Apartments - The Only Housing Sector Not Oversupplied?

As reported by Multi-Housing News - Apartments are the Only Housing Sector That Is Not Oversupplied, Affirms Witten:

Washington, D.C. - The apartment market remains healthy although rental demand is slowing, said Ron Witten, president of Witten Advisors LLC, speaking this week at the National Association of Home Builders' (NAHB) Fall Construction Forecast Conference.

Witten said that apartment occupancy level has decreased by only half a point in the past 12 months, and is now at 95 percent on a national basis. Rent growth continues, but it has declined from 4 to 5 percent at its peak in 2006-07 to 2.3 percent in the second quarter this year.

"Fundamentals are still quite good in the multifamily rental sector," said Witten.

However, he said that rental demand is "definitely" declining. Witten said the "real threat" to apartments comes from the single-family "shadow" rental market. However, he added that in early-2008 there was a significant trailing off in rental singlefamily move-ins due to renters' avoidance of living in remote locations because of high gas prices.

Witten forecasts that job losses will continue through 2009 before modestly recovering in 2010, and he said there will be a "strong" 2011.

Witten said there are about 100,000 units of empty apartments, which is not a big overhang given the base of about 20 million-plus apartment properties. He said no significant progress will be made in reducing the inventory as long as there are job losses through the end of 2009.

"This is the only housing sector that is not oversupplied," he said. 2009 he said will see the end of job losses, and by the end of 2010, any excess inventory will be "behind us."

David Seiders, chief economist of NAHB, said at the forecast that there has been a strong increase in multifamily rental production in the past year. However, he said the NAHB forecasts this increase was "overdone" and expects a decline in apartment starts, which will continue for about a year before stabilizing.

We believe the rental market in general should remain strong due to the misfortune of large numbers of homeowners who have lost their homes, are continuing to lose their homes, and will ultimately be forced to rent.

The single-family residential dwellings should begin to present an increasingly larger drag on apartment type rentals as more homes will continue to flood the market due to the sub-prime / credit crisis and investors, in increasingly larger numbers, will begin to take advantage of attractive and significantly lower housing prices now found in many of the overheated markets.

As reported by MercuryNews.com, a local example of this can be found in California's Silicon Valley - Foreclosures add to tight rental market:

Record numbers of Silicon Valley homeowners have been foreclosed upon this year, and most must seek rental housing once they leave their homes. If tenant-occupied houses are in foreclosure, tenants nearly always get evicted, pushing them into the rental market again. And many renters who could afford to buy homes size up the bleak economy and opt not to take on mortgages and home ownership.

The result: It's a competitive market for those seeking reasonably priced rentals, and it's a pretty good time to be a landlord.

"The rental market has definitely become tighter in the sense that rents are going up," said Martin Eichner of Project Sentinel in Sunnyvale, an organization that provides landlord-tenant dispute resolution services, as well as foreclosure prevention help.

Average apartment rents rose 5.2 percent in Santa Clara County in the third quarter, to $1,708 a month, according to RealFacts, a Marin County firm that measures average monthly rents for all types of units in complexes of at least 50 units.

But rent increases in the third quarter were not as steep as in the second quarter, a sign of the softening economy. And RealFacts said apartment complexes were 95.6 percent full in the July-to-September quarter, down from 96.7 percent a year earlier.

One reason apartment occupancy rates are slipping is that more single-family houses are coming onto the market as rentals, said Joshua Howard, executive director of the local division of the California Apartment Association. Some of those houses are previous foreclosures that were purchased by investors.

"That's providing competition to multi-unit buildings," Howard said. "The rental housing economy has more options available right now."

Again, this trend will continue and should become more pronounced as the housing market begins to find a bottom. Many markets may not have bottomed in terms of pricing, but leveling inventories (this past year has brought subsiding rates of vigorously increasing inventory levels found in many markets during 2006 and 2007), steady rental rates, battered housing prices, and a volatile stock market are all favorable indicators leading a fair number of investors to believe that they can hear some homes rightfully screaming, "it's time, buy me!"

Pending Home Sales Report - A Trend Developing?

Article: Hot Market: Buyers Go West for Good Deals - by M. Anthony Carr


Anthony's assertion regarding October's pending home sales report:

"You've heard the news that pending sales are up across the country over 7 percent from July to August. While that's the broad brush news, when looking at the details, one sees just how many states in the West are experiencing a huge surge in the number of sales being registered on real estate boards across the region."

Markets showing the strength:

"Leading the way is Idaho, with a 51 percent jump between the two quarters. California was up 25.8 percent followed closely by Nevada at 25 percent. The fourth strongest statewide market was Arizona, up by 20.5 percent."

Anthony's conclusion:

"When news hit about this latest sales increase of 7.4 percent, hidden, again, in the fine print was the fact that sales year over year in the west had jumped a whopping 37 percent. The challenge facing markets now, of course, is the current credit crisis, which will determine if the trends of upward bound sales will continue."

Bank of America To Kick Off A Loan Modification Party

Bank of America announced that it will begin modifying loans for distressed borrowers. The plan is touted as being a strong measure that will go a long way towards helping to curb the amount of future homes heading into foreclosure.

"The program, scheduled to start in December, will be open to distressed borrowers who signed up with Countrywide Financial between January 1, 2004 and December 31, 2007. Countrywide was acquired by Bank of America (BAC, Fortune 500) in July." - (CNNMoney.com)

If the plan is successful, there's no doubt that the adjustments will have an impact on preventing a certain percentage of foreclosures. As foreclosures begin to subside, inventory levels will begin to normalize. Housing stability should follow in line.

It's hard to deny that drastic measures need to be taken in consideration of the continuing U.S. housing decline and "depression" like economic conditions. Nonetheless, there seems to be quite a few Americans crying foul as they are keeping up with their mortgage payments and are not eligible for any such relief. Some ask, why are we being punished for paying our mortgage and not overextending beyond our financial means?

Is this a valid complaint? Will we see other banks follow suite? Perhaps it's all just a matter of perspective. Nothing seems overly fair right now.