SAVE THE DATE!
December 2, 2017
ICG REAL ESTATE 1-DAY EXPO
December 2, 2017. 10:00 am to 6:30 pm
South San Francisco Conference Center, 255 South Airport Blvd., S. San Francisco, CA 94080 – conveniently located near SFO Airport.
This December will be a real special event as we are coming to the close of a year of great change in the real estate market. Don’t miss this opportunity to make sure your investments are protected and how you can prepare for new growth. The event is for the seasoned and beginner investor.
See you in December! You can register now to make sure you get into the event. This will sell out.
STAY TUNED TO FIND OUT WHO OUR EXPERT SPEAKERS WILL BE!
Great loans for those with under 10 properties, over 10, and those just starting out.
NETWORKING AND Q & A:
We always dedicate a generous amount of time for networking and an interactive Q & A with our roaming team of experts, speakers, and other like-minded investors. Don’t miss out on your chance to participate in this critical expo. It sells out every quarter we offer it! The event is a fantastic opportunity for learning from other like-minded investors.
Teams from the most interesting and relevant markets will be present with real estate deals ready to move, and updates and forecasts will be discussed. One-on-one discussions will be available on individual interests and needs.
PRICE: $20/person or $35/couple
Lunch is not included.
Plenty of free parking available.
A view of new residential buildings under construction in the Hudson Yards development, August 16, 2016 in New York City. (Photo by Drew Angerer/Getty Images)
Perhaps nothing thrills mayors and urban boosters like the notion of endless towers rising above their city centers. And to be sure, new high-rise residential construction has been among the hottest areas for real estate investors, particularly those from abroad, with high-end products accounting for 8o% of all new construction.
Yet this is not an entirely high-end country, and these products, particularly the luxury high-rises in cities, largely depend on a small segment of the population that can afford such digs.
No surprise, then, that we see reports of declining prices in areas as attractive as New York, Miami and San Francisco, where a weakening tech market is beginning to erode prices, much as occurred in the 2000 tech bust, John Burns Real Estate Consulting notes. There have been big jumps in the number of expired and withdrawn condo listings, particularly at the high end; last year, San Francisco saw a 128% spike in the number of withdrawn or expired listings for condos over $1.5 million.
Several factors suggest the high-rise residential boom is over, including a growing recognition that these structures do little to relieve the housing affordability crisis facing middle-class residents, the inevitable aging of millennials and their shift to suburbs and less expensive cities, and the impending withdrawal of some major foreign investors who have come to dominate the market in many cities.
Cost And Affordability
One common refrain among housing advocates and politicians is that high-rise construction is a solution to the problem of housing affordability. The causes of the problem, however, are principally prohibitions on urban fringe development of starter homes. Critics also note that high-rises in urban neighborhoods often replace older buildings, which are generally more affordable.
One big problem: High-density housing is far more expensive to build. Gerard Mildner, the academic director of the Center for Real Estate at Portland State University, notes that development of a building of more than five stories requires rents approximately two and a half times those from the development of garden apartments. Even higher construction costs are reported in the San Francisco Bay Area, where the cost of townhouse development per square foot can double that of detached houses (excluding land costs) and units in high-rise condominium buildings can cost up to seven and a half times as much.
Almost without exception, then, the most expensive areas are precisely those that have the most high-rise buildings: New York, San Francisco, Seattle and Miami. More to the point, these buildings don’t tend to be occupied by middle-class, much less working-class, families. And in many cases, these units are not people’s actual homes; in New York, as many as 60% of new luxury units are not primary residences, leaving many unoccupied at any given time.
Even worse, a high-density strategy tends to raise the price of surrounding real estate. As Tim Redmond, a veteran San Francisco journalist, points out, luxury apartments often tend to be built in areas with older, more affordable buildings. The notion that simply building more of an expensive product helps keep prices down elsewhere misses the distinction between markets; the high-rises in Washington, DC, are not the affordable units that the vast majority of city residents need.
Other cities favored by luxury developers – like Vancouver, Toronto, Seattle and San Francisco – have also seen deteriorating affordability and, in some cases, a mass exodus of middle- and working-class residents, particularly minorities. San Francisco’s black population, for example, is roughly half of what it was in 1970. In the nation’s whitest major city, Portland, African-Americans are being driven out of the urban core by high-density gentrification, partly supported by city funding. Similar phenomena can be seen in Seattle and Boston, where long-existing black communities are gradually disappearing.
The New Demography Works Against This Trend
It is common in retro-urbanist circles to maintain that more Americans, particularly younger ones, will opt to remain customers for ever-greater density, a preference that could sustain an ever-growing market for high-rises. Yet that notion may be past its sell-by date, with demographic evidence suggesting that most Americans, including younger ones, are looking less for an apartment in the sky than for a house with a little backyard.
Suburbs, consigned to the dustbin of history by many urban boosters, are back. Demographer Jed Kolko, analyzing the most recent Census Bureau numbers, suggests that population growth in most big cities now lags that of their suburbs, which have accounted for more than 80% of metropolitan growth since 2011. Even where the urban core renaissance has been most prominent, there are ominous signs. The population growth rate for Brooklyn and Manhattan fell nearly 90% from 2010-11 to 2015-16.
The real trend in migration is to sprawling, heavily suburbanized areas, particularly in the Sun Belt. To be sure, there are high-rises in most of these markets – quite a gusher of them in Austin, for instance – but the growth in all these regions is overwhelmingly suburban.
The most critical factor over time may be the aging of millennials. Among those under 35 who do buy homes, four-fifths choose single-family detached houses, a form found most often in suburbs. Surveys consistently find that most millennials see suburbs as the ideal place to live in the long run. According to a recent National Homebuilders Association report, more than 66%, including those living in cities, would actually prefer a house in the suburbs.
The largely anecdotal media accounts of millennial lifestyles conflict with reality, Kolko notes. Although younger Millennials have tended toward core cities more than previous generations, the website FiveThirtyEight notes that those ages 30-44 are actually moving to suburban locales more than in the past.
The China Syndrome
Given the limits of the domestic market, the luxury high-rise sector depends heavily on foreign investors. Already, harder times for some traditional investors – Russians and Brazilians, for example – have hurt the Miami market, long attractive to overseas buyers. There is now three years’ worth of inventory of luxury high-rises there, with areas such as Edgewater, Midtown and the A&E District suffering an incredibly high inventory of seven and a half years. Miami Beach is faring a bit better but is still a buyer’s market at a little over two years of inventory.
Still, the greatest threat to the luxury high-rise market may come from the Far East, the region of the world with the most surplus capital and, given the rapidly aging society, often the fewest profitable places to put it. Korea and Japan have lots of money sitting around looking for a home. Japan and its companies, according to World Bank data, are hoarding more than $2 trillion in unused liquid assets.
But as in all things East Asian, China stands apart. Last year, the country had a record $725 billion in capital outflows, according to the Institute of International Finance. China is now the largest foreign investor in US real estate.
But now the Chinese government has placed strong controls on these investments, which could leave some places vulnerable. In Downtown Los Angeles, according to local brokers, many of the new high-rise towers are marketed primarily in China. (LA claims to have the second-highest number of cranes, behind only Seattle.)
These expensive units are far out of reach for the younger people who tend to inhabit the neighborhood, instead serving as what one executive called “vertical safe deposit boxes” for people trying to get their money out of China. If the new crackdown on such investments is strongly enforced, this could leave a lot of expensive units without buyers. Prices have already softened, and with several new luxury buildings coming up, Downtown is likely to experience a glut.
Even in Manhattan, another market long dependent on foreign investment, projects are now stalled, including some once-hot properties in Midtown that are delaying their sales launches. Overall sales of condos over $4 million dropped 18% last year from the high levels of the previous three years. The ultra-premium market for condos over $10 million saw a 5% sales decrease in 2016.
The current slowdown, and perhaps longer-term stabilization, could lead to lower rates of migration out of the expensive cores. Yet this trend is not likely to reverse the movement of younger people to less dense areas. Luxury high-rise units were not built for families, and they are often located in areas with poor schools and limited open space. They may simply become high-priced rentals, attractive no doubt to childless professionals but not to middle- and working-class families.
In the end, the real need is not for more luxury towers. What is needed, particularly in America’s cities, from the urban core to the urban fringe, is the kind of housing middle- and working-class families can afford.
In reality, however, there is a great shortage of good single family homes since housing starts have not yet made up for the gap in new construction created during the recession. Thus renters are still likely to be quite plentiful.Prices, however, are likely to get a boost from this increased buying activity. The home buyers using the 3.5%-down FHA loan are less price sensitive and willing to pay more for a home they like (after all the difference for them is only 3.5% of the extra amount which is negligible).
Millennials are buying homes, steering builders toward lower price points
Home buyer Darin Fredericks and his wife Summer Fredericks in the kitchen of their new home in Ontario, Calif., last November. PHOTO: PATRICK T. FALLON FOR THE WALL STREET JOURNAL
Updated May 11, 2017 8:09 p.m. ET
First-time buyers are rushing to buy homes after a decade on the sidelines, promising to kick a housing market already flush with luxury sales into higher gear.
Tracking home sales to a particular age group is hard, but a series of data points form a mosaic of a generation of young people ready to buy: The number of new-owner households was double the number of new-renter households in the first quarter of this year, the share of first-time buyers is creeping back toward the historical average, and mortgages for first-timers are on the rise.
“They’re crawling out of their parents’ basements, they’re forming households and they’re looking to buy,” said Doug Bauer, chief executive of home builder Tri Pointe Group which operates in eight states.
In a shift, new households are overwhelmingly choosing to buy rather than rent. Some 854,000 new-owner households were formed during the first three months of the year, more than double the 365,000 new-renter households formed during the period, according to Census Bureau data. It was the first time in a decade there were more new buyers than renters, according to an analysis by home-tracker Trulia.
Home builders are beginning to shift their focus away from luxury homes and toward homes at lower price points to cater to this burgeoning millennial clientele. Demographers generally define millennials as people born between roughly 1980 and 2000.
In the first quarter of this year, 31% of the speculative homes built by major builders were smaller than 2,250 square feet, indicating they were in the starter-home range, according to housing-research firm Zelman & Associates. That is up from 27% a year ago and 24% in the first quarter of 2015.
“There’s an increasing confidence level in that part of the market,” said Gregg Nelson, co-founder of California home builder Trumark Cos. “The recovery is finally starting to take hold in a broader way.”
The shift reflects a reversal of a pattern that has driven the five-year housing-market expansion.
Up until now the luxury market has soared, while the more affordable end of the market has struggled. Tough lending standards, slow wage growth, growing student-debt obligations and a newfound fear of homeownership have combined to crimp demand among millennials in particular.
Now, the return of first-time buyers is allaying fears that millennials might eschew homeownership permanently. But it also provides an infusion of new demand while housing supply is tight and home price growth is significantly outstripping wage gains.
Home prices in February increased by 5.8% over the same month a year earlier, according to the most recent S&P CoreLogic Case-Shiller U.S. National Home Price Index.
The return of first-time buyers is accelerating. In all they have accounted for 42% of buyers this year, up from 38% in 2015 and 31% at the lowest point during the recent housing cycle in 2011, according to Fannie Mae, which defines first-time buyers as anyone who hasn’t owned a home in the past three years.
While economists and builders said lending standards have started to ease, getting a mortgage remains challenging for young buyers with shorter credit histories and, in many cases, student debt. Mortgage rates are also expected to rise further this year, posing an added challenge. Rates for a 30-year fixed-rate mortgage have risen to 4.05%, up from about 3.5% in November, according to Freddie Mac.
In Orange County, Calif., Trumark’s Mr. Nelson said he has been selling entry-level homes at nearly double the rate of his higher-end ones. He is even gaining confidence to build homes in more far-flung locations. The company is about to begin construction on a 114-home project in the Inland Empire east of Los Angeles and another development in Manteca, Calif., about 80 miles east of San Francisco. Both areas were hard-hit during the housing crash and were among the slowest to recover.
Builders largely avoided the exurbs after the bubble burst in 2006. But because land there is cheaper, they can build lower-end homes more profitably.
“Most builders really preferred to stick straight down the fairway, right at the corner of Main and Main. They were afraid to go back into the rough where they built a lot of homes in the prior cycle,” said Alan Ratner, senior home-building analyst at Zelman.
Outside Las Vegas, Tri Pointe has introduced a new-home design that is specifically targeted to millennial buyers, featuring indoor-outdoor patios and deck spaces, as well as a separate downstairs bedroom-and-bathroom suite that could be rented out to a housemate. Mr. Bauer said the homes, geared toward first-time buyers, have been selling more rapidly than pricier homes.
Joey Liu, a 28-year-old technology worker, purchased his first home in San Jose, Calif., earlier this year. He said it is more expensive than renting but that he is getting to the stage in life where it was time to buy.
“A lot of friends of mine bought a home so I started thinking maybe it was time to buy a home and stop paying rent,” said Mr. Liu, who settled on a three-bedroom townhouse for $690,000. He plans to rent out a room to help with the expenses.
He had three housewarming parties to celebrate his newfound status. “This is my first house, so it definitely feels different,” he said.
Builders say their return to the starter-home market shouldn’t invite comparisons to the fevered construction of the mid-2000s.
“One of the misconceptions is that, here we go again, this is another 2005, 2006 where all these builders are going to build hundreds of thousands of homes. We’re not going crazy,” said Brent Anderson, vice president of investor relations at Scottsdale, Ariz.-based Meritage Homes Mr. Anderson said that last year the company was building four to five speculative homes per community and is now up to 6.4 on average.
Building executives said one challenge is that many people are buying first homes later in life, meaning they have higher incomes and greater expectations molded by years of living in luxury downtown rentals. Such buyers also appear wary of driving farther out to get more space.
Sheryl Palmer, president and chief executive of Scottsdale-Ariz.-based Taylor Morrison Home , said to cater to this demographic the company is building more three-story townhouses or single-family homes on narrow lots. She said about one-third of the company’s buyers this year are millennials, up from 22% last year.
Even Toll Brothers which typically builds homes for the top end of the market, is venturing into lower price points. In Houston, the company is building homes starting in the mid-$300,000s range, while a typical Toll home in the area costs around $850,000.
Appeared in the May. 12, 2017, print edition as ‘Generation of Renters Now Buying.’
In an article in the Wall Street Journal from January 3rd 2017 by Chris Kirkman (yes it’s from over a month ago but this is an important and relevant trend which is intensifying as time passes), we learn that buildable lots for developers are becoming scarce. One tactic builders are reverting to is buying whole subdivisions that were abandoned during the crash and which were never fully completed. While there is a lot of remedial work to be done, it is still a better deal in many cases to fix up the existing unfinished subdivision, than to start the zoning and approval processes from scratch.
The relevance to us as real estate investors is that as buildable lots become more scarce, undoubtedly their cost increases. This reliably raises the price for finished new homes and creates comparable sales which usually push the median market prices higher.
Given the fact that interest rates are still low (historically they are very low, Trump-bump notwithstanding), and since 3.5%-down FHA loans are still widely available to homeowners buying at the price ranges we are interested in ($100K-$200K), the writing is on the wall: home prices in many cities (certainly the key cities we look at as investors), are likely to keep appreciating in the near future (possibly 1-2 years).
This points to a potential window in which to ‘stock up” on quality investment Single Family homes: with low interest rates (don’t forget to get a 30-year fixed rate loan if you can), an upwards price trajectory (if only due to the scarcity of buildable lots), still-available low-down FHA loans and still-affordable prices in many key metropolitan areas, investors are enjoying a ‘sweet window” in which to buy, finance their purchases well, and then rent and hold.
We will be talking about this and many other points, including entity formation and asset protection, investing in real estate form one’s self-directed IRA, the types of loans available to investors, which markets stand out and why, and a whole lot of expert information. Q&As and networking are always in abundance, at our Quarterly 1-Day Expo near the San Francisco Airport March 4th. Anyone mentioning this blog entry can attend for free – please email us at firstname.lastname@example.org to register. Just tell us in the subject line, “Read your blog,” and your information in the body of the email.
The full WSJ article is presented here:
With Lots in Short Supply, Builders Revive Abandoned Projects
Developers and investors are starting to resurrect subdivisions that were left half-finished after the housing collapse
Developers Build on Home Rental Success With Whole Communities
Property firms see continued demand for single-family homes from millennials, aging boomers who don’t want to buy
The model doesn’t work in all markets. In areas such as California, for example, where land is expensive, developers would likely have to charge rents that would be too high to justify the cost of construction. Markets such as Arizona, Texas and North Carolina make more sense because land is plentiful and demand is high.
This site was built for me by RealBasics.com. Their motto is “Let’s make it your website!” Which means that I can change anything I want about it. Possibly starting with deleting this sample blog post!