Declining Cities, Vacancy Rates, and Forecasting Home Prices: The Week in Housing
During the first full week of the new year, Reis reported on vacancy rates, we get an interest rate update from Freddie Mac, a 2011 forecast on home prices from RadarLogic, and lastly a study from the Housing Research Institute of America on declining cities.
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Apartment Vacancy Declines
While vacant homes seem to stacking up all around us, apartment vacancy is in decline. Reis, a New York based real estate research firm, believes apartment vacancy bottomed out in Q4 2009. A triplehreat to vacancy seems to be winning; pent-up demand, job creation, and falling home-ownership rates, according to Marcus & Millichap’s Managing Director Hessam Nadji. A fourth factor; simply less building is also likely to be contributing.
Apartment vacancy declines also mirror vacancy in the overall rental housing market. The BLS has reported though that many neighborhoods are seeing increases in owner vacancy. Until many investors buy these distressed assets and convert them into rental quality, vacancy in owned properties is likely to continue to rise. Investors are absolutely critical the nation’s housing recovery in this regard. Many are projecting a big year for the multi-family industry and even if you aren’t in a position to buy an apartment complex outright, or prefer to dilute your risk exposure, there are alternatives such as syndicated funds and REITs.
Interest Rates Pull Back
Freddie Mac’s first interest rate survey of 2011 was an improvement off its last of 2010 as we saw rates pull back a bit. The 30-year fixed mortgage rate declined to 4.77% from 4.86% the prior week. The 15-year fixed mortgage rate also dropped from 4.20% to 4.13%.
After shooting up over the final moments of 2010, interest rates started the new year a bit lower. Maintaining low interest rates will certainly help the housing recovery, though when rates started rising, people were still applying for mortgages. It was only when rates really started jumping that mortgage applications pulled back a bit. Americans are closely watching the employment rate and jobs reports which continue to drive confidence levels and ultimately spending. Of course an improving economy also spurs inflation fears which cause rates to rise. I think the best course is a slow/steady rise in rates commensurate with an improving economy.
The Research Institute of America released “A Study of Real Estate Markets in Declining Cities” this week. The study is focused on what happens to cities when after a housing boom, when they have declining jobs, population, and a subsequent foreclosure crisis. While the answer seems obvious, the study digs deep and answers such questions as “Do we know enough to be able to confidently predict which neighborhoods are most likely to experience severe and persistent declines?” Further the study takes a close look at 7 metro areas; Albany, NY; Cleveland, OH; Detroit, MI; Pittsburghh, PA; Los Angeles; Miami, FL; and Stockton, CA.
While the report is lengthy it discusses in detail what’s emerging from the housing crisis. The crisis is causing major changes to neighborhoods and cities and has become an urban planning nightmare. Unfortunately people are more mobile than their homes. So while people have innovated and moved on many neighborhoods are left as remnants of the crisis. It also begs the question if you own properties in markets or neighborhoods described and are underwater; is it a broken situation or is it a broken house/neighborhood? If it’s the later, immediate exit might be your game plan.
Falling Prices in the Forecast
New York based, RadarLogic, released its RPX Composite Price Index (month ending October 2010). The RPX Index showed a 0.1% increase in home prices year-over-year. RadarLogic doesn’t see this as market stabilization and cautions investors that home prices are set to fall. “The absence of volatility in home prices during October should not be interpreted as a sign of stability to come,” Quinn Eddings, Director of Research said. “Even if job creation bolsters housing demand in 2011, I anticipate that demand will fall short of the burgeoning supply of homes for sale, and prices will fall further by the end of the year.”
I’ve talked with the Director of Research, Quinn Eddings in the past their firm tracks day-to-day price movements of real estate. I this his statement holds true. Demand will creep up but will fall short of supply. The fundamentals will improve in 2011 but the year will look much like 2010 in the headlines.
This week’s housing data schedule is pretty quiet, with key highlights being mortgage applications and interest rates, though we’ll be looking closely at consumer sentiment, retail sales, and consumer prices. This is a consumer orientated week, so we should get a peek at how consumers are feeling which may foreshadow the rest of January’s mortgage application numbers translating to closed real estate transactions for the remainder of the Q1 2011.
Also despite the lack of economic news, the real estate market keeps innovating. If you’re in New York for the Inman real estate technology conference, you’ll find me around the city at various events including; REBarCamp New York and some of evening meetups. The housing crisis, in my opinion, marked the end of the old way of approaching the real estate business. People are looking to technology, particularly social advances and marketing to power their real estate business and reach more customers. This week should give us good insight to how technology is moving the industry forward.
Photo credit: CBS Marketwatch