Monthly Archives: November 2013 - Page 2

DFW Apartment Market Good for Landlords, Investors–For Now

By Dees Stribling, Contributing Editor –

Dallas—Even though the Dallas-Fort Worth area never quite suffered the housing slump that many other U.S. markets did, the area’s relatively robust economy is creating new households that are tightening the apartment market. In fact, according to the recently released 2Q report by investment specialist Marcus & Millichap, employment gains in the Metroplex will be nearly 3 percent in 2012, nearly double the national average, and job seekers will be moving into the area, especially from less-than-robust markets in the Midwest and on the West Coast.

“As a result, leverage in lease negotiations will remain firmly on the side of apartment operators through the end of the year, spurring strong revenue gains,” the report predicts. In short, DFW apartment landlords are going to be in clover for the time being.

By the end of 2012, asking rents will have risen 3.4 percent to an average of $823 per month. Effective rents will rise at a faster clip of 4.2 percent as owners pare concessions, pushing the average to $744 per month by year-end, the report says.

But Marcus & Millichap also notes that there will (eventually) be some headwinds for landlords. Year-over-year, home sales in the market are up 20 percent, an indication that more renters are transitioning into single-family homes. Foreclosure activity is up more than 10 percent in 2Q12 from the second quarter of 2011, mitigating attrition from apartments to the housing market. But as foreclosure activity begins to abate and new construction of multifamily rental properties accelerates next year, apartment operators may have to react quickly with concession offerings to maintain the current tight occupancies.

New apartment construction is predicted to be quite vigorous in the coming quarters. Apartment completions will nearly triple in 2012, as about 8,100 units will come online by the end of the year. “Based on the rapidly expanding development pipeline, another dramatic increase in deliveries appears likely next year,” the report says.

In the meantime, investors are getting into the market while the getting is good. Transaction velocity will continue to escalate this year as out-of-state investors target large, better-quality deals in the Metroplex, the report anticipates. Despite cap rate compression through the past several quarters, local apartment properties continue to spin off stronger returns than similar assets in coastal markets.

For example, Class A cap rates for Metroplex multifamily can start as low as 5.5 percent, which still offers a 50- to 75-basis point premium over East Coast and coastal California metros. While investor demand for top-quality DFW assets remains elevated, prices are hovering near new construction costs, which may hamper the pace of appreciation over the next year. At the same time, though, the Class B sector may record further price growth, as many investors priced out of the Class A market shift their appetites to large Class B+ properties. Within this segment, prices for well-located 1980s assets have pushed above $40,000 per unit, changing hands at cap rates in mid-7 percent range.

Residential Price Increase Still Strong; Homeownership Slightly Up in 3Q

By Dees Stribling, Contributing Editor –

CoreLogic reported on Tuesday that home prices nationwide, including distressed sales, increased 12 percent on a year-over-year basis in September. This change represents the 19th consecutive monthly year-over-year increase in home prices nationally, according to the company. On a monthly basis, including distressed sales, home prices increased by 0.2 percent in September compared to August.

Taking distressed sales out of the equation, notes CoreLogic, and home prices increased year over year by 10.8 percent in September. Month over month, excluding distressed sales, residential prices increased 0.3 percent in September compared to August. The company counts both short sales and REO transactions as distressed sales, which in recent years have progressively become less and less a factor in most markets.

CoreLogic’s House Price Index, for which the year 2000 = 100, has been hovering below 150 since the end of the recession, though lately it’s been higher than 150. The bubble peak for the index was in 2006, when it briefly touched 200.

Homeownership Up Slightly in 3Q

The Census Bureau reported on Tuesday that the U.S. homeownership rate came in at 65.3 percent of households in the third quarter of 2013, its lowest 3Q level since the mid-1990s, up still up from the previous two quarters. During the first two quarters of this year, the rate remained at 65 percent; in the third quarter of 2012, the rate was 65.5 percent of households.

At the height of the housing bubble in 2006, 69.2 percent of all households owned their homes, but that number proved unsustainable in the face of the contraction of the housing market, the subprime meltdown, and the Great Recession. In the post-recession era of tighter lending standards and fewer middle-class jobs, that peak will probably not be reached again soon, if ever.

The demographics of employment is also a factor in holding down the rate of homeownership. Younger workers have suffered more unemployment than their middle-aged counterparts in recent years, and thus have less money to put into home buying and no equity to turn to for a downpayment. According to the Census Bureau, 63 percent of adults 18 to 31 had jobs in 2012. In 2007, before the recession, 70 percent that age group was employed.

Wall Street had a mild mixed day on Tuesday after starting out a lot lower, with the Dow Jones Industrial Average off 20.9 points, or 0.13 percent, and the S&P 500 down 0.28 percent. The Nasdaq managed to eke out a gain of 0.08 percent.

Economy Watch: Banks Loosen Lending Standards on Business Loans

By Dees Stribling, Contributing Editor – 

The Federal Reserve reported on Monday in its October 2013 Senior Loan Officer Opinion Survey on Bank Lending Practices that U.S. banks have eased their lending standards in some cases, while experiencing little change in the demand for some kinds of loans over the past three months. The point of the survey is to examine any changes in the standards and terms on, and the demand for, bank loans to both businesses and households.

The October survey found that banks eased their lending policies for commercial and industrial loans, even though there was little change in demand for such loans over the past three months. But since there are more lenders in the field than there used to be, the domestic banks that eased their commercial and industrial lending policies cited increased competition for such loans as an important reason for doing so.

The survey results also indicated that banks, on the whole, didn’t substantially change standards or terms on lending to households, which are still relatively tight compared to pre-recessionary standards. A few respondents, including a few large banks, reported easing standards on prime residential mortgage loans. The survey is based on the responses from 73 domestic banks and 22 U.S. branches and agencies of foreign banks.

Mortgage delinquencies edge up in September

LPS released its September Mortgage Monitor on Monday, reporting that 6.46 percent of U.S. mortgages were delinquent in September (over 30 days late, but not in foreclosure). The company also reported that 2.63 percent of mortgages were in the foreclosure process during the month, making a total of 9.03 percent in nonperforming mortgages for September.

The delinquency rate was up for the month from 6.2 percent in August, though most of the increase is attributable to seasonal factors. Year-over-year, the number of loans in foreclosure is down from 3.86 percent in September 2012. About 1.33 million loans are currently in the foreclosure process.

According to LPS, the states with the highest rates of non-current loans (delinquent and in foreclosure) in September were Florida, Mississippi, New Jersey, New York and Maine. The states with the lowest rates were Wyoming, Montana, Arkansas and both of the Dakotas.

Wall Street had a mild up day on Monday after wobbling around a lot, with the Dow Jones Industrial Average gaining 23.57 points, or 0.15 percent. The S&P 500 was up 0.36 percent and the Nasdaq advanced 0.37 percent.