Wednesday, June 21, 2017

Existing home sales rebounded 1.1 percent in May while sales prices reached new high

Existing-home sales rebounded in May following a notable decline in April, and low inventory levels helped propel the median sales price to a new high while pushing down the median days a home is on the market to a new low.

Sunday, June 18, 2017

State of the Rental Market: Growth is Moderating but Long-Term Prospects Very Favorable

While it’s certainly no secret that the multi-family sector has been on a roll over the past few years, there have been some recent signs that its growth trajectory will continue to moderate this year. 

Nonetheless, with an economic expansion in its seventh year and an average of one million new renter households being formed over the past five years, these economic tailwinds should continue to support this sector over the near term. The long-term prognosis is even better, with a recent study concluding a need for 4.6 million new apartments between now and 2030.

For now, overall tenant demand remains strong, especially as more millennials continue to form new households after being delayed due to the Great Recession and paying off student loan debt. Nationally, the homeownership rate fell to a 51-year low of 63 percent last year, and is expected to remain around this level for at least the rest of the year.

Construction of new apartments is also expected to peak this year, especially as over-supply in some high-growth markets is beginning to impact both vacancy rates and rent growth. Mindful of this trend, construction lenders are also being more discreet, critically assessing the experience of developers, double-checking projected returns while acknowledging lower growth in operating income.

In addition, if government proposals for increased infrastructure spending see the light of day, this could mean increased competition for both the materials and labor required for more multi-family supply.

According to recent figures from brokerage Marcus & Millichap, most of the softening is beginning to occur for Class A buildings, both due to an increase in new product as well as historically weak absorption during the fourth quarter of 2016 being pushed into 2017. Nationally, this meant a large bump in Class A vacancy rates to over 6.5 percent. Yet instead of lowering asking rents to fill vacant units, many owners are betting that the strong spring and summer leasing season will mop up the excess supply.

For Class B properties, a slight rise in vacancies was often due to renters opting to make the leap to higher-quality apartments, especially in regions such as the South where the price difference between the two classes is the smallest.  Not surprisingly, the vacancy rate for Class C properties remains the lowest due to the strong demand for affordable housing.

Both Axiometrics and Yardi Matrix -- which regularly survey apartment communities across the country each month – have shown a similar softening in both rent growth and occupancy rates.  According to Axiometrics, although its surveyed properties had rebounded to the benchmark occupancy rate of 95 percent by May 2017, annual effective rent growth has stayed within a fairly narrow band of 2.0 to 2.2 percent over the past six months.

Yardi Matrix, however, showed an annual overall rental rate increase of 1.5 percent for the 12-month period ending in May 2017, down sharply from the 5.3 percent noted a year ago even though it reported an overall occupancy rate of 94.8 percent for April.

As Marcus & Millichap similarly found, this is largely due to a temporary over-supply in Yardi’s “Lifestyle” class, which caters to households who prefer to rent versus owning, and has resulted in flat growth. Meanwhile, low supply and strong demand for “Renter by Necessity” units helped propel their average rents by 2.6 percent over the same time period.

Due to this softening, as well as higher borrowing costs and proposed changes to fiscal policy and the tax code – including a possible end to the popular 1031 tax exchange program – investors have recently pulled back. Preliminary estimates for first quarter 2017 sales suggest a decline of 15 to 20 percent from the same period of 2016, although greater clarity on these policy changes would certainly lead to a rebound in investor interest.

In the longer term, a combination of delayed marriages, an aging population and continued legal immigration will continue to put increasing pressure on new apartment supply, but it’s not just the millennials filling these units. It’s also Baby Boomers and other empty-nesters over 45 who accounted for over half of new renter households over the last decade in search of the flexibility and convenience of apartment living.

With an annual projected demand of 325,000 new units per year through 2030 and an aging housing stock increasingly in need of renovations, there should be very favorable terms for well-financed investors, especially in high-cost and high-growth areas throughout the West and the South.

Friday, June 16, 2017

Industrial production unchanged in May following April boost

Industrial production was unchanged in May following a large increase in April and smaller increases in February and March. At 105.0 percent of its 2012 average, total industrial production in May was 2.2 percent above its year-earlier level. Capacity utilization for the industrial sector edged down 0.1 percentage point in May to 76.6 percent, a rate that is 3.3 percentage points below its long-run (1972–2016) average.


New York Fed: Manufacturing activity rebounds strongly in June

Business activity rebounded strongly in New York State, according to firms responding to the June 2017 Empire State Manufacturing Survey. The headline general business conditions index shot up twenty-one points to 19.8, its highest level in more than two years.


Philadelphia Fed: Manufacturing activity growth dips in June

Regional manufacturing continues to expand, according to results from the June Manufacturing Business Outlook Survey. The diffusion index for general activity fell from its reading in May but remained positive and continued to reflect growth. Although many of the future indicators also declined, firms continue to expect growth over the next six months. About one-third of the firms expect to add to their payrolls through the end of the year.


Consumer sentiment dips sharply in preliminary June survey

The modest early June drop of 2.6 points in the Sentiment Index masks a much larger decline since June 8th. Prior to that date the Sentiment Index had averaged 97.7, but since June 8th, the Index fell to 86.7, a decline of 11.0 points. While this break corresponds with James Comey's testimony, only a few consumers spontaneously referred to him or his testimony when asked to explain their views.

The recent erosion of confidence was due to more negative perceptions of the proposed economic policies among Democrats and the reduced likelihood of passage of these policies among Republicans.

Fortunately, a strong job market, improved household income and wealth have provided a financial buffer against rising uncertainties. Nonetheless, consumers have become less optimistic about the future course of the domestic economy.


May building permits dipped 4.9 percent from April and 0.8 percent year-on-year

Privately-owned housing units authorized by building permits in May were at a seasonally adjusted annual rate of 1,168,000. This is 4.9 percent below the revised April rate of 1,228,000 and is 0.8 percent below the May 2016 rate of 1,178,000.


May housing starts fell for third straight month to eight-month low

U.S. homebuilding fell for a third straight month in May to the lowest level in eight months as construction activity declined broadly.  Privately-owned housing starts in May were at a seasonally adjusted annual rate of 1,092,000. This is 5.5 percent below the revised April estimate of 1,156,000 and is 2.4 percent below the May 2016 rate of 1,119,000.

Thursday, June 15, 2017

Initial unemployment claims fall by 8,000 in latest report

In the week ending June 10, initial unemployment claims were 237,000, a decrease of 8,000 from the previous week's unrevised level of 245,000. The 4-week moving average was 243,000, an increase of 1,000 from the previous week's unrevised average of 242,000.


Mortgage applications rise 2.8 percent in latest survey

The Market Composite Index increased 2.8 percent on a seasonally adjusted basis from one week earlier, with purchase loans rising three percent and refinances jumping nine percent. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances decreased to 4.13 percent.


Business inventories fell 0.2 percent in April, reversing March's gain

U.S. business inventories fell 0.2 percent in April, recording their biggest drop in six months, which could temper expectations that inventory investment would support economic growth in the second quarter.


NAHB's Housing Market Index dips two points in June

Builder confidence in the market for newly-built single-family homes weakened slightly in June, down two points to a level of 67 from a downwardly revised May reading of 69 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI). All three HMI components posted losses in June but remain at healthy levels.


Wednesday, June 14, 2017

Federal Reserve opts to hike key interest rate another 1/4 point

In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 1 to 1-1/4 percent. The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a sustained return to 2 percent inflation.


CPI slipped 0.1 percent in May, up 1.9 percent year-on-year

The Consumer Price Index for All Urban Consumers (CPI-U) decreased 0.1 percent in May - mostly due to lower energy costs -- but rose 1.9 percent over the last 12 months.  The index for all items less food and energy rose 0.1 percent in May and 1.7 percent over the past 12 months.

Producer Price Index flat in May, up 2.4 percent year-on-year

The Producer Price Index for final demand was unchanged in May but increased 2.4 percent for the 12 months ended in May. Prices for final demand less foods, energy, and trade services fell 0.1 percent in May, the first decline since a similar 0.1-percent decrease in May 2016, but was up 2.1 percent over the previous 12 months.