Month: August 2018

Starter-Home Affordability Hits a Decade Low

(Bloomberg)—Here’s why the U.S. housing market is cooling: Prices are just too high.

Starter homes are now more costly to purchase than at any time since 2008, when the last boom came to a crashing halt. In the second quarter, first-time buyers needed almost 23 percent of their income to afford a typical entry-level home, up from 21 percent a year earlier, according to an analysis by the National Association of Realtors.

The property market, after years of price gains that outpaced income growth, is showing signs of slowing as sales decline. The affordability crunch is especially severe at the low end of the market and in hot areas where supplies are tightest and values have risen most. A jump in mortgage rates this year only made it worse.

“When prices go up at the entry level, that’s where the affordability issue is most acute,” Charles Dougherty, a Wells Fargo & Co. economist, said in a phone interview. “People are hesitant to stretch the amount they’re willing to pay.”

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Three Ways to Invest in Single-Family Rentals Without Cutting Corners

If you are a landlord or aspired investor, you know the market is strong. According to U.S. Census data, the rental market has increased by 37 percent since 2006 and continues to grow. Renting is steadily outpacing ownership; more than 30 percent of Americans rent and the market shows no signs of slowing down as millennials become the highest drivers of demand for single-family rental homes (SFRs).

With increasing demand, investors have also given the SFR market more attention. Competition is intense, especially as Wall Street’s presence becomes more pronounced. The independent investor must create efficiencies and drive steady earnings to keep an edge. With a focus on strategy, diligence and standardization, local independent investors can compete. Here are three tips on how.

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Lenders Continue to Fight for Market Share with Multifamily Deals

Multifamily investors are still able to get low interest rates on permanent loans as different lender groups continue to compete for market share.

“The competition between the agencies and life companies is creating bidding wars on the debt side, with increased interest-only and decreased spreads a requisite to win deals,” says Brandon Harrington, managing director with JLL Capital Markets.

Benchmark interest rates like the yield on 10-year Treasury bonds have risen nearly half-a-percentage-point since last year. But the interest rates on permanent loans for multifamily assets have remained relatively stable. To make more loans, lenders are cutting the extra amount that they add to interest rates—the “spread” between their cost of capital and the interest rates they charge borrowers.

“The debt market for multifamily remains very liquid,” says Mitchell W. Kiffe, co-head of national production for the debt & structured finance group at CBRE Capital Markets. “All of the capital sources remain active and are seeking multifamily borrowers.”

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What Retail Apocalypse? Ask Some Department Stores, But Not All

(Bloomberg)—Adapt or die isn’t just a tenet of evolution: It’s also the reality faced by the U.S. department-store industry. And some are doing it far better than their rivals.

Although the chains are often lumped together with other mall mainstays when lamenting the “retail apocalypse,’’ this past week’s earnings reports underscore just how different department stores’ strategies are amid a wider brick-and-mortar slowdown.

Nordstrom Inc., for instance, posted same-store sales that were almost four times higher than expected after drawing in buyers for both its full-priced and discounted merchandise, powered by a massive anniversary sale. At the other end of the spectrum, CEO-less J.C. Penney Co. saw its stock plunge to historic lows as it put more items on clearance to get rid of excess inventory. And for Macy’s Inc., which beat virtually every estimate set by the market but still disappointed investors, it seems the jury’s still out.

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Foreclosure Starts Increase in 44 Percent of U.S. Markets in July 2018

IRVINE, Calif. – Aug. 21, 2018 — ATTOM Data Solutions, curator of the nation’s premier property database, today released its July 2018 U.S. Foreclosure Market Report, which shows that foreclosure starts increased from a year ago in 96 of the 219 metropolitan statistical areas (44 percent) analyzed in the report.

A total of 30,187 U.S. properties started the foreclosure process for the first time in July, up 1 percent from the previous month and up less than 1 percent from a year ago — the first year-over-year increase in foreclosure starts nationwide following 36 consecutive months of year-over-year decreases.

Twenty-one states posted a year-over-year increase in foreclosure starts in July, including Florida (up 35 percent); California (up 3 percent); Texas (up 7 percent); Illinois (up 7 percent); and Ohio (up 2 percent).

Metro areas posting year-over-year increases in foreclosure starts in July included Los Angeles, California (up 20 percent); Houston, Texas (up 76 percent); Philadelphia, Pennsylvania (up 10 percent); Miami, Florida (up 29 percent); and San Francisco, California (up 10 percent).

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Rising Interest Rates: The Calm Before the Storm?

In a predominantly steady economy, real estate players have been gearing up for the next phase in the cycle for a while now. Borrowers and lenders alike are watching closely as the Federal Open Market Committee continues to raise short-term interest rates.

The Fed first hiked up rates in March and then again in June—from 1.75 to 2 percent—and according to Marc Suarez, director with Hunt Real Estate Capital, “There has been talk about the Fed raising rates every three months. The Fed has penciled in two more rate hikes this year—we should expect one more for sure in my opinion.” However, despite rising rates, the yield curve has flattened, Suarez noted.

As cap rates start to move higher as well, in strong markets such as Florida “most of the deals we are seeing are debt service coverage ratio-constrained (DSCR) at the values,” Suarez continued, explaining that Hunt Real Estate Capital has had success with early rate locks and by helping borrowers keep track of stabilization of property financials, as DSCR-constrained proceeds are rate-sensitive. Multifamily borrowers are still focused on value-add deals, showing no signs of slowing down, Suarez pointed out.

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Silver Tree Apartments

Harborside Partners has just closed on 98 units in Phoenix, Arizona for $8.1M. Our team now begins the two year, $1.4M renovation process; allowing rents to be increased $300+ per month.

Richard is our resident social media expert. He researches and writes about; the economy, marketing trends and all aspects of real estate investing.

An Insider’s View of the Student Housing Business

Campus Advantage is one of the most active players in the student housing market. Over the last decade, the company has acquired more than $1.5 billion in student housing assets through its partnerships and invested about $525 million in equity through several joint ventures. In addition, Campus Advantage manages more than 60 communities across the country.

The firm’s Michael Orsak, senior vice president of investments, and Josh Greenleaf, vice president of investments, revealed the major trends and challenges in the business. The two also explained what attracts today’s residents and what makes them stay.

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Five Sub-Markets with the Most New Apartment Units

Here are the top five submarkets that saw the opening of the most new apartment units over the year that ended in the second quarter of 2018.

New apartment construction on a national basis may be slowing down a bit compared to the past few years, but it by no means has come to a halt. Here are the top five submarkets that saw the opening of the most new apartment units over the year that ended in the second quarter of 2018.

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Clear Skies for Multifamily Investors—For Now

As we enter the second half of 2018, unemployment is down to a 50-year low, and the economy is projected to be cruising at just under 3 percent by year-end, a milestone many thought impossible.

In response to strengthening fundamentals, interest rates ticked up another 25 basis points in June, marking the second time this year that the Fed has raised its fed fund rate. There will likely be two more rate hikes this year, and at least two anticipated in 2019.

While these increases are starting to cause upward pressure on cap rates, apartment values have held relatively steady since tighter occupancy levels are simultaneously causing upward pressure on rental rates. The average effective rent in LA County for the second quarter of 2018 is $1,789, according to Costar, a 4 percent year-over-year increase. The average occupancy rate is 96 percent for the quarter, up from 94.5 percent the year prior. So for opportunistic buyers out there, we don’t expect to see any significant drops in values just yet.

A caveat to such a robust economy at this stage in the game is that any future rate hikes run the risk of an inverse Treasury yield curve. This is when long term debt becomes cheaper than short-term debt, an indication often considered a harbinger of storm clouds on the horizon. The last time this happened was in 2007.

Despite this administration’s “America First” policy, what happens abroad matters in today’s global economy. European banks have amassed a considerable amount of toxic debt, and the rise of populist movements there are causing instability in Eurozone capital markets. Furthermore, a trade war with Europe, China and elsewhere could exacerbate inflation and isolate the U.S., as other world powers may see this as an opportunity to form new strategic alliances.

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