Posted: 09 Oct 2014 10:15 AM PDT
It may feel like 2006 all over again when it comes to the housing market. Gimmicks and giveaways are creeping into the market because homes aren’t selling like builders had hoped. Back in 2006, just before the crash of 2008, no-document mortgages greased the way to the top of that housing bubble. Today it’s freebies such as swimming pools, built-in barbecues and cost reductions. This may seduce some renters to stretch their wallets with the allure of being an “owner”. How quickly people forget the prelude that eventual leads to foreclosures or valuations being “underwater”. According to a recent Bloomberg report builders from California to Florida “…are sweetening offers as sales slow in some of the country’s most volatile housing markets.” “Buyers, suffering from sticker shock after large price gains in 2013, are pulling back after the U.S. government cut the maximum size for mortgages with low down payments. In Phoenix, the Federal Housing Administration’s loan limits dropped well below the median price for a new home”, the report noted. The culprit that necessitated the housing market stimulants was the federal government. At the beginning of 2014 the FHA cut loan sizes in 652 high-cost U.S. counties. This included Phoenix, Arizona where the limit dropped to $271,050, nearly $24,000 below the median prices of a new home, from the previous maximum of $346,250. The maximum loan size in the Las Vegas area was cut by 28 percent while in Sacramento, California area max loans shrunk by 18 percent. “We were having a nice robust recovery and then that happened,” said Buddy Satterfield, president of the Arizona division for Shea Homes.”When you take the FHA limit down to $271,000, you hit us right in our sweet spot.” FHA mortgages for new homes in the Phoenix area fell 39 percent in August from a year earlier, while the number of buyers financing existing homes with the government-insured loans gained 12 percent, according to RL Brown Housing Reports, a consulting company based in Scottsdale, Arizona. Once again the biggest challenge for home buyers is to be able to qualify for mortgages. The Bloomberg report said nearly 48 percent of FHA borrowers who purchased Phoenix-area properties from Meritage Homes Corp. in 2013 wouldn’t qualify under the new limits. Nationwide builders are advertising incentives such as discount pricing, appliance packages and even offering to pay closing costs for buyers. Builders are competing with a huge new supply of previously owned homes partly because investors who bought after the market bottomed are cashing out. Property managers are wise to prepare for further motivations for renters to become buyers. One of the keenest ways to prevent an increase in vacancies is to stay appraised of the cost of ownership. If your residents realize it’s significantly less costly to rent than to deal with the costs of ownership they’re less likely to make the switch. Also, do what you can to make your rental units feel like home.
The bottom line is that the housing market is being artificially goosed into bubble mode, the bubble will eventually burst. Your residents may need to be reminded what happened the last time this occurred.
Posted: 07 Oct 2014 08:49 AM PDT
The number of multi-family rental housing complexes being built around the nation keeps on growing month after month. The implications for the property management business are somewhat ambiguous.
No doubt there’s been a steady decline in the number of homeowners since the financial crisis of 2008. This has translated to a substantial increase of renters who are likely to remain renters for a long time.
That’s been good news for property managers and their owner-clients. For the past 4 years vacancy rates have declined while the inventory of rental units built has reached record levels.
For example in 2012 nearly 6% of the 535,000 single-family homes built were used for rental housing, according to info made available by the National Association of Homebuilders. By comparison the 32-year average ending at the housing market peak in 2006 was about 2% of houses built were rentals.
The NAHB also keeps track of the number of multi-family units that are built quarterly as rentals. The Multifamily Production Index (MPI), a leading indicator for the multifamily market posted a gain of five points to a reading of 58 for the second quarter of 2014.
This is the 10th straight quarter with a reading of 50 or above. The MPI measures builder and developer sentiment about current conditions in the apartment and condominium market on a scale of 0 to 100.
The MPI also provides a composite measure of three key elements of the multifamily housing market: construction of market-rate rental units, low-rent units and “for-sale” units, or condominiums.
A number over 50 indicates that more respondents report conditions are improving. In the second quarter the “…MPI component tracking builder and developer perceptions of market-rate rental properties had a significant increase of nine points to 68”.
This is the highest reading since the third quarter of 2012; low-rent units increased four points to 52. Units for sale rose two points to 56, underperforming the expansion of rental units built.
“We have seen steady growth for the apartment market since 2011,” said W. Dean Henry, chairman of NAHB’s Multifamily Leadership Board and CEO of Legacy Partners Residential in Foster City, Calif. “There will continue to be strong demand for the foreseeable future, but the availability of construction labor is still proving to be a challenge.”
The Multifamily Vacancy Index (MVI), which measures the multifamily housing industry’s perception of vacancies, was essentially unchanged, increasing one point to 38. With the MVI, lower numbers indicate fewer vacancies.
“The MVI, the vacancy index, has been holding steady at a healthy level of 37 to 38 since late 2013,” said NAHB Chief Economist David Crowe. “Although this is slightly above the low vacancy numbers we saw in 2011 and 2012, those low numbers were the result of depressed production with few new apartments coming on line.
“Meanwhile, the strength of the MPI, the production index, in the second quarter is not surprising, given that we’ve seen employment improve, which allows younger consumers to form their own households.”
The bottom line for property managers is mostly positive. There will continue to be more rentals to manage while the current low vacancy rate holds steady. What’s not to like about that?