Matrix Blog

Rentals, Investing

With Mortgage Lending Historically Tight, Renters Suffer Just As Much

April 15, 2014 | 4:19 pm | nytlogo |

nytrentafford4-14

There was a good article in the New York Times yesterday: In Many Cities, Rent Is Rising Out of Reach of Middle Class

Many have complained about the Federal Government’s (and our society’s) overselling of homeownership over the past decade and how the decline in homeownership will eventually lead to an emphasis on rentals in the US. Of course, like many housing market ideas, good and bad, they tend to be presented in a vacuum, without real context.

I believe much of this discourse is in reaction to tight credit combined with a weak economy rather than some sort of fundamental cultural and economic shift. During the bubble we got the opposite discourse – that there was a fundamental cultural and economic shift towards homeownership.

Currently there is a much smaller subset of Americans that have access to financing. According to the Federal Reserve Senior Loan Officer Survey, lending has actually tightened in 2014 over 2013 (related to QM). Many homeowners are unable to sell because they can no longer buy and many renters no longer qualify for financing so the idea of of homeownership as a goal fades.

Case in point has been the recent public discourse on the issue of home affordability, whether it be sales or rentals. Zillow presented an analysis for the New York Times that illustrates how much rents have risen in the past 13 years (since 2000) in cities across the US.

Here’s the scenario:

The economy is weak – we are seeing tepid growth in employment, stagnant incomes and historically tight residential mortgage lending.

  • Approximately 38% of homeowners can’t buy their next home so they won’t list their home for sale.
  • Buyers without credit issues won’t list their homes until they can find something to buy.
  • The lack of supply presses prices higher because those who have access to credit have little inventory to choose from, driving up prices.
  • Renters looking to buy can’t find a home they want to purchase so they are kept in the rental market.
  • Renters looking to buy don’t qualify for a mortgage so they stay in the rental market.

The organic flow out of the rental market into the sales market is slowed and a log jam is created of too many renters and not enough buyers.

Rising rents against stagnant incomes creates an affordability crisis. The sales and rental markets are connected. They are not mutually exclusive.

Rising rents are a product of tight credit, which is a residual byproduct of the financial crisis. Fix the economy and credit eases, then lending normalizes (no, not circa ’06) and the pressure on rental housing is eased.

ASIDE I’m not entirely confident with the reliability of the historical rental data being presented to the New York Times by Zillow – but I still agree that affordability is being pressured:
- Zillow was launched circa 2006 and rents are not public record so the early data has to be super thin.
- The comparison was made between a first quarter (low) and a third quarter (high) in a highly seasonal market.
- I am not sure if “New York” means Manhattan or New York City. If it is Manhattan, then our median rent figure in 1Q 2000 was $2,600 in nominal terms, and $4,276 in real terms. In nominal (unadjusted for inflation) terms, rents have risen 23.1% through 3Q 2013 while real median rent has fallen 27.3%. The Zillow median rent as share of median income nearly doubled, rising from 23.7% to 39.5%. Either incomes have collapsed in NYC or the 2000 rental figure being punched into their model is flawed, ie way low, no?

Other inights on any of this would be appreciated.

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Brooklyn Rentals: Coolness doesn’t come free

April 11, 2014 | 10:07 am | Public |

4-2014qzmanhattan-brooklyn-rentspread [Source: Quartz]

Rob Ferdman over at Quartz writes a great breakdown of the narrowing rental spread between Manhattan and Brooklyn using the data I crunch for The Elliman Report: Manhattan & Brooklyn Rentals. Here’s my version of the chart.

After I designated last week’s Bloomberg story headline “Brooklyn’s Hipster Economy Challenges Manhattan Supremacy” as my favorite new phrase, specifically:

Brooklyn’s Hipster Economy

Quartz has given me a new favorite phrase (see under original chart):

Coolness doesn’t come free

.

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[Infographic] Looking at the Manhattan and Brooklyn Rental Markets 3-2014

April 10, 2014 | 12:00 pm | delogo | Infographics |

Entering the world of infographics, here are some highlights from our just released Elliman Report: Manhattan & Brooklyn Rentals 3-2014

ManhattanBrooklyn3-14INFOGRAPHIC


New Record of Foreign-owned Assets in the United States

March 27, 2014 | 4:06 pm | wsjlogo |

3-14commerceForeignInvestors

According to the WSJ Real Time Economics Blog there are the record investment gains. This is good news/bad news…and:

has worried some economists, because it makes the U.S. more vulnerable to major shifts in the global economy. But it also could show strengthening confidence in the American economy.

These gains are largely due to the rising US stock prices rather than more investment. However in the housing sector, I do think rising property values are attracting even more new capital for investment – whether for new development or unit purchases. We can see this in markets like New York City and Miami. Foreign investors seem to be chasing safety and a long term equity play.

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The Manhattan & Brooklyn Rentals Side-by-Side Trend Comparison

March 20, 2014 | 12:50 pm |

Given the discussion about the narrowing gap between the Manhattan and Brooklyn Rental markets, I thought I’d place the rental price trends side by side to get a sense of how the two markets match up.

Manhattan
While the year-over-year Manhattan rental numbers have fallen short of the prior year, rents have remained fairly stable over the past 6 months:

2014-2Manhattan-medianYoY
[Click to expand]

Brooklyn
Brooklyn rental prices have been trending sharply higher to the point where the rental price spread between the two markets is at it’s lowest level every recorded (since 1/2008):

2014-2Brooklyn-medianYoY
[Click to expand]

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[Leverage] Calculating Your Home Investment Return Realistically

March 16, 2014 | 9:00 am | Infographics |

leverageinfographic
[click to expand]

I think many, if not most people calculate the return on their home as an investment as this CNN/Money calculator does. After seeing this, I whipped up a theoretical infographic illustrating how the use of leverage in a home purchase factors in to your return. It’s super simplistic, not factoring in opportunity cost, use and enjoyment, tax deductions, improvements and other factors because I wanted to show the power of leverage.

Forget about price indices like Case Shiller or similar. I can’t tell you how many times I have seen a home price index paired up against a stock price index as a way to determine which investment is better. Apples and oranges.

Measure your ROI using what you invested (down payment) and what your home equity expanded (or contracted) to.

The CNN/Money rate of return calculator is really only a measurement of home price appreciation compared to the same period for stocks and bonds as an opportunity cost – comparing different asset types side by side – yet that’s not how the majority of homebuyers interact with their home as an investment.

It’s most often about leverage.

UPDATE
An appraisal colleague and friend of mine pointed out that in my original version, I incorrectly used the word “profit” within the infographic rather than what I was actually talking about: “equity” ie return on investment (ROI) – how much the original down payment gained over time. The numbers all remained unchanged.

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[Chart] The Manhattan-Brooklyn Median Rental Price Smackdown

March 15, 2014 | 1:57 pm | delogo | Charts |

2014-2MBmedianspread

The rental price spread between Brooklyn and Manhattan is narrowing. At $210, the month of February saw the lowest differential between the median rental price of Manhattan and Brooklyn’s North and Northwest regions.

While Manhattan rents have leveled off, Brooklyn rents have continued to rise sharply – a combination of rising demand as well as a shift in the mix towards luxury rentals.

A decade ago, who would have thought we’d be talking about Brooklyn this way?

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Safety First: Explaining Flood of Asian Investors Into Western Real Estate

March 15, 2014 | 12:50 pm | kflogo |

This is a good interview with Alistair Elliott, senior partner and chairman at Knight Frank by Josh Noble of FT about the buying binge of Asian investors in many major global cities like London, Vancouver, Sydney and New York City…”mature financial cities.”

Institutional investors come first, then developers and then private investors. The phenomenon is at it’s very early stages.

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Talking Rental Markets on Bloomberg TV’s ‘Street Smart’

March 14, 2014 | 5:54 pm | bloomberglogo | Videos |

Had a great conversation with Trish Regan on her Bloomberg TV show “Street Smart” about the Manhattan and Brooklyn rental markets and rent versus buy. This was in connection with the February Elliman rental report we published earlier that day.

It was windy and 18 degrees outside so I think I look a bit disheveled. But always fun to connect with everyone at Bloomberg whenever I visit (and maintain my Foursquare mayorship of the “green room”).

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February 2014 Manhattan and Brooklyn Rental Report Released

March 14, 2014 | 12:44 pm | delogo | Reports |

Rental_0214

Douglas Elliman published the Manhattan/Brooklyn rental report that I author. This monthly report is part of an evolving market report series I’ve been writing for Douglas Elliman since 1994. We discontinued the quarterly rental report series but still present the information in our aggregate database.

MANHATTAN

  • Prices fell from year ago levels for the 6th consecutive month.
  • Rental prices have essentially remained flat since last summer.
  • Median rental price spread between Manhattan and Brooklyn (N. NW regions) was $210, narrowest tracked (since January 2008).
  • The use of concessions by landlords nearly doubled and vacancy rate edged higher.

BROOKLYN
[North, Northwest Regions]

  • Rental price indicators continued to push higher.
  • New rental activity jumped as tenants scrambled for improved affordability at time of lease renewal.
  • Price gains in studio and 1-bedrooms as 2-bedroom and 3-bedrooms weakened.
  • Marketing times remained largely unchanged but negotiability between tenants and landlords tightened.

Here’s an excerpt from the report:

MANHATTAN For the sixth consecutive month, the year-over-year median rental price fell below the prior year level. Median rental price declined 2.8% to $3,100 from the same month last year. As a result, rental prices have generally remained flat on a monthly basis since last summer. The other price indicators also showed similar declines. Average rental price slipped 0.6% to $3,932 and average rental price per square foot fell 3.7% to $49.70 respectively from the same period last year…

BROOKLYN All rental price indicators continued to post year-over-year gains. Median rental price rose 11.6% to $2,890 from the same period a year ago, marking the ninth consecutive monthly gain. These results outpaced the luxury market, whose median rental price increased 4.5% over the same period. Average rental price expanded 2.6% to $3,178 and average rental price per square foot increased 3% to $38.12 over the same period…




The Elliman Report: 2-2014 Manhattan/Brooklyn Rentals [Miller Samuel]
The Elliman Report: 2-2014 Manhattan/Brooklyn Rentals [Douglas Elliman]
Miller Samuel Aggregate Database [Miller Samuel]
Chart Gallery (Brooklyn Monthly) [Miller Samuel]
Chart Gallery (Manhattan Monthly) [Miller Samuel]
Chart Gallery (Manhattan Quarterly) [Miller Samuel]