers in 42 states. Only eight states and the District of Columbia lost jobs last month.

Nationally, businesses have added more than 250,000 jobs per month, on average, in the past three months. It's the fastest hiring spree in five years. The unemployment rate has dropped nearly a full percentage point since November. Still, it remains very high at 9 percent.

New York added 45,700 jobs in April, the most of any state. It was followed by Texas, which added 32,900 jobs, and Pennsylvania, which gained 23,700 jobs.

Michigan lost 10,200 jobs, the largest decline of any state. Minnesota lost 5,200 jobs and South Carolina shed 3,800 jobs.

Nevada reported the biggest monthly drop in unemployment among all states. Despite the decline, unemployment in Nevada was 12.5 percent, the highest in the nation. New Mexico and Oklahoma reported the next biggest monthly decreases.

North Dakota had the lowest unemployment rate of any state at 3.3 percent. It has benefited from oil production, which is among the state's top industries.

Other states with low unemployment rates were Nebraska, New Hampshire and South Dakota.

By region, the Northeast had the lowest unemployment rate at 8 percent. The Midwest's unemployment rate was 8.1 percent, followed by the South, 8.8 percent, and then the West, 10.4 percent.

The West region includes California and Nevada, two of the states hit hardest by the foreclosure crisis.

Source: CNBC

Apartments to Rise on Site of Failed San Diego Condo Development

May 31, 2011

By Dees Stribling, Contributing Editor

San Diego–Alliance Residential Co. has acquired a 1.3-acre development site in the Little Italy district of downtown San Diego and is planning 201 apartment units for it. The property will be five stories atop three levels of parking, and the design will also incorporate six brownstone-style units along the residential street frontage on Fir Street. Construction is slated to begin later this year.

The development will feature studio, one- and two-bedroom units, available with dens or lofts. Unit amenities will include wood-plank style flooring, stainless steel appliances, granite countertops, full-sized stacked washers and dryers, oversized tubs, walk-in closets and private balconies.

Common amenities will include a residents’ club, business center, resort-style pool with spa courtyard overlooking San Diego Harbor, a fitness center, and digital gaming and screening room. Also, the streetscape will be improved with a piazza, offering water features, public art and café-style seating.

The site was originally entitled for a 247-unit high-rise condominium development, but the seller was unable to break ground due to a dearth of financing. Phoenix-based Alliance is capitalizing on the existing zoning—which allows for a high-density, mixed-use residential development—by building an apartment property with 9,000 square feet of ground-floor retail space, branded under the Broadstone community name.

As in most markets nationwide, apartments are far more viable in San Diego than for-sale multifamily developments. In fact, the fundamentals for San Diego apartments are quite strong.

Investment specialist Marcus & Millichap predicts that by the end of 2011, San Diego apartment vacancies will be 3.4 percent, or 50 basis points below the long-term average. The company is also predicting that asking and effective rents will rise 3.9 percent and 4.6 percent, respectively, during this year.

Source: Multi-Housing News Online