Renters Now Rule Half of U.S. Cities

 

Home Sales Slide on Tight Supply, Higher Prices

Home Sales Slide on Tight Supply, Higher Prices – WSJ

Home Sales Slide on Tight Supply, Higher Prices

Laura Kusisto
The Wall Street Journal

Existing home sales declined in February as tight inventory and rising prices frustrated would-be buyers and damped sales activity heading into the critical spring selling season.

Purchases of previously owned homes, which account for the vast majority of U.S. sales, decreased 3.7% from January to a seasonally adjusted annual rate of 5.48 million last month, the National Association of Realtors said Wednesday.

The decline followed a strong performance in January, when sales rose 3.3%. February’s sale pace was 5.4% above the same month a year earlier.

Economists said the combination of rising prices and mortgage rates is expected to push some buyers out of the market this year, especially in expensive coastal markets where first-time purchasers are already stretching to afford homes.

“You either have to believe that we’re in a bubble right now or you have to believe that sales are going to decline,” said Todd Tomalak, vice president of research at John Burns Real Estate Consulting.

Nela Richardson, chief economist at Redfin, said the company has seen a slight decline in the number of buyers touring properties and making offers—indicating they are frustrated by a lack of homes for sale.

“Inventory may be having a bigger effect on sales [this year] than last year,” Ms. Richardson said. “It’s just there’s not a lot for sale.”

Inventory increased 4.2% at the end of February from a month earlier, after December’s reading was the lowest since the Realtors association began tracking all types of supply in 1999. Inventory in February was still down 6.4% from a year earlier. At the current sales pace, it would take 3.8 months to exhaust the supply of existing homes on the market, the Realtors said Wednesday. Economists say the typical supply is roughly six months.

“We just don’t have enough inventory to satisfy all the buying interest,” said Lawrence Yun, chief economist at the National Association of Realtors.

Low inventory is also helping to push up prices. The median sale price rose 7.7% in February from a year earlier, to $228,400. Experts said rapid price increases are creating concerns about affordability.

“I would be happier if it was not as frothy,” said Greg Rand, founder and chief executive of OwnAmerica, a broker for investors in single-family rental properties.

Economists said the rise in mortgage rates that began in December may have caused some buyers to rush into the market to lock in lower rates, pushing forward some demand. Rates for a 30-year mortgage rose to 4.3% last week, the highest level this year, according to mortgage company Freddie Mac.

New home construction is starting to pick up, which could relieve some of the inventory crunch in the coming months. U.S. single-family housing starts in February hit their highest level since the recession, boosted by warm weather and a strong economy.

Want to rent a house? It’ll cost you $3,114 a month in Orange County

 

Want to rent a house? It’ll cost you $3,114 a month in Orange County

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This Santa Ana house, featured on Zillow, rents for $3,100 a month. House rents are rising faster than apartment rents in Southern California, according to HomeUnion.

For years, Southern California apartment rents have been soaring.

Now, a new report shows that rents have been rising even faster for houses, which are preferred by families and others seeking a bit more living space.

House rents averaged $3,114 a month in Orange County during the fourth quarter of 2016, according to Irvine-based HomeUnion, a firm that helps investors buy and rent out houses in about a dozen markets across the nation.

That’s up 22 percent, or $561 a month, over the past four years, vs. a 13 percent increase for apartment rents during the same period, figures from Reis Inc. show.

Los Angeles County’s average rent of $2,548 a month last quarter was up 22.1 percent over the past four years, compared with a 21.7 percent gain in apartment rents over the same period. In the Inland Empire, house rents increased 23 percent to $1,729 a month, vs. a 17 percent increase for apartments in the same four-year period.

Low vacancy was a key reason, spurred by a building slowdown during the recession followed by a hiring boom during the recovery, said Steve Hovland, HomeUnion’s director of research and communications.

During the fourth quarter, vacancy rates for investor-owned rental houses ranged from 3 percent in Orange County to 3.1 percent in Los Angeles County and 5.8 percent in the Inland Empire.

That’s comparable to apartment vacancies. But historically, rental house vacancies tend to be higher, Hovland said.

“What this shows is the single-family rental market is even tighter than the apartment market,” Hovland said. “ … You have to pay more rent (for a house), and they’re hard to find, even when you pay more rent.”

By comparison, the national average rent for a house was $1,817 a month in the last quarter of 2016, up 17 percent over the past four years, HomeUnion reported. The national vacancy rate was 6.7 percent.

Another reason the market is so tight: There are more renters in the region and fewer homeowners.

Southern California had almost 280,000 more rental households in 2015 than in 2009, a 12 percent jump, U.S. Census figures show. But the number of homeowners fell by almost 80,000, or 3 percent.

And because there’s twice as many apartments under construction than houses, single-family rentals are getting scarcer.

“There’s pent-up household demand out there,” Hovland said. “(Families are) going to have to be patient. … They’re going to have to go further out or get apartments.”

Rental houses vs. apartments

Area House rent/mo. Apt. rent/mo. House 4-yr ch Apt. 4-yr ch House vacancies Apt. vacancies
Orange $3,114 $1,799 22.0% 12.8% 3.0 3.2%
Los Angeles $2,548 $1,775 22.1% 21.7% 3.1 3.3%
Inland Empire $1,729 $1,262 22.5% 16.6% 5.8 2.4%
U.S. $1,817 $1,304 17.0% 18.7% 6.7 4.1%

Sources: HomeUnion, Reis Inc.

Average rent in Inland Empire above $1,500 for first time, study says

 

Average rent in Inland Empire above $1,500 for first time, study says

 

Construction is underway on an apartment complex at Walnut Street and Hudson Avenue in Pasadena. Southern California’s increasing rental rates are fueled largely by a lack of available homes and apartments.
Construction is underway on an apartment complex at Walnut Street and Hudson Avenue in Pasadena. Southern California’s increasing rental rates are fueled largely by a lack of available homes and apartments.
Southern California apartment rents continue to rise, according to a report released Monday.

A forecast from research and analysis firm Axiometrics shows average monthly apartment rents in Los Angeles County, the Inland Empire, Orange County and Ventura County rose in February. And the Inland Empire’s average rental price topped $1,500 for the first time.

Average monthly rentals in the Inland Empire rose 6.7 percent in February to $1,501 compared with $1,407 a year earlier. The region’s occupancy rate held steady at 95.7 percent, although it was up from 95.4 percent in February 2016.

Los Angeles County’s average rent — which takes into account all apartment units ranging from studio apartments to penthouse units — was $2,271 in February, up 2.5 percent from a year earlier. That was down from the 6.3 percent annual growth that was seen in February 2016, but it shows apartment prices continue to rise. L.A. County’s occupancy rate for apartments was 96.3 percent in February, up from 96 percent in January and even with the year-ago rate.

Orange County saw a 3.2 percent year-over-year rise in rental prices, bringing the average monthly rent in February to $2,059 compared with $1,995 a year earlier. The county’s occupancy rate ticked up to 96.1 percent from 96 percent in January and 95.8 percent a year earlier.

A shortage of housing

Robert Kleinhenz , executive director of research at the Center for Economic Forecasting and Development at UC Riverside, said the Inland Empire’s rising rents were not unexpected.

“The Inland Empire has seen consistent growth in economic activity and employment in recent years, and with that growth have been population gains that are outpacing neighboring counties in Southern California and putting pressure on both the Inland Empire’s rental market and the market for owner-occupied homes,” Kleinhenz said. “There is a genuine need for more housing across much of California, and nowhere is the severity of the situation more apparent than in the Inland Empire.”

Tommy Thompson, senior vice president of the California Apartment Association, acknowledged that apartment owners and others who have invested in apartments are profiting from rising rental prices. But California’s chronic housing shortage, he said, is outweighing those gains. Construction of new homes and apartments has fallen way behind.

“The biggest hurdle is local government,” he said. “It’s a tug and pull between elected council members and the communities they serve. Increased traffic, noise and rising crime are things commonly cited by neighborhood groups. Different laws need to be worked out. We need the ability to get projects approved quicker, and local government can help do that.”

More rental increases predicted for 2017

Axiometrics predicts that L.A. County rents will rise 3.5 percent this year. The Inland Empire’s average rent is expected to increase by 4.6 percent and Orange County should see a 3.8 percent hike.

Alexis Logsdon, 32, and her husband and young son confronted high prices when they moved into in a two-bedroom, two-bath apartment in Pasadena about three years ago. But they came in with an advantage.

“We had just sold our home in New Orleans, so we used some of that money to pay a whole year’s rent up front,” Logsdon said. “We did that for the second year too, so the management worked with us to reduce our rent. Right now I know the apartments here are renting for $2,100 a month.”

Others who don’t have that kind of cash flow aren’t so lucky. Axiometrics reports that the average price for an apartment in Pasadena is $2,515.

ApartmentList.com reported last year that Pasadena had the biggest year-over-year rent increase in the Los Angeles metro area — a bump of 8 percent between July 2015 and July 2016. The median monthly rent — the point at which half of the rents are higher and half are lower — for a two-bedroom apartment in Pasadena went for $2,640 at that time.

Kleinhenz said Southern California is saddled with both a housing affordability crisis and a shortage of available homes.

“Homeownership fell to its lowest level in decades because of the recession,” he said. “That sent more people looking for apartments, but it’s difficult to get communities to accept multi-family projects. It’s a real challenge because not only have homes become unaffordable for many, but rents are higher. At some point something’s got to give.”

Apartment construction has been further slowed by groups that utilize the California Environmental Quality Act (CEQA) to block new development. That requires state and local agencies to identify significant environmental impacts that projects would create. Developers are required to avoid or mitigate those impacts whenever possible.

“Groups are using CEQA to disrupt the whole process of moving forward with real estate development,” Kleinhenz said.

Credit Reports to Exclude Certain Negative Information, Boosting FICO Scores

 

More home sales are failing to close

More home sales are failing to close

More home sales are failing to close

Nationally, 3.9% of home sales failed to close in 2016, compared to 2.1% in 2015, according to Trulia. Homes which changed status from pending or active contingent back to for sale were classified as failing to close.

California had four of the top ten metros where home sales were most likely to fail in 2016, with:

  • 11.6% of sales failing to close in Ventura;
  • 10.3% of sales failing to close in Los Angeles;
  • 9.7% of sales failing to close in San Jose; and
  • 9.6% of sales failing to close in Orange County.

The increase in failed listings was partly due to the sudden spike in interest rates in Q4 2016, which caused homebuyers who did not lock in their interest rate to see their purchasing power reduced mid-sale. A significant 4.3% of homes failed to close in Q4 2016, up from 1.4% in Q4 2015.

But Trulia also attributes the increase to the large number of first-time homebuyers that hit the market in 2016.

As evidence, the percentage of starter homes failing to close nationwide rose considerably to 7.1% in Q4 2016 from 2.4% at the end of 2014.

Here in California, the share of starter homes — homes for sale in the low-tier price range — failing to close in 2016 was well above the national average in most metros, at:

  • 13.7% in Ventura;
  • 12.4% in Orange County;
  • 12.2% in Los Angeles;
  • 12.0% in San Jose;
  • 9.6% in Oakland; and
  • 9.3% in Riverside-San Bernardino.

A smaller number of California metros had a below average rate of starter home sales failing to close, at:

  • 6.5% in San Francisco;
  • 3.6% in Bakersfield; and
  • 2.6% in San Diego.

First-time homebuyers complicate the deal

An increase in first-time homebuyers is mostly good news, and evidence our housing market is improving. More first-time homebuyers means our economy is finally healed and expanding following the 2008 recession which delayed homeownership for most young adults.

However, first-time homebuyers usually bring some extra baggage with them compared to seasoned homeowners, including:

  • shorter credit histories;
  • smaller down payments;
  • a greater reliance on Federal Housing Administration (FHA)-insured financing; and
  • a lack of knowledge about the homebuying process.

First-time homebuyers are also buying mostly starter homes. These properties are priced in the low tier. In 2016 and 2017, low-tier properties are the hardest to come by, as inventory is tight and prices are rising more quickly in this tier than other tiers that aren’t experiencing an inventory shortage.

Luck O’ The Irish

” May you always have walls for the winds, a roof for the rain and tea beside the fire, laughter to cheer you, those you love near you, and all that you heart may desire.”

Don’t let your luck run out!

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