As a value guy like you it’s hard to figure out how buying something in the sixes on cap rate works out to be a good deal. But what if the Fed is trapped at the Zero Lower Bound and we are turning Japanese? Their ‘Lost Decade’ is now old enough to graduate with a Master’s degree and we’re following the exact same playbook. I offer last week’s Fed decision as exhibit #1. They would dearly love to raise rates just to prove they can but there’s just thin ice between us and
The recovery has been good (What crash? good in a few) in some areas, seemingly non-existent in others and in many a slow grinding process that has yet been unable to return to pre-crash levels. The first thing that everyone should look at is job growth but Florida looked deeper into High Wage growth around the country:
Bill McBride over at Calculated Risk has a post out this morning with 2 charts of data from LPS on the housing recovery. The first shows that homes in ‘active’ status, either in foreclosure, delinquent or otherwise ‘non-current’ has fallen below 2008 levels for the first time.
Which is the primary axis and which is the secondary is kind of a mystery and we are left to assume that both are x1,000 so that would imply the left axis is secondary (Or is it?) The most interesting factoid on the chart is in the box on the upper left; The percent of DQ homeowners active (in the foreclosure pipeline instead of being ignored) has doubled. To me this looks like a market that’s starting to clear, which is good for housing and the economy in general.
CoreLogic is out with their quarterly report and map of underwater homeowners. Their analysis is “showing approximately 200,000 more residential properties returned to a state of positive equity during the fourth quarter of 2012. This brings the total number of properties that moved from negative to positive equity in 2012 to 1.7 million and the number of mortgaged residential properties with equity to 38.1 million. The analysis also shows that 10.4 million, or 21.5 percent of all residential properties with a mortgage, were still in negative equity at the end of the fourth quarter of 2012. This figure is down from 10.6 million* properties, or 22 percent, at the end of the third quarter of 2012.
Negative equity, often referred to as “underwater” or “upside down,” means that borrowers owe more on their mortgages than their homes are worth. Negative equity can occur because of a decline in value, an increase in mortgage debt or a combination of both.
Very nice piece from Joseph Y. Calhoun over at Alhambra Investment Partners covering some of the unexpected good things that could happen to our economy entitled Looking For Silver Linings. He includes this nugget with its implication of a good apartment building investment climate continuing:
In the ten years prior to the recession, household formation averaged 1.5 million per year. From 2007 to 2010 that rate was cut by 2/3. Household formation recovered to a bit over 1 million in 2011 and probably rose more this year. Still there is a gap of about 2.5 million households between the number formed in that period and what would be expected based on demographic trends. There is pent up demand for housing (although probably primarily rental housing) that only awaits some job growth to be realized. [Emphasis mine]
From their latest National Monthly Trends report: Class C properties took the lead for annual effective rent growth in August. Class A properties had been the leader in that category as the apartment market improved over the past few years, but the Class A annual growth rate slowed from 4.73% in May to 3.70% in August. Why has the growth rate slowed so much in just the past few months? Is it tied to job growth, which weakened in May? Is the first wave of new supply starting to impact performance as we show new apartment deliveries nationally jumping from about 13,000 in the first quarter to over 17,000 in the second quarter and 25,000 in the third quarter? Or is it simply because a $75 increase this year is not as big of a relative change as it was a year ago since the denominator in the rent growth equation keeps getting larger? The answer is likely due partially to all three situations, but the weighting of each factor can vary by market. However, new supply could play an even larger role next year than it will this year.
Portland’s recovery in jobs driven by the return of tech and the lure of its funky coolness (see Portlandia) is noted in Kiplinger’s slide show on the 8 Cities with Surprising Job Growth where they’re expecting 130,000 new jobs in the next five years:
“After devastating job losses in the recession, Portland has made a spectacular recovery, fueled by the tech mini-boom and the area’s attractiveness to young people. Anchored by Intel and its 16,000 employees, Portland will maintain its moniker as the Silicon Forest for its more than 1,200 high-tech firms, most of them small to medium-size.
Apartment building investments are a top choice according to Gary Shilling, one of the world’s foremost economic forecasters, a long-time Forbes columnist, publisher of Insight Newsletter with his editor Fred Rossi, and author of “The Age of Deleveraging,” (http://amzn.to/L9hm7W on Amazon) the perfect playbook for America’s new Age of Austerity.
Rental apartments. A huge inventory still overhangs the housing market as prices continue falling. The American dream of homeownership may be history. Renting is the affordable option. And with REIT prices running high, “direct ownership of rental apartments may still be attractive.”
See the whole post for more ideas for investing in these turbulent times.