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The looming Evergrande collapse and impact on real estate

The looming Evergrande collapse and impact on real estate
by Brad Cartier, posted in Newsletter

Jeff Andrews of Zumper started off this week with a rent data report, noting that national rent growth accelerated significantly throughout 2021 after stagnating last year. Specifically, “relative to March 2020, the median one-bedroom rent nationally is up 10.7 percent, while two-bedrooms are up even more at 13.1 percent.”

National rent growth Sep 2021 - Zumper

Source: Zumper

Adrian Popa of RentCafé also released some interesting rent data, showing that since 2011, suburbs with a renter majority have increased by over 100. “Renters are now the majority in 103 suburbs that were previously homeowner territory 10 years ago, and 57 other suburbs are expected to follow suit in the next five years. Many of these suburbs belong to the Miami, Washington, D.C., and Los Angeles metros, with notorious Beverly Hills, CA, among those that flipped.” This was an increase in renter-majority suburbs of 69% over the last decade.

Top 10 renter majority suburbs by market share

Source: RentCafé

More renters and higher rents are symptomatic of an affordability issue across the country. According to a new ATTOM Data Solutions report, the median-priced single-family home in the U.S. is less affordable than historical averages in 75% of counties. This is the highest price point in 13 years, as home prices continue to outrun wages.

“The latest pattern – home prices still manageable but getting less affordable – has resulted in major ownership costs on the typical home consuming 24.9 percent of the average national wage of $64,857 in the third quarter of this year.”


Evergrande, one of China’s largest real estate players has over 1,300 housing projects in 280 cities, accounting for 2% of the Chinese real estate market. Evergrande has over $300 billion in total liabilities, and investors across the globe are eagerly paying attention to the developer’s financial woes.

According to Xie Yu and Elaine Yu of The Wall Street Journal, the company has not paid suppliers (some have been paid in apartments), has halted all of its development projects, and has laid off employees.

“The looming collapse is a microcosm of China’s overheated housing market, in which prices have been climbing for years. Evergrande’s problems—and their ripple effects on the economy and social stability—are the biggest test of Beijing’s rejuvenated campaign to end debt-fueled speculation and stop home prices from surging while the government tries to lower inequality and keep housing affordable for the masses.”

The housing issue is much more acute in China than in North America. According to Business Insider, “Not only have prices been soaring, but real estate makes up nearly 30% of GDP, compared with 19% for the U.S. in its housing bubble…Worse, housing makes up 78% of Chinese assets, compared with 35% for the U.S.”

Further, there are reportedly 1.5 million buyers of Evergrande units who are still waiting for keys and have already paid deposits.

Finally, according to media reports, there are 60-65 million units that are lying vacant across China. To put this into perspective, the U.S. needs about 5 million units to supply the current housing demand.

Multifamily update

There were a few data points on multifamily housing last week worth noting, starting with CEPro who reported a surge in multifamily construction over the past month. The seasonally adjusted rate of multifamily starts last month increased 20.6% to a 539,000 unit pace.

Similarly, overall multifamily prices rose last month according to Michael Rudy of Yield Pro. “Multifamily property prices rose 13.5 percent in the year to August. This is the highest annual rate of price appreciation seen for this asset class since early 2006.” Commercial real estate overall has seen a boost, led by the apartment sector.

Commercial property price increases index - Yield Pro

Source: Yield Pro

Despite this, multifamily construction is catching up to the historical averages of single-family homes, according to Robert Dietz of the National Association of Home Builders (NAHB).

“Since early 2013, there have been consistently more multifamily units (residences within 2+ unit properties) under construction relative to single-family homes. This was due to multifamily construction recovering more quickly in the years after the Great Recession, as well as years of underbuilding in the single-family sector. However, as of July, there are roughly equal counts of units under construction in the two sectors of the residential market, sparked by an expansion of demand for single-family homes.”

Housing under construction - NAHB

Source: NAHB

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