Posts filed under ‘Economy’

Two Large SFH Rental Home Providers Considering Merger

Two large single-family rental home providers are considering merging, yet another indication that the rental market isn’t cooling off any time soon:

Two big owners of single-family rental homes said Monday they have agreed to merge, a bet that rents will keep rising and homes will remain difficult for many Americans to buy.

Starwood Waypoint Residential Trust, a publicly traded real-estate investment trust run by Barry Sternlicht, the longtime real-estate investor who is Starwood Capital Group’s chief executive, will combine with closely held Colony American Homes Inc. in a deal that values Colony at about $1.5 billion based on Starwood Waypoint’s closing share price Friday. The Wall Street Journal had reported the deal earlier Monday, citing people familiar with the talks…

The two companies own a combined total of more than 30,000 homes valued at nearly $8 billion. Messrs. Sternlicht and Barrack were part of the rush by big investors to buy foreclosed homes in bulk, often sight unseen and at steep discounts, after the U.S. housing market collapsed…

The proposed merger of Starwood Waypoint and Colony is a bet that the percentage of Americans who own homes will remain unusually low. While the foreclosure crisis has receded, toughened lending standards have pushed millions of Americans out of the homebuying market…

The U.S. homeownership rate is at its lowest level in nearly 50 years, falling to 63.5% in the second quarter, according to the Commerce Department.

In contrast, single-family rentals now add up to 13% of overall housing stock, up from 9% in 2005, according to a report by Moody’s Analytics.

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September 22, 2015 at 1:46 pm Leave a comment

Homeownership Rate Lowest Since 1967, US Rental Vacancy Rate at 6.8%

In 2Q15 the US homeownership rate fell to 63.4%, down from 63.7% in the first quarter of the year, the lowest it’s been since 1967.  The result has been an increase of about 2 million renter-occupied units in the last year, resulting in a vacancy rate of just 6.8% which is down from 7.1% in the first quarter. From BloombergBusiness:

Would-be homebuyers have been held back by stringent mortgage standards and wage growth that hasn’t kept up with surging home prices. The average household income in June was 4 percent below a record high set in early 2008, even as unemployment dropped to its pre-recession rate, according to Sentier Research LLC.

 “We’re still suffering the effects of the housing collapse and the financial crisis,” said Mark Vitner, senior economist with Wells Fargo Securities in Charlotte, North Carolina. “We may have another percentage point to go before we see a bottom” in the homeownership rate, he said.

Home values have jumped 34 percent since reaching a bottom in early 2012, making purchases more expensive for entry-level buyers. Prices in 20 U.S. cities climbed 4.9 percent in May from a year earlier, the S&P/Case-Shiller Index showed Tuesday.

July 28, 2015 at 7:45 pm Leave a comment

Where Are the Young Home Buyers?

It’s no secret that there’s a dearth of younger home buyers these days, but why are young adults still slow to move from renting to buying even though the economy is finally growing? Shane Squires of MPF Research wrote about some of the challenges faced by millennials:

For starters, income levels for those between 25 and 34 are down. Median household income for that demographic has declined between roughly 5% and 15% in real terms from 2000 to 2012 for every education level of the head of household, according to the National Center for Education Statistics. And in 2013, the real median net worth of households under 35 years old was just $10,400. That was approximately 32% below the level estimated in 2001, according to the Federal Reserve Survey of Consumer Finances…

He then cites some data showing that the combination of an increasing population and anemic job growth coming out of the past two recessions led to a highly competitive job market that prompted many students to continue on to grad school. That demand allowed universities to jack up tuition which led to more debt:

That brings us to the most commonly cited economic constraint for Gen Y – student debt. Over the decade from 2002-2003 to 2012-2013, the number of full-time undergraduate students rose from 9.1 million to 11.6 million people, according to College Board. That increased demand enabled higher education institutions to raise tuition prices 51% past the rate of inflation in the past 10 years,…

Add to that the increase in health care costs, which he cites as being 31% greater than the reported rate of inflation, and the increase in cost of staples and you can see that young adults face some serious obstacles to home ownership. Even the accelerated job growth of 2014 is recognized with a caveat:

Given that job growth has accelerated notably in 2014, with a much higher share being created in higher-paying sectors, these trends in income and net worth are bound to start improving to some degree. Though, considering that the appreciation of median home prices has vastly outpaced wage growth over the past decade, many in the Millennial generation will likely continue to find it more difficult to qualify for a mortgage than Generation X did 10 years ago.

It would be easy to point to the Great Recession as the primary cause for the struggle young adults will have in moving from renting to buying, but some of the contributing factors are the result of societal shifts that began a generation ago. For instance, the decoupling of income from worker productivity:

The “decoupling” is the divergence between labor productivity and employment/wages that happened in the US in the 1980s and has become quite pronounced over the past thirty years. During the great postwar boom, productivity and wages grew in lockstep in the US. Of course, we don’t see any data from the 19th century and the first half of the 20th century so it’s not clear that labor and wages have always grown in lockstep. But something certainly changed in the 1980s and the result has not been good for median family income which has been stagnant in the US for almost thirty years now.

This is the kind of shift that does not happen overnight, and if that trend is to reverse it will not happen in a matter of years but in decades. What that means for rental housing providers in particular is that the falling rate of home ownership could be the new normal for a generation to come, which is good news for their businesses. On the other hand, if real median household income continues to decline then the demand for market rate units could stall and the demand for affordable housing units could skyrocket.

Obviously some policy changes could change this outlook. For instance if lending standards are relaxed again and if more affordable single family homes are constructed, then rental demand would obviously be impacted. Considering the lessons we learned when the housing bubble popped that first if is pretty big, and given the persistent problem of slow income growth any growth in home construction we do see probably won’t come close to what we saw in the late 90s through mid 00s.

Long story short – rental housing should continue to grow for the foreseeable future.

May 29, 2015 at 2:38 pm Leave a comment

Apartments a Significant Part of $1.2 Billion Spent on Downtown Winston-Salem Since 2000

At its annual meeting on February 24 the Downtown Winston-Salem Partnership outlined how Winston-Salem’s downtown has been revitalized over the last 15+ years:

The nonprofit group listed 88 downtown investment projects since 2000 that have either been completed, are under way or for which a firm commitment has been made.

The combined capital investment value is $1.23 billion, topped by the $106 million spent on Wake Forest BioTech Place and the $100 million commitment by Wake Forest Baptist Medical Center toward a major medical education facility. Both buildings are in Wake Forest Innovation Quarter.

The investment is divided into eight categories: health and technology (eight projects, total $445.4 million); infrastructure (10 projects, total $188.4 million); institutional and public development (15 projects, total $181.6 million); residential (15 projects, total $140 million); multiple use (eight projects, total $95.1 million); office (five projects, total $88.4 million); arts and entertainment (five projects, total $50.3 million); and commercial (22 projects, total $42.2 million).

The Nissen Building, a PTAA member, was the largest residential project at $32 million, although far from the only project downtown – Winston Factory Lofts, Plant 64, Hilltop House, The Gallery Lofts, and Link Apartments Brookstown to name just a few. The transformation of the former Reynolds HQ building into a Kimpton Hotel and apartments has recently captured the city’s imagination as well as the soon-to-open Mast General Store project that will add another marquee destination for the downtown. In other words the revitalization shows no signs of slowing down.

Meanwhile over in Greensboro the entity charged with leading its downtown revitalization, Downtown Greensboro Inc, is going through a transitional phase and is looking for a new leader. That’s important because there are several projects in the works that will alter downtown Greensboro significantly over the next few years and it’s essential that there be someone at the wheel who can bring together the various constituencies – city government, elected leaders, industry, educational institutions, etc. – and provide a strategic direction for downtown redevelopment. If Greensboro can manage to bring some strategic direction to the downtown then we’re sure to see even more apartments developed in the downtown area in addition to those like Greenway at Fisher Park, CityView and the Southeastern Building.

As for High Point, well they have a new mayor, lots of new city council members and a new city manager and one of their primary tasks is figuring out how, and where, to revitalize their city. With the furniture market they do have a unique challenge so it will be interesting to see how things evolve there.

These are indeed interesting and (finally) dynamic times in the Piedmont Triad.

February 25, 2015 at 6:55 pm 1 comment

Are Apartment REITs Ready to Bust?

Apartment REITs enjoyed a booming 2014, but according to this Wall Street Journal article they may be set for a bust:

But in the last month, investors and analysts have cooled to the sector. REIT total returns are a negative-1.7% so far in February, with apartments stocks returning a negative-1.1%. A handful of analysts have downgraded the apartment sector on fears it is overvalued and won’t generate the growth in revenue it posted last year.

“The problem is that the stocks are a bit more expensive, and you’re getting slower growth,” said Haendel St. Juste, a REIT analyst with Morgan Stanley. A year ago, Mr. St. Juste says, most REIT stocks were trading at a discount of between 10% and 15% of the value of their assets. After last year’s rally, most are now trading at a premium of 10% to 15%.

And there’s concern that too many units are being built:

Builders in the past six months have started construction on new multifamily apartments at an average pace of 357,000 units a year, 26% more than the 30-year average, according to Evercore ISI. The investment bank predicts negative demand, or a rise in vacancy rates, for apartments over the next year for Houston, Washington, Charlotte and Austin, Texas. “Overbuilding concerns will remain a focal point for REIT investors over the next few years given the current pace of permit activity and new starts,” says Steve Sakwa, an Evercore REIT analyst.

But not everyone is bearish on the apartment market:

Industry association NAREIT estimates that there is enough pent-up demand to fill roughly 3 million units, which is more than the development pipeline.

“People are living with parents, living with roommates,” said Calvin Schnure, NAREIT’s vice president for research. “It’s uncomfortable.”

February 18, 2015 at 8:55 pm Leave a comment

America’s Two-Tier Economy Good for Apartment Industry

The Wall Street Journal has an extensive article about America’s bifurcated economy that helps explain why the apartment sector is doing so well:

For the first time, U.S. builders last year sold slightly more homes priced above $400,000 than those below $200,000. As a result, the median price of new homes exceeded $280,000, a record in nominal terms and 2% shy of the 2006 inflation-adjusted peak.

Total sales last year, however, were up just 1% compared with 2013, and more than 50% below their average from 2000 to 2002, before the housing bubble…

Young households have been slow to buy homes because of the tough job market. Many would-be buyers can’t save enough for a down payment or don’t earn enough to qualify for a mortgage. Student debt holds others back.

A typical household, for example, would need around $60,000 in cash to make a 20% down payment on the median-priced new home in the U.S. To qualify for a mortgage, they would need good credit and to show an annual income of about $45,000, assuming little other household debt. A government-insured loan in this example could call for an $11,000 down payment but would require an annual income of $60,000…

With fewer potential customers, builders have largely abandoned the entry-level market. “If a builder can make money on something, he’ll build it. The problem is that they can’t make money at the entry level,” said John Burns, of Irvine, Calif., a consultant to builders.

But rentals, the low-end of the housing market, are booming. Apartment construction has neared its fastest pace since 1989. Two of the nation’s largest home builders, Toll Brothers Inc. and LennarCorp. , have both launched multifamily construction divisions, each with around 5,000 units in the pipeline.

This apartment sector’s performance is no secret, but as the Journal’s article points out this split in the US economy is not confined to housing. In sector after sector – cars, food, travel, etc. – sales of luxury and discount brands are booming while the sales of mid-tier brands suffer. Of course markets are cyclical, but what this data likely means is that this cycle will take a while to play itself out. Until the economic recovery expands to include the middle class, homebuilders aren’t going to be building many mid-price homes.

Again, the news looks good for apartments. At some point that will change, but it will take over-development in the apartment sector, loosened lending standards for home buyers, a construction boom in the affordable single family home sector, or some combination of these factors for the apartment industry’s fortunes to change and any of that is likely to take a while to happen.

February 3, 2015 at 3:42 pm Leave a comment

Guilford Leaders Explore Joint Economic Development Structure

Leaders from the cities of Greensboro and High Point, along with leaders from Guilford County, met on January 27 with representatives of local businesses – the development community in particular – to discuss how they might build a joint economic development structure. From the Triad Business Journal story on the meeting:

Officials from Greensboro, High Point and Guilford County continued conversations this week about creating an alternative approach to economic development efforts within the county.

While such a structure has yet to be defined and no decisions have been made, Greensboro Mayor Nancy Vaughan said there was a “very productive meeting” held Tuesday with members of the development community and other stakeholders to get their input and feedback on how a new economic development structure could be defined…

The talks are aimed at finding a way to better align various economic development efforts within Guilford County and make them more unified and effective.

There is some question how existing non-public economic development groups might fit into the mix:

But how exactly existing economic development groups like the Greensboro Partnership, which is narrowing its searchfor a new CEO, could potentially be part of the proposed joint effort is yet to be determined…

While he (former Greensboro Mayor Robbie Perkins) thinks that bringing the governments in Guilford County together is a good thing, he would caution against a potential new entity that has more public sector control than private. He said economic development is a team sport and the team has to include both the private sector and the public sector. “You have to leverage off those private-sector relationships to make it work,” he said.

He added that the area is already home to private-sector driven economic development groups in High Point and Greensboro that should be continually involved.

January 31, 2015 at 9:35 pm Leave a comment

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