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Multifamily delinquency rates at record lows

by Team Stessa, posted in Finances, Newsletter

The Stessa Weekly Newsletter is hand-curated every week to bring you insightful accounts of new features, investing tips, business insights, and market trends from the real estate ecosystem. This week, we will cover multifamily investing in to 2019, the impact of the softening of homebuying, the top states to invest in, and some #LocalNews.

Have you seen the new Stessa Income Statement?

It has been redesigned for clarity and ease of use. Visit your Transactions page and run an Income Statement to see how 2018 is shaping up.

Multifamily update

Last week we reported on how multifamily housing starts are softening, but despite this trend, the Mortgage Brokers Association (MBA) is reporting that loan delinquencies for multifamily units remain at historically low levels.

Specifically, MBA Vice President for Commercial Real Estate Research Jamie Woodwell said, “the delinquency rate for loans held on bank balance sheets hit a new series low, while delinquency rates for loans held by life companies or those guaranteed by Fannie Mae and Freddie Mac are all still below 10 basis points.”

Karlin Conklin eludes in Kiplinger that the strong multifamily market is the result of rising rents paired with high occupancies, producing income growth that outpaced operating expense increases. Indeed, Conklin notes that moving into 2019 there are challenges for multifamily investors: “Three primary impacts will move the multifamily market in 2019, including pressure from volatile financial markets, a growing housing supply and emerging development risks.”

Meanwhile, Keith Loria of Multi-Housing News reports that the short supply of new of single-family homes could impact the multifamily market.

Source: Multi-Housing News

In referencing a new report from Freddie Mac, Sam Khater, Freddie Mac’s vice president and chief economist notes that “we have a chronic shortage of single-family new supply, particularly in the starter and middle-income segments of the market.” Given that this could lead to increased demand for multifamily and higher rents, real estate investors should position accordingly.

Homebuying softens

We’ve been on top of the softening of homebuying for some time now. Markus Schomer of The Hill reports that the U.S. housing market is experiencing a new kind of stress: too few Americans are taking on debt and buying homes.

This has important implications for various sectors, including house flippers. According to Keith Larsen of The Real Deal, “Home flipping in the U.S. is down to its lowest levels in more than three years, the latest sign that the housing market is experiencing a slowdown.” Indeed, investors flipped exactly 45,901 single-family homes and condos in the third quarter, which is down 12 percent from last year.

Stefanos Chen of The New York Times is also reporting a similar slowdown in New York’s luxury housing market. “Amid a glut of new inventory, deals are still happening, but not before buyers and renters exact their pound of flesh. And with continued uncertainty about the economy, rising mortgage rates and the prospect of higher taxes looming, the [luxury] market isn’t likely to improve soon.” Exacerbating this buyer’s market is the fact that, according to Courtney Connley of CNBC reporting on a recent study by Apartment List, “an overwhelming majority of millennials want to be homeowners, but student loans are holding them back.” According to this report, a staggering 89 percent of millennials want to buy a home but are hindered by current student debt loads.

Top states to invest in, according to GoBankingRates

Jussi Askola of Seeking Alpha reported this week that “97% of real estate investors plan to increase their capital allocation to real estate in the next 18 months.” So where should this capital flow?

According to Andrew DePietro of GoBankingRates, in certain states, home values have exceeded the growth in home prices, which is good for prospective investors. Further, lower costs of living can increase the investor’s purchasing power. These top states for investors to look at include:

Source: CNBC

Combine these investments with what Cecilie Rohwedder of the WSJ calls the new investment hotspot in American cities, “revitalized urban neighborhoods with waterfront views,” and you could have a winning strategy heading into 2019.

#LocalNews: Portland and San Jose

In local news, there are some important developments in both Portland and San Jose.

Emily Deruy of The Mercury News reports that the San Jose City Council is now considering a law that will deter landlords from refusing to rent to Section 8 voucher holders. This voucher program requires landlords to abide by federal regulations, which differ significantly from state and local laws. According to Deruy, “If the council approves the Housing Department’s memo on Tuesday, staff will craft an ordinance, hold a series of public meetings and return to the council in the spring for final approval.”

Jim Redden of the Portland Tribune reports on The Residential Infill Project in that city, which recently moved closer to city council consideration. According to an economic study cited in the article, this rezoning plan in Portland would result in twice as many new homes being built over the next 20 years. Redden reports that, “The new homes would also be far less expensive to rent because they would be much smaller, mostly multifamily units.”

Indeed, according to the report, “Under the city’s existing zoning, the majority of new homes built over the next 20 years would be single-families houses that would rent for an average of $4,159 a month. If the council approves the recommendations, the majority would be duplexes, triplexes and four-plexes, with the average rent being $1,823 per unit.” This project is currently being considered by the Planning and Sustainability Commission of Portland.

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