WSJ - rents increase, vacancies dry up
Despite the sluggish economy, average rents increased in all 82
markets tracked byReis Inc., a real estate data firm. Average
rents are now at record levels in 74 of those markets and now top
$1,000 a month on average in 27 of them, including Miami,
Seattle, San Diego, Chicago and Baltimore. The biggest rent
boost of the second quarter was in New York City, where the
average rose to $2,935 per month, up 1.7% from the first quarter.
Apartment rents also increased in markets that have been hard hit
by the economic downturn such as Las Vegas and Phoenix, where
they rose 0.9% and 1% respectively in the second quarter. The
lowest average rent among the markets surveyed was Wichita, Kan.,
where the average was $510 a month. "The market is in a very
tight position," Reis said in a research report. "There is a
paucity of available units."
The nation's vacancy rate fell during the quarter to 4.7%, its
lowest level since the end of 2001, Reis said. That's down from
4.9% in the first quarter of this year and from 8% in 2009, when
millions of would-be renters were doubling up or living with
family. With the economy slowly recovering, more people are
looking for their own places. But many are opting to rent rather
than buy due to tighter lending standards—including higher down
payments—and because of concerns about job security. Market
psychology also has shifted greatly from the boom years, when
buyers were concerned that prices would rise if they didn't move
fast. Today prices are stagnating—or even falling in some
markets—so buyers are asking: what's the hurry?
Reis said that this is only the third quarter in over three
decades that the vacancy rate has been below 5%. When vacancies
fall to this level, landlords typically accelerate rent increases
"and that is exactly what is transpiring," the Reis report
states. And it's not likely to stop soon. Rents could "spike as
landlords perceive that tight market conditions afford them
greater pricing power over tenants," Reis said. Values of
apartment buildings are soaring, contrasting sharply with the
single-family housing market. In some cities, investors are now
surpassing peak prices for rental property buildings. "We
continue to be optimistic in both the near and long term for
apartments," said Scott Anderson, senior director of global
real-estate asset management with TIAA-CREF, which spent $800
million on apartments last year and could spend more this year.
"All of the underlying demand drivers are positive. The supply
and demand equilibrium is in a good place. Rents are moving in
the right direction."
Analysts point out that the apartment sector may lose steam if
the economy weakens further and tenants begin doubling up again
or put up more resistance to rent hikes. Demand for rental
apartments also may fall if some builders succeed with appeals to
move renters into the market for single family homes. Home
builders have begun marketing to renters: PulteGroup Inc., one of
the nation's largest publicly held builders, recently introduced
a line of homes marketed as being more affordable than some
monthly rents. Another risk: construction. Developers are racing
to deliver new apartment supply, particularly in hot markets
including Washington, D.C, and Seattle. Zelman & Associates
expects 235,000 units to be started this year, followed by
285,000 in 2013and 320,000 in 2014. Should too many units flood
the market, landlords could be forced to offer concessions to
fill units, such as free rent or flat-screen televisions.
Construction is "a wild card, definitely," says Luis Mejia, the
CoStar Group's director of multifamily research.
Retail down
Retailers reported largely disappointing sales in June, as
consumers pulled back on spending amid concerns about jobs and
the economy. Thomson Reuters was expecting its same-store sales
index to inch up 0.5% in June, far weaker than a year-ago when
the index rose 6.7% in June. June tends to be a weaker month on
the retail calendar with fewer reasons to drive shoppers to the
store. Among the worst results were teen apparel retailers Wet
Seal and The Buckle. Sales declined 9% at West Seal, far deeper
than the projected 7.7% decline that was expected. At the
Buckle, sales fell 2.5%, compared with estimates that called for
flat sales.
Mortgage applications fall
A sharp drop in demand for government loans caused mortgage
applications to fall 6.7% this past week. The Mortgage Bankers
Association said the refinance index fell 8% over the previous
week as fewer borrowers obtained government loans. Still, the
HARP 2.0 share of refinance applications is up to 24%, compared
to 20% three weeks ago. In addition, the seasonally adjusted
purchase index grew by less than 1%, suggesting unchanged demand
in new home loan applications. Overall, the refinance share of
mortgage activity declined to 78% of total applications, compared
to 79% the previous week. The average contract, interest rate
for a 30-year fixed-rate mortgage with a conforming loan balance
declined to 3.86% from 3.88%, the lowest rate since the MBA began
tracking rates. The average, 30-year FRM with a jumbo loan
balance declined from 4.12% to 4.08%. The average interest rate
for a 30-year FRM backed by the FHA declined from 3.71% to 3.69%.
Meanwhile, the average rate for a 15-year FRM declined from
3.24% to 3.2%, the lowest in survey history. The average
contract interest rate for 5/1 ARMs declined from 2.81% to
2.76%.
Jobs up, unemployment down - ever so slightly
The U.S. private sector added 176,000 jobs from May to June while
filings for unemployment insurance declined, according to data
released today. The jobs gain from April to May was revised
upward from the initial estimate of 133,000 jobs to 136,000
positions, according to the latest ADP National Employment
Report. The report, which was created by HR solutions firm
Automatic Data Processing, is better than expected, with analysts
previously forecasting lower gains of roughly 100,000 jobs. With
the market anticipating a weak ADP report, many were expecting a
bloodbath on Wall Street after the July Fourth holiday. Instead,
the jobs reports were more optimistic than expected. Most of the
gains were in the small business sector, with companies adding
93,000 positions. Meanwhile, medium-sized and large business
reported gains of 72,000 and 11,000 jobs, respectively. The
goods-producing sector added 16,000 positions while the
service-producing sector ranked second in terms of growth, with
160,000 new jobs created. During the same week, jobless claims
from unemployed Americans fell to 374,000 filings, compared to a
revised figure of 388,000 a week earlier.
The total number of people claiming benefits in all of the
programs for the week ending June 16 was 5.8 million, down 20,439
from the previous week. Employment research firm Challenger,
Gray & Christmas also said the number of planned layoffs for June
hit 37,511, down significantly from 61,887 in May and 41,432 a
year earlier. Analysts with Econoday reviewed the report,
saying, "Despite indications of slowing business activity, the
report says employers are reluctant to cut their staffs in what
is a good indication for both weekly jobless claims ... and for
Friday's monthly employment report." The layoffs that did occur
in June occurred mostly in the areas of education and
telecommunications.
Recovery coming?
The quarterly VeroFORECAST, by Veros Real Estate Solutions,
report projects that in the 12-month period ending June 1, 2013,
prices should improve from last quarter’s 0.86% forecast
depreciation to this period’s 0.26% forecast depreciation.
“We are definitely seeing a flattening for the first time in
years at a national level instead of overall depreciation, which
is a positive sign that the anticipated recovery is upon us,”
said Eric Fox, VP of statistical modeling, analysis and research.
Phoenix is expected to appreciate the most at 6.4%. Veros stated
the continued growth is based on its reduced housing supply,
which is down by more than 70% from its peak, along with
affordability and low interest rates. Also, the lower
unemployment rate of 7.4% compared to the national rate of 8.1%
was also named as a factor helping the region. The Reno-Sparks
region in Nevada is expected move in the opposite direction and
depreciated by five%, down further from the 4.7% depreciation
forecast in the prior quarter. The unemployment rate in the
region is 11.5%, and housing inventory is high along with the
mortgage delinquency rates.
Veros reported that Texas, Colorado, North Dakota, South Dakota,
Nebraska, and Oklahoma are strengthening the most, and markets
showing stability include Texas cities such as Houston, Austin,
and Dallas and Denver and Boulder in Colorado. On the other
hand, inland California and Nevada have eight of the 10 bottom
markets in the forecast. Veros reported that the struggling
regions within the state face extremely high unemployment,
foreclosure and mortgage delinquency rates. Metro areas expected
to disappoint in the coming year are Atlanta, Chicago, and
Philadelphia. Veros is a provider of enterprise risk management
and collateral valuation services and combines the power of
predictive technology, data analytics, and industry expertise to
deliver advanced automated decisioning solutions.
Forecast for the Five Strongest Markets
Phoenix-Mesa-Scottsdale, Arizona 6.4%
Boise City-Nampa, Idaho 3.8%
Boulder, Colorado 3.6%
Bismark, North Dakota 3.5%
Denver-Aurora, Colorado 3.3%
Forecast for the Five Weakest Markets
Reno-Sparks, Nevada -5%
Fresno, California -4.9%
Bakersfield, California -4.7%
Modesto, California -4.6%
Stockton, California -4.3%
Despite the sluggish economy, average rents increased in all 82
markets tracked byReis Inc., a real estate data firm. Average
rents are now at record levels in 74 of those markets and now top
$1,000 a month on average in 27 of them, including Miami,
Seattle, San Diego, Chicago and Baltimore. The biggest rent
boost of the second quarter was in New York City, where the
average rose to $2,935 per month, up 1.7% from the first quarter.
Apartment rents also increased in markets that have been hard hit
by the economic downturn such as Las Vegas and Phoenix, where
they rose 0.9% and 1% respectively in the second quarter. The
lowest average rent among the markets surveyed was Wichita, Kan.,
where the average was $510 a month. "The market is in a very
tight position," Reis said in a research report. "There is a
paucity of available units."
The nation's vacancy rate fell during the quarter to 4.7%, its
lowest level since the end of 2001, Reis said. That's down from
4.9% in the first quarter of this year and from 8% in 2009, when
millions of would-be renters were doubling up or living with
family. With the economy slowly recovering, more people are
looking for their own places. But many are opting to rent rather
than buy due to tighter lending standards—including higher down
payments—and because of concerns about job security. Market
psychology also has shifted greatly from the boom years, when
buyers were concerned that prices would rise if they didn't move
fast. Today prices are stagnating—or even falling in some
markets—so buyers are asking: what's the hurry?
Reis said that this is only the third quarter in over three
decades that the vacancy rate has been below 5%. When vacancies
fall to this level, landlords typically accelerate rent increases
"and that is exactly what is transpiring," the Reis report
states. And it's not likely to stop soon. Rents could "spike as
landlords perceive that tight market conditions afford them
greater pricing power over tenants," Reis said. Values of
apartment buildings are soaring, contrasting sharply with the
single-family housing market. In some cities, investors are now
surpassing peak prices for rental property buildings. "We
continue to be optimistic in both the near and long term for
apartments," said Scott Anderson, senior director of global
real-estate asset management with TIAA-CREF, which spent $800
million on apartments last year and could spend more this year.
"All of the underlying demand drivers are positive. The supply
and demand equilibrium is in a good place. Rents are moving in
the right direction."
Analysts point out that the apartment sector may lose steam if
the economy weakens further and tenants begin doubling up again
or put up more resistance to rent hikes. Demand for rental
apartments also may fall if some builders succeed with appeals to
move renters into the market for single family homes. Home
builders have begun marketing to renters: PulteGroup Inc., one of
the nation's largest publicly held builders, recently introduced
a line of homes marketed as being more affordable than some
monthly rents. Another risk: construction. Developers are racing
to deliver new apartment supply, particularly in hot markets
including Washington, D.C, and Seattle. Zelman & Associates
expects 235,000 units to be started this year, followed by
285,000 in 2013and 320,000 in 2014. Should too many units flood
the market, landlords could be forced to offer concessions to
fill units, such as free rent or flat-screen televisions.
Construction is "a wild card, definitely," says Luis Mejia, the
CoStar Group's director of multifamily research.
Retail down
Retailers reported largely disappointing sales in June, as
consumers pulled back on spending amid concerns about jobs and
the economy. Thomson Reuters was expecting its same-store sales
index to inch up 0.5% in June, far weaker than a year-ago when
the index rose 6.7% in June. June tends to be a weaker month on
the retail calendar with fewer reasons to drive shoppers to the
store. Among the worst results were teen apparel retailers Wet
Seal and The Buckle. Sales declined 9% at West Seal, far deeper
than the projected 7.7% decline that was expected. At the
Buckle, sales fell 2.5%, compared with estimates that called for
flat sales.
Mortgage applications fall
A sharp drop in demand for government loans caused mortgage
applications to fall 6.7% this past week. The Mortgage Bankers
Association said the refinance index fell 8% over the previous
week as fewer borrowers obtained government loans. Still, the
HARP 2.0 share of refinance applications is up to 24%, compared
to 20% three weeks ago. In addition, the seasonally adjusted
purchase index grew by less than 1%, suggesting unchanged demand
in new home loan applications. Overall, the refinance share of
mortgage activity declined to 78% of total applications, compared
to 79% the previous week. The average contract, interest rate
for a 30-year fixed-rate mortgage with a conforming loan balance
declined to 3.86% from 3.88%, the lowest rate since the MBA began
tracking rates. The average, 30-year FRM with a jumbo loan
balance declined from 4.12% to 4.08%. The average interest rate
for a 30-year FRM backed by the FHA declined from 3.71% to 3.69%.
Meanwhile, the average rate for a 15-year FRM declined from
3.24% to 3.2%, the lowest in survey history. The average
contract interest rate for 5/1 ARMs declined from 2.81% to
2.76%.
Jobs up, unemployment down - ever so slightly
The U.S. private sector added 176,000 jobs from May to June while
filings for unemployment insurance declined, according to data
released today. The jobs gain from April to May was revised
upward from the initial estimate of 133,000 jobs to 136,000
positions, according to the latest ADP National Employment
Report. The report, which was created by HR solutions firm
Automatic Data Processing, is better than expected, with analysts
previously forecasting lower gains of roughly 100,000 jobs. With
the market anticipating a weak ADP report, many were expecting a
bloodbath on Wall Street after the July Fourth holiday. Instead,
the jobs reports were more optimistic than expected. Most of the
gains were in the small business sector, with companies adding
93,000 positions. Meanwhile, medium-sized and large business
reported gains of 72,000 and 11,000 jobs, respectively. The
goods-producing sector added 16,000 positions while the
service-producing sector ranked second in terms of growth, with
160,000 new jobs created. During the same week, jobless claims
from unemployed Americans fell to 374,000 filings, compared to a
revised figure of 388,000 a week earlier.
The total number of people claiming benefits in all of the
programs for the week ending June 16 was 5.8 million, down 20,439
from the previous week. Employment research firm Challenger,
Gray & Christmas also said the number of planned layoffs for June
hit 37,511, down significantly from 61,887 in May and 41,432 a
year earlier. Analysts with Econoday reviewed the report,
saying, "Despite indications of slowing business activity, the
report says employers are reluctant to cut their staffs in what
is a good indication for both weekly jobless claims ... and for
Friday's monthly employment report." The layoffs that did occur
in June occurred mostly in the areas of education and
telecommunications.
Recovery coming?
The quarterly VeroFORECAST, by Veros Real Estate Solutions,
report projects that in the 12-month period ending June 1, 2013,
prices should improve from last quarter’s 0.86% forecast
depreciation to this period’s 0.26% forecast depreciation.
“We are definitely seeing a flattening for the first time in
years at a national level instead of overall depreciation, which
is a positive sign that the anticipated recovery is upon us,”
said Eric Fox, VP of statistical modeling, analysis and research.
Phoenix is expected to appreciate the most at 6.4%. Veros stated
the continued growth is based on its reduced housing supply,
which is down by more than 70% from its peak, along with
affordability and low interest rates. Also, the lower
unemployment rate of 7.4% compared to the national rate of 8.1%
was also named as a factor helping the region. The Reno-Sparks
region in Nevada is expected move in the opposite direction and
depreciated by five%, down further from the 4.7% depreciation
forecast in the prior quarter. The unemployment rate in the
region is 11.5%, and housing inventory is high along with the
mortgage delinquency rates.
Veros reported that Texas, Colorado, North Dakota, South Dakota,
Nebraska, and Oklahoma are strengthening the most, and markets
showing stability include Texas cities such as Houston, Austin,
and Dallas and Denver and Boulder in Colorado. On the other
hand, inland California and Nevada have eight of the 10 bottom
markets in the forecast. Veros reported that the struggling
regions within the state face extremely high unemployment,
foreclosure and mortgage delinquency rates. Metro areas expected
to disappoint in the coming year are Atlanta, Chicago, and
Philadelphia. Veros is a provider of enterprise risk management
and collateral valuation services and combines the power of
predictive technology, data analytics, and industry expertise to
deliver advanced automated decisioning solutions.
Forecast for the Five Strongest Markets
Phoenix-Mesa-Scottsdale, Arizona 6.4%
Boise City-Nampa, Idaho 3.8%
Boulder, Colorado 3.6%
Bismark, North Dakota 3.5%
Denver-Aurora, Colorado 3.3%
Forecast for the Five Weakest Markets
Reno-Sparks, Nevada -5%
Fresno, California -4.9%
Bakersfield, California -4.7%
Modesto, California -4.6%
Stockton, California -4.3%
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