MyNewPlace Blog

The good news is that the bad news kind of helps out the apartment industry. Basically the news is good for some people and bad for others, but to the people it's bad for, it is not news at all. And then, there is the bad news.

Census Bureau Reports Shift from Owning to Renting

Multi Housing News reports that The National Low Income Housing Council (NLIHC) recently released date from its 2008 American Community Survey, (conducted using data from 2006-2008) which showed that renters are paying an increasing percentage of their incomes towards rent. Not surprisingly the hardest hit group was families earning less than $20,000 per year as average national rents grew from $763 to $824. Additionally, the percentage of apartments under $500 fell .6 percent and, at the other end of the spectrum, apartments over $1500 a month rose 1.2 percent.

The report also indicates a fundamental shift from owning to renting since 2006, which has resulted in an increased average household size of renter-occupied units. This is a trend that we have also seen continue to the present, as search data has shown an increased demand for 3 bedroom apartments since the start of the recession at the end of 2007.

NLIHC President Sheila Crowley concisely summarized the findings, saying “More families are renting, rents are going up and the lowest income households are struggling to pay for the most basic necessities." She also emphasizes the discrepancy between the realities of the housing world and the ‘ownership first' policy that Congress has pursued lo these many years.

MPF Research Conducts 3rd Quarter Survey

Greg Willet's Market Dynamics page was updated this week with data from MPF latest survey of the apartment industry. According to his analysis, vacancy rates are decelerating, even showing improvement on a quarterly basis, though he interprets this to reflect the discounts and deals that apartment owners are offering to boost occupancy rates; that national average is 92.2 percent after projections from the 3rd quarter numbers.

Geographically, occupancy rates varied expectedly, with bottom performing cities such as Phoenix, Las Vegas and Atlanta pulling down the national average. More recently, the Houston and Dallas markets are now showing occupancy softness, brought on by unemployment numbers and supply surpluses.

With rents and occupancy down, revenues are down about 7 percent across the nation and are not expected to recover until late next year.

Recession Affects Housing Trends Across U.S.

A recent article in the Wall Street Journal, which was highlighted in this week's NAA Industry Insider, writes how urban population growth has accelerated since the economy went into recession. Experts relate the migration to urban centers to the lack of a viable economy in suburbs and exurbs; housing is too expensive and jobs are scarce. [Wall Street Journal]

It appears that since 2008, cities are now growing faster than the areas surrounding them; in 2005, the largest ten U.S. Cities population increased about .5 percent each year, while the suburbs population growth was nearly double at around 1 percent. In 2008, those cities populations grew at 1 percent a year, passing the suburban growth rate of .9 percent. [Population Reference Blog]

So, how is this affecting the apartment rental market? Apartment owners should be seeing an increase in vacancies in properties located 20-30 miles outside of urban centers and renters may start seeing better deals, especially when the effect of the shadow market is considered.

Are any apartment owners who have properties in both geographical category seeing similar trends in terms of demand?

For the renters out there, does it make more sense economically to move into the center part of the city? Does it conflict with your desired lifestyle?

Could such a trend reversal be the result of people moving because they need to, or is because they want to?

*UPDATE- House Passes HR 2454 219-212, will now head to Senate*

Today the House will vote on HR 2454, (at press time, House Minority Leader John Boehner was filibustering the House by reading selections from a 300 page amendment, you can watch live here) the American Energy and Security Act; this bill has many implications and has been supported by liberals as a necessary measure and derided as “Cap and Tax" by conservatives and. It is the centerpiece of the Democratic environmental policy and its effects, (if passed, which looks likely) are predicted to be quite far reaching.

The goal of this omnibus energy bill is to move the entire country to more sustainable, more environmentally friendly methods of producing and consuming energy. The official statement from the Chairman of the Committee on Energy and Commerce and main co-sponsor Representative Henry Waxman (D-CA) emphasized the benefits of HR 2454, stating, “the legislation will create millions of new clean energy jobs, save consumers hundreds of billions of dollars in energy costs, promote America's energy independence and security, and cut global warming pollution."

The main provisions are include requiring utilities to generate an increasing percentage of their power from renewable sources, establishing a cap and trade system for greenhouse gas emissions for businesses, establishing a Carbon Storage Research Corporation, revamping current power grid and transmission guidelines to update infrastructure and finally–and this part majorly affects the apartment industry–establishing new energy conservation standards for buildings.

It is indeed interesting to note that a majority of funds are allocated for “Consumer Protection," which means that consumers will be provided with federal money to defray any spike in energy costs that the bill causes.

According to the analysis from the NMHC, the building code mandates that the Secretary of Energy establish a National Energy Efficiency Building Code that is 30 percent more efficient that the 2004 version of AHSRAE Standard 90.1, and by 2014 the national code is required to be 50 percent stricter than current standards (this would apply only to buildings built after the pending legislation becomes law).

The NMHC has been alerting legislators to the fact that some regions of the country, these new codes would be impossible to meet, therefore, a strict federal one size fits all policy is not a good solution. Locations with extreme temperature changes such as apartments in Minneapolis, would have a much more difficult time meeting standards than would apartments in Los Angeles.

REITs

CNN Money's online edition clues investors in on the disproportionately high dividend yields offered by REITs. While the average stock dividend from the S&P was about 2.6 percent, the average REIT dividend averaged 7 percent. [CNN Money]

HUD

HUD announced today that they would be releasing $58 million for housing counseling; the funds will be made available to “HUD-approved counseling agencies and State Housing Finance Agencies that offer a variety of services including how to purchase or rent a home, how to avoid foreclosure, how to improve credit scores, and how to qualify for a reverse mortgage." HUD will distribute 400 grants for this purpose (which averages out to $145,000 per grant) based on applications that are due by July 17th. [HUD]

This money is part of HUD's stimulus cash. Last week we explained how of the $ 4 billion HUD was granted, $3 billion was deployed by preexisting formula, leaving $1 billion available for competitive grant processes.

HUD is subdividing this money into 4 categories: energy efficiency (receiving by far the lion's share with $600 million) financing stalled projects, public housing transformation, and housing for the elderly and persons with disabilities. It is unclear from which category the above mentioned housing counseling will be taken.

HUD is certainly pushing energy efficiency for PHAs across the country, putting two thirds of its competitive money toward that cause. Applications are due in 5 days! [HUD]

Couple Scams HUD, Goes Directly to Jail (does not collect $200)

A couple in New Haven, Connecticut were arrested for devising a plan to scam that city's public housing agencies out of money that should have gone to needy families. While working for public housing agencies, the perpetrators were able to send HUD's checks to the account of a nonexistent landlord. The couple extracted close to $400,000 from this account over the past 6 years. The couple was fined for the amount they embezzled as well as sentenced to time in prison (one year for the wife, 46 months for the husband).[Hartford Courant]

Former Homeowners Seek Section 8 Apartments

The Nampa housing authority has seen a major increase in applicants for public housing vouchers from former homeowners. The recent influx of applications by 2 parent families with no renting history seems to indicate that the people are losing their jobs, not able to make their mortgage payments and are foreclosed upon and then eligible for federal public housing assistance.[Idaho Press]

The Vagaries of the Houston Rental Market

Houston apartments are now 11 percent cheaper than they were one year ago, according to Houston-based Apartment Data Services, which reports that an oversupply of newer buildings has depressed the average metropolitan average rent. Renters are finding the best deals, including the waiving the security deposits and three months free rent at newly opened apartments in Montrose, the inner loop and Galleria areas.

Western Houston, by contrast, has sustained demand because of job growth in the energy sector as well as newly available single family homes for rent in highly-rated school districts. [KHOU 11 News]

From this month's issue of units magazine's Political Insider section, we learn that President Obama's economic stimulus act includes significant provisions that will benefit the apartment industry.

NAA/NMHC Secure LIHTC Grant Provisions

The NAA/NMHC successfully secured two Low Income Housing Tax Credit (LIHTC) provisions, the first of which allocates $2 billion for direct equity grants to states that will help states complete stalled low income housing projects.

Secondly, states will be allowed to exchange 40 percent of 2009 and unused 2008 LIHTC allocations for cash grants from the Treasury Department at 85 cents on the dollar.

NMHC Ranks Top 50 Apartment Owners and Managers

On April 2nd, The NMHC released its annual rank of top apartment owners and managers, which bore witness to some notable changes due chiefly to nationwide economic troubles.

In a release from last Thursday, NMHC President Doug Bibby expressed cautious optimism, citing the changing lifestyles and demographic trends as well as the fact that there were fewer changes in the rankings than were expected.

The only major trend in this year's rankings was the decrease in the amount of REITs on the list, which dropped from a high of 14 in 2005 to 11 this year; Mark Obrinsky, NHMC head economist explained the trend explaining that the credit crunch has forced REITs to sell properties in order to pay down debts.

Last week, we discussed the U.S. Conference of Mayor's annual report, which painted a grim picture of how the nation's largest metro areas will fare in 2009. The report emphasizes the toll that the recession will take on citizens in large metropolitan areas and highlights the urban centers which will bear the brunt of the economic slowdown.

We concluded that the release of this report was timed to coincide with the developing economic stimulus plan, which is scheduled to be heard on the House floor tomorrow. The proposed legislation is basically a supplemental appropriations bill, which puts portions the $875 billion in federal funding up for grabs at the discretion of designated subcommittees.

The report therefore makes a case for why a large portion of this spending should be directed to metro areas (local city governments).

Some key findings from that report included:

• Unemployment rates had increased from last year in 359 of 363 metropolitan areas; only 5 metros will post employment gains this year.
• Unemployment rates in 2009 are expected to rise above 10 percent in 70 metros.

It is important here to reiterate that the 363 metropolitan areas are home to 86 percent of U.S. employment and 90 percent of wage income; this fact alone, supports the U.S. Conference of Mayor's argument for an infusion of federal programs and funding into metropolitan areas where growth has been stunted by the contraction of available credit.

Below is a chart which features the ten cities that are projected to have the highest drops in unemployed persons in 2009. 4 out of the 10 are expected to have over 8 percent unemployment by the end of the year.

This week and next, we'll be comparing these unemployment figures with Marcus and Millichap's 2009 outlook for the apartment rental market. Unemployment figures are indeed an important factor in overall market performance, but it is important to look at each city individually in order to ascertain how vacancy rates and rents will increase or decrease.

For the apartment management professionals out there, let us know the trends in your market or feel free to request information from us to help you make better decisions for marketing your apartment rentals.

Reis, Inc, a trusted provider of commercial and residential real estate analysis, last week reported that rents had declined for the first time in over 5 years. In the last quarter of 2008, asking rents fell .1 percent to $1,052 and effective rents fell .4 percent to $996.

Renters across the nation have been unwilling to move into more expensive apartments with so much trepidation surrounding the future of the economy. Escalating unemployment rates and payroll declines have also contributed to the reduced apartment rents.

According to the U.S. Bureau of Labor Statistics' Employment Situation Summary for December, the number of unemployed persons increased by 632,000 to 11.1 million, which pushed the unemployment rate up to 7.2 percent. The number of unemployed increased by 3.6 million from a year ago, when the recession began. The largest decreases in employment came from the construction and manufacturing sectors, which had losses of 2.97 percent and 2.29 percent, respectively.

Below is a chart from the above-linked study comparing employment figures from Q3 and Q4. The Only increases were in Education and Health Services and of course, Government.

Vacancy rates also rose to 6.6 percent from 5.7 percent a year ago. Victor Calanog, Director of research at Reis said, “The quantity of rental apartments might not be suffering as much, but the price paid by households to occupy those rental units is buckling under the strain, with landlords lowering asking rents and raising the amount of concessions they are willing to provide."

With rents falling and vacancy rates rising, landlords and apartment management companies need to do the most effective job they can at reaching potential renters. This means getting the most for your advertising dollars and being able to effectively track lead data. For more information on how we can help you optimize your lead conversion visit http://www.mynewplace.com/managers.

For the apartment managers out there, have you begun to “sweeten the pot" to convert leads by offering special deals?

For renters, have you begun to see better deals in the neighborhoods that you always wanted to live in? Looks like now is a good time to start your apartment search.

With all the news about the $700 Billion dollar federal bailout of the mortgage industry, and the stock market's reaction to the initial failure of its passage in the House of Representatives, many have forgotten all about how difficult it was for Congress to agree upon HR 3221, the Housing and Recovery Act of 2008 this past summer. We covered the bill's development into law this summer in our political corner.

One of the more contentious provisions, one that the White House had originally planned to veto, was the $4 billion dollar Community Development Block (CDB) grant. Since the bill was passed into law on July 30 HUD has had 60 days to come up with a plan on how to distribute the funds to state and local governments.

HUD Secretary Steve Preston announced the allocation plan on September 26, under the new Neighborhood Stabilization Program; we are sure that officials and technocrats at HUD were logging long hours and are glad they made the Congressional deadline with 4 days to spare. Let's see how they came up with the numbers in the above chart. Read the rest of this entry »

Well, this is our first time hosting the Carnival of Real Estate and we are very happy to be participating. Be sure to submit to the CORE next week, which will be hosted at VARbuzz.

Reading through all the posts this week was especially informative for us, since MyNewPlace focuses on homes and apartments for rent and the bulk of submissions invariably discuss the for-sale market.

Since the current credit crisis will now be addressed by Congress, (the House just defeated the bill while I was writing this post) we wanted to focus on posts that deal with the massive government intervention spearheaded by U.S. Treasury Secretary Hank Paulson. Now, onto the posts. Read the rest of this entry »