Posted on 08/05/2017 7:51:09 PM PDT by SeekAndFind
Sin City’s projected 5,000 new apartment units for this year makes no noise nationally in the latest real estate craze. “In 2017, the ongoing apartment building-boom in the US will set a new record: 346,000 new rental apartments in buildings with 50+ units are expected to hit the market,” writes Wolf Richter on Wolf Street. That is three times the number of units that came on line in 2011.
Richter continues, “Deliveries in 2017 will be 21% above the prior record set in 2016, based on data going back to 1997, by Yardi Matrix, via Rent Café. And even 2015 had set a record. Between 1997 and 2006, so pre-Financial-Crisis, annual completions averaged 212,740 units; 2017 will be 63% higher!”
I’ve written before about the high-rise crane craze in Seattle, but that’s nothing compared to New York and Dallas, that are adding 27,000 and 25,000 units, respectively. Chicago is adding 7,800 units despite a shrinking population and rents decreasing 19 percent.
Not surprisingly, Fannie Mae and Freddie Mac are financing this rental housing boom. I wrote recently, the GSEs made 53% of all apartment loans in 2016, down from their combined 68% market share in 2012. “So, their conservator, The Federal Housing Finance Agency (FHFA), recently eased the GSE’s lending caps so they can crank out even more loans.”
Mary Salmonsen writes for multifamilyexecutive.com, “Currently, Fannie and Freddie are particularly dominant in garden apartments [and] in student housing, with 62% and 61% shares, respectively. The two remain the largest mid-/high-rise lenders but hold only 35% of the market.”
Mr. Richter warns us, “Government Sponsored Enterprises such as Fannie Mae guarantee commercial mortgages on apartment buildings and package them in Commercial Mortgage-Backed Securities. So taxpayers are on the hook. Banks are on the hook too.”
But, for the moment, it’s build them and they will come; first renters, then complex buyers. Wall Street giant “The Blackstone Group acquired three Las Vegas Valley apartment complexes for $170 million, property records show,” writes Eli Segall for the Las Vegas Review Journal. “Overall, it bought 972 units for an average of $174,900 each.”
Sales like this has developers going as fast as they can. I heard an apartment developer say Vegas has at least four more good years left in this cycle and is scrambling for new sites. In the land of Starbucks, Microsoft and Amazon, it’s thought the boom will never end. Richter writes, “the new supply of apartment units hitting the market in 2018 and 2019 will even be larger. In Seattle, for example, there are 67,507 new apartment units in the pipeline.”
However, while no one was paying attention, “the prices of apartment buildings nationally, after seven dizzying boom years, peaked last summer and have declined 3% since,” Richter writes.
“Transaction volume of apartment buildings has plunged. And asking rents, the crux because they pay for the whole construct, have now flattened.”
As usual, cheap money entices developers to over do it, and the fall will be just as painful.
Very similar to the apartment building boom in several Australian cities. But we don’t have this Freddie and Fanny state sponsored outfit.
Believe it or not supply at this rate is still not keeping pace for demand. There is seve al more years of this ahead.
You are right...rents are stratospheric in so many large cities throughout the country. It’s really hard for kids in their 20s to get a place — multiple offers within the hour of an apartment being put on the market. Here in Silicon Valley there are brand new efficiency apartments close to Google in Mountain View going for $5,000 per month.
I’m surprised Honolulu isn’t on the list - they just hit an all-time record high price for condos and rents are in lock step.
It’s very frustrating for my older kids. What can be done?
Same in Vancouver, BC. Lots of speculative Asian money driving prices in Vancouver (and up and down our west coast).
Chinese are buying properties left and right.
The rental markets are REAL markets
Unlike homes to buy
Where I live in Marin county
The house we live in is worth about 1.5 M and we pay 3 $ k per month
A mortgage would be triple that
Screw that. In short
I’ll keep paying rent
Lets say someone has about 100k in equity in a home in S. CA and they have to rent now because they got transferred or whatever.
If they had bought the home with a low down and only has about 100k in equity or so, they’re paying about 3k-5k and UP every month in CA PROPERTY TAXES ALONE.
But homes all over the region only fetch about 2500 or 3k or so per month, just for rent.
So how would the homeowners even move or rent their home out if they had to rent it for such a high price just to pay taxes and maintain it?
It’s no bueno...Not going to happen.
Uh huh...And if there is a rent demand, it’s because most younger working Americans can not afford a home anymore because in many venues, they’ve been priced out for simple 3 bedroom track home. Most can’t even afford to rent a home so they rent civilian barracks or apartments.
Something is going to give.
I feel really sorry for young people these days. This is no way to start a career, a life, a family, etc.
IMHO, what is going to happen is the advent of the self-driving car.
I lived in the SF Bay area for almost all of my working life. Housing close to jobs is always crazy expensive and further out housing is affordable but miserable due to commuting. Car pooling sucks like a Hoover because you always have to get to work early and leave late. No personal time left at all.
But, if I have a car where I can sleep on the way to work and nap on the way home, a 3 hour trip each way doesn't sound so bad. And when I get to work, I tell the car to go earn some money as an Uber. If I have an emergency I call it on my phone and it is right there in a few minutes.
No it isn't ideal, but suddenly I can live where house prices are reasonable and still have some time with the family. And I can sleep through traffic. This makes life in the far-out areas bearable.
“This is no way to start a career, a life, a family, etc. “
No disrespect meant, but folks in California sure seem to have a small view of how life is.
Millions of us, and our children are doing just fine, with careers, homes of our own, and no commute times. Just not in California!
Might I suggest getting out of that liberal, high taxed, hellhole, and seeing a more “normal” side of life in this great country?
You’re right that many young people can’t afford homes of their own, but I don’t know how many even want them; many don’t want children (just pets), and even more know nothing about how to fix or maintain a home. Something is about to give; these young people are going to find themselves minorities in a very non-American country.
“I feel really sorry for young people these days. This is no way to start a career, a life, a family, etc.”
The media has successfully convinced many (at least those who vote Democrat) that they need none of those things - and pining for the past is bad...
Wow. From one of those links:
”For us, about twenty percent of the buyers are coming from China,” DeLeon said. Only about half of those Chinese buyers are choosing to live in the homes they’ve purchased. “They’re just happy to have parked their money in a relative safe haven that’s a good investment, and they’re not worried about losing $10,000 a month in rent,” DeLeon said.(Bay Area) realtor Ken DeLeon says many of the buyers are coming from overseas, and realtors are even printing brochures in Mandarin to lure more Chinese buyers.
I bet a lot of these rentals are being shared by multiple parties. co-workers - relatives - friends etc. Doing the same thing mexicans do. We’ll be third world one way or another
There are a lot of things driving it. #1 is the glut in development from 2009 to 2011 when funding dried up. Also driving it is a move away from home ownership. You have people stretching from post-college to married couples to 50+ who have opted to live in rentals vs owning. It’s a result of preference for mobility to necessity to seniors who do not want the burden of mowing the lawn and fixing things. Plus, older rentals are closing necessitating new building.
The only major risk now is a major economic collapse or regional overbuilding in certain cities that will even out rents.
I call apartments, civilian barracks. That’s all they are. I’d rather live in a motor-home than civilian barracks. I lived like that in the military...I have no desire to live like that again.
I call apartments, civilian barracks. That’s all they are. I’d rather live in a motor-home than civilian barracks. I lived like that in the military...I have no desire to live like that again.
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