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Multi-Family Sector to Improve, Still in For a Rough Ride in 2010

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The outlook is slow but optimistic

multifamily apartment outlookAccording to Reuters, CB Richard Ellis (CBRE) expects apartment vacancy rates to remain high through 2010 hovering around 7%, and rent growth is not projected to resume until 2011. Apartment loan defaults are up (second only to hotels), rental rates are declining, and vacancy rates have recently been higher in multi-family than any other sector despite prospective homeowners turning into renters as a result of the credit crunch squeezing out people who can no longer qualify.

Obviously, some cities are doing better than others, but apartment management companies across the nation are frequently adding rent incentives and creative giveaways to draw renters. In my experience (long story), 3% occupancy is acceptable and even expected but beyond that, the boss upstairs (in another state) gets antsy. Vacancy rates are expected to do a little better next year nationally, but what about your market? Is multi family thriving or diving in your area?

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11 Comments

11 Comments

  1. Susan

    December 14, 2009 at 12:31 am

    I’ve heard the same thing from investors who are worried about buying complex’ and not being able to fill them with tenants. Everyone who can buy is buying, but there are still so many people with bad credit, that with the right advertising and a rental price that can compete well in whatever area the property is in, it can get rented quickly.

  2. Duke Long

    December 14, 2009 at 11:45 am

    Lani, We do a lot of property management The market here is very stable.One main reason is the Big Ten university out our back door.You may think it is because of the students.I think it is because of the stable employment base that the university provides.

    • Lani Rosales

      December 14, 2009 at 11:54 am

      Sidenote/two cents:
      That makes sense on a small scale and I say small because in Austin (home of the University of Texas, one of the largest colleges in the nation, along with 4 other colleges in the city) struggles despite DIVERSE mass employment- we’re the capital, so government jobs have been seen as stable (although hiring and raises are frozen since last year), the universities have provided renters (although only on the bus routes and nearby), we are the silicon valley of the South (although layoffs and company closings have hit us in the gut), etc. So I feel you on the “we have stability” front, but Austin was deemed “recession proof” a few years ago and everyone scoffed as the world crumbled around us and we stayed strong… now, we don’t take stability for granted.

  3. Artur | AZ Apartment Investor

    December 14, 2009 at 11:52 am

    In Greater Phoenix apartment vacancies exceed the national numbers by quite a bit. Overall 14% vacancy while some segments are as high as 26% vacancy.
    For small multifamily properties the fight for tenants is tough. It’s not only physical vacancy, but economic vacancy that’s having a grave influence on the market. There are concessions and rents are down.
    This lower income has resulted in a deluge of small multifamily properties entering the market, mostly thrashed and vacant. The medium and larger complexes are right behind.
    I can’t see any improvement until the unemployment rate decreases which will probably take longer here then the U.S average. 2010 still looks like a weak year and it won’t be until 2012 that it may improve. The good thing is, that there not much supply being added to the stock, so once the stronger market returns it will be a very good one, at least that’s what the crystal ball said.

    • Lani Rosales

      December 14, 2009 at 12:52 pm

      Artur, Phoenix is a tricky market, isn’t it?? Do you think that with it being so tough for people to qualify for mortgages that rentals will become increasingly mainstream living? Some project that will be so.

      You’re lucky in that supply isn’t being added, Austin (where we are) still have more multi-family coming online and our condo market which got approval and got started back in 2005 is just now coming live with units and we’re in a tight spot.

      How are rental rates in Phoenix, are they going up, down or are they stable?

  4. Artur | AZ Apartment Investor

    December 15, 2009 at 10:29 am

    Lani,
    Tricky is an understatement. On the one hand there are all these people losing homes, but they usually move in to homes next door just purchased by investors, not apartments. Although we’ve seen some people scale down into apartments that’s not a trend.
    Rental rates seem to have stabilized, but they are down double digits in true numbers from early last year. I don’t see them going down more then current rates.
    On the other hand, savvy brave investors can get a spectacular return on some properties. Imagine a 14 unit property for $400,000 and a current market 11 cap rate or a four-plex for $130,000 with repairs with monthly income of $2,500 less 38% expenses.

  5. Antelope Valley Real Estate

    August 12, 2010 at 8:56 pm

    The thought of owning rental property does not appeal to me at all. Now it is even more unappealing. I’m just not cut out for it. Good article though.

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Austin

Austin tops the list of best places to buy a home

When looking to buy a home, taking the long view is important before making such a huge investment – where are the best places to make that commitment?

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Looking at the bigger picture

(REALUOSO.COM) – Let us first express that although we are completely biased about Texas (we’re headquartered here, I personally grew up here), the data is not – Texas is the best. That’s a scientific fact. There’s a running joke in Austin that if there is a list of “best places to [anything],” we’re on it, and the joke causes eye rolls instead of humility (we’re sore winners and sore losers in this town).

That said, SelfStorage.com dug into the data and determined that the top 12 places to buy a home are currently Texas and North Carolina (and Portland, I guess you’re okay too or whatever).

They examined the nerdiest of numbers from the compound annual growth rate in inflation-adjusted GDP to cost premium, affordability, taxes, job growth, and housing availability.

“Buying a house is a big decision and a big commitment,” the company notes. “Although U.S. home prices have risen in the long term, the last decade has shown that path is sometimes full of twists, turns, dizzying heights and steep, abrupt falls. Today, home prices are stabilizing and increasing in most areas of the U.S.”

Click here to continue reading the list of the 12 best places to buy a home…

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Housing News

Average age of houses on the rise, so is it now better or worse to buy new?

With aging housing in America, are first-time buyers better off buying new or existing homes? The average age of a home is rising, as is the price of new housing, so a shift could be upon us.

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aging housing inventory

The average home age is higher than ever

(REALUOSO.COM) – In a survey from the Department of Housing and Urban Development American Housing Survey (AHS), the median age of homes in the United States was 35 years old. In Texas, homes are a bit younger with the median age between 19 – 29 years. The northeast has the oldest homes, with the median age between 50 – 61 years. In 1985, the median age of a home was only 23 years.

With more houses around 40 years old, the National Association of Realtors asserts that homeowners will have to undertake remodeling and renovation projects before selling unless the home is sold as-is, in which case the buyer will be responsible to update their new residence. Even homeowners who aren’t selling will need to consider remodeling for structural and aesthetic reasons.

Prices of new homes on the rise

Newer homes cost more than they used to. The price differential between new homes and older homes has increased from 10 percent traditionally to around 37 percent in 2014. This is due to rising construction costs, scarcity of lots, and a low inventory of new homes that doesn’t meet the demand.

Click here to continue reading this story…

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Housing News

Are Realtors the real loser in the fight between Zillow Group and Move, Inc.?

The last year has been one of dramatic and rapid change in the real estate tech sector, but Realtors are vulnerable, and we’re worried.

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zillow move

Why Realtors are vulnerable to these rapid changes

(REALUOSO.COM) – Corporate warfare demands headlines in every industry, but in the real estate tech sector, a storm has been brewing for years, which in the last year has come to a head. Zillow Group and Move, Inc. (which is owned by News Corp. and operates ListHub, Realtor.com, TopProducer, and other brands) have been competing for a decade now, and the race has appeared to be an aggressive yet polite boxing match. Last year, the gloves came off, and now, they’ve drawn swords and appear to want blood.

Note: We’ll let you decide which company plays which role in the image above.

So how then, does any of this make Realtors the victims of this sword fight? Let’s get everyone up to speed, and then we’ll discuss.

1. Zillow poaches top talent, Move/NAR sues

It all started last year when the gloves came off – Move’s Chief Strategy Officer (who was also Realtor.com’s President), Errol Samuelson jumped ship and joined Zillow on the same day he phoned in his resignation without notice. He left under questionable circumstances, which has led to a lengthy legal battle (wherein Move and NAR have sued Zillow and Samuelson over allegations of breach of contract, breach of fiduciary duty, and misappropriation of trade secrets), with the most recent motion being for contempt, which a judge granted to Move/NAR after the mysterious “Samuelson Memo” surfaced.

Salt was added to the wound when Move awarded Samuelson’s job to Move veteran, Curt Beardsley, who days after Samuelson left, also defected to Zillow. This too led to a lawsuit, with allegations including breach of contract, violation of corporations code, illegal dumping of stocks, and Move has sought restitution. These charges are extremely serious, but demanded slightly less attention than the ongoing lawsuit against Samuelson.

2. Two major media brands emerge

Last fall, the News Corp. acquisition of Move, Inc. was given the green light by the feds, and this month, Zillow finalized their acquisition of Trulia.

…Click here to continue reading this story…

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