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Economists Prove Einstein’s Theory About Repeating Behavior And Expecting Different Results.

Mainstream economic theory (MsET) has two fundamental tenets that most thoughtful people (even economists) realize are wrong and yet economic decisions and importantly even Fed policy is still based on this flawed model. We know what Einstein said this defines and it’s true.

Problem #1 is the Efficient Market Theory (EMT) or Theory of Rational Expectations says that economic information is widely distributed and that we as individuals and collectively as a market of decision makers and consumers consistently make our choices based on what will give us the most benefit. This has been scientifically proven to be not the case way more often than we like to think. For more on this see “Predictably Irrational” by Dan Ariely and “Thinking, Fast and Slow” by Kahneman in the ‘On Our eReaders Now’ box in the far right column of this page.

The second problem is that MsET is built on the idea that the economy tends to be stable and that dislocations are temporary and tend to correct themselves back to stability somewhat like a train running down the tracks that gets thrown off from time to time. History teaches us that is not the case either. Most often we are moving away from or back towards stability and occasionally pass through stability but typically overshoot. It doesn’t take much imagination to see how these two errors cause problems for economists (and us) and leads to a dismal reputation for them.

I’ve been reading a lot on economics lately searching for a new improved model and have just found a number of articles that tackle those issues. They are lengthy but well worth the reads. The first two were posted by John Mauldin in his ‘Outside The Box’ (OTB) series where others write about and discuss their sometimes opposing views from John’s. Mauldin will begin each piece with an intro about the author and where he might differ from that point of view. His guests are typically people who deal at the highest levels and their insights are Continue reading Economists Prove Einstein’s Theory About Repeating Behavior And Expecting Different Results.

Canadian Multifamily Bubble? Sadly the US can watch from hindsight.

Interesting peek at multifamily in Toronto and Vancouver, worth a read to see how many rationalizations you recognize (or have uttered yourself). Nice quote: “If builders stopped building today, there’s five years worth of supply that is about to be delivered, relative to what normal population growth is.” Sound familiar? They’re even starting to do NINJA liar’s loans.

Toronto home and condo prices are amazingly high, the average price for a detached home C$543,993; for condos it’s ‘only’ C$343,835. In Vancouver the Continue reading Canadian Multifamily Bubble? Sadly the US can watch from hindsight.

Multifamily Marketing; What can you learn from the big players?

“Not all residents want the same thing,” Conway says. “Listening to what our consumers want and wrapping them in a brand is going to help us grow.” AvalonBay hopes to attract younger consumers to its metropolitan “AVA” buildings… designed to be more youthful than other high-end AvalonBay buildings because they’re targeted to Gen Y residents, many of whom live with roommates in smaller, urban-style apartments.

Are your properties targeting specific demographics? Could you attract more tenants by marketing to a specific lifestyle? See the whole MFE article here: AvalonBay Launches Brands for Gen Yers, Suburbanites

Multifamily Buildings to Lead U.S. Construction Gains-

Feb. 13 (Bloomberg) — Construction of multifamily units will lead the U.S. building industry again this year, allowing housing to contribute to growth for the first time in seven years, according to economists Michelle Meyer and Celia Chen.

Work will begin on about 260k apartment buildings and townhouse developments in 2012, up 45% from last year and the most since ’08, according to Meyer, a senior economist at Bank of America Corp. in New York. Chen, an economist at Moody’s projects a record 74% jump to 310k.

Homeownership rates, which have declined to the lowest levels since ’98, may keep dropping as the foreclosure crisis turns more Americans into renters. In addition, household formation will probably accelerate as an improving economy and growing employment embolden more people to stop sharing residences and strike out on their own.

“Given the ongoing shift from owning to renting, there is increasing demand for multifamily construction,” Meyer said in an interview. See the whole Bloomberg piece here: Foreclosures are transitioning people out of ownership

Multifamily Sales Close Out 2011 on the Rise, Lead by Garden Style.

A recent report from New York–based commercial real estate research firm Real Capital Analytics (RCA) reveals that apartment sales figures closed out 2011 on a positive note. The firm’s “2011 Year in Review” report shows that the fourth quarter of 2011 netted $16.6 billion in sales, the highest quarterly volume racked up since 2007. This marks a 16 percent increase from the previous quarter and a 24 percent bump from fourth-quarter apartment sales in 2010. Among the more optimistic data revealed in the report was the rebound of garden-sector sales.

Garden properties ended up 47 percent ahead of the 2010 figures, and it appears that the sales momentum experienced in the fourth quarter will carry over into the first quarter this year. “Given the stable cap rate environment for garden properties, compared to sinking caps in mid-/high-rise, that trend is likely to continue in 2012,” projects Thypin.

See the whole AHF article here: Apartment Sales Close Out 2011 on the Rise

Why it’s good news that more Americans are renting rather than buying homes. Via Slate. Good for #Multifamily

Exec Sum:

The American economy is making a significant shift from buying to renting, and that may ultimately be good news. According to a USA Today analysis of Census data released this weekend, since 2006, the number of households that rent has grown by about 700,000 a year, while the number of households that own has fallen by about 200,000 a year.

[R]enting is better than owning for many Americans. Indeed, dozens of recent studies have shown that, excepting the go-go bubble years, houses tend not to make very good investments at all: A prospective homebuyer would have made more money taking her down payment, parking it in inflation-adjusted Treasury bonds, and renting.

But it is conclusive: Not everyone should own a home. The recession has helped erode the stigma against renting, with about 70 percent of Americans now admitting that it has advantages over buying a house. If people are making unsentimental decisions about whether homeownership is really worth it for them, that is at least one small benefit of the housing bubble bursting.

See the whole article with links to reports and surveys here: The Rent Isn’t Too Damn High

Seattle Area Multifamily Report now posted on Reis Reports- Caps flat, rents mixed but vacancy down

See the report here: http://bit.ly/xm8uUG

Supply Shortage Continues in Multifamily. Apartment vacacny lowest in 11 years.

From WSJ Developments-

Little new apartment construction and surging demand has created a shortfall of 2.5 million units, the largest the nation has seen in more than a half-century, according to research from Nareit, a trade group for real-estate investment trusts.

As we’ve reported, apartment landlords are seeing vacancy rates decline as more Americans rent by choice or necessity. In the fourth quarter, apartment vacancy fell to the lowest rate since late 2001, with the national rate dropping to 5.2% from 6.6% a year earlier, according to Reis Inc. The vacancy rate had risen as high as 8% in 2009.

Pent-up demand could pull that rate even lower. According to Nareit, the normal rate of household formation is about 1.2% annually. But, with the sour economy in the last four years, the rate plunged to about 0.5%, as people delayed moving out and opted to live with roommates and parents longer. This has created an unmet demand of about 2 million households, “about three times what it has been in previous business cycles,”… See the whole article here

The #Multifamily Asset Twilight Zone: In default but payments still being made. Opportunity or? Via @rshall03

A common theme adopted by the industry is that lenders continue to delay action on distressed assets for as long as possible.

The fact is that this scenario is borrower-specific. If a borrower is acting in good faith, the lender may allow the asset to continue operating, resulting in a commercial property “Twilight Zone.”

The Twilight Zone is made up of properties on which loans have defaulted or in which default is likely imminent, but the borrower is still willing to provide all available cash flow to the lender, even if it is not enough to cover the payments. The lender agrees to accept net rents and, in turn, keeps the building operational, albeit in a limbo period.

When the lender does finally pull the plug value opportunities can Continue reading The #Multifamily Asset Twilight Zone: In default but payments still being made. Opportunity or? Via @rshall03

Is Gen Y your target demographic for Multifamily? Here’s why

Gen Y—those between the ages of 16 to 33—represents about 25 percent of the population in the country and is now larger than the baby boomer generation, which is shrinking

The Gen Y group keeps getting larger for a number of reasons, including the fact that immigrants to the United States typically come as young adults—and rent. This group is expected to continue to expand over the next 15 years.

Through 2017, she adds, there are going to be more than 4.3 million people turning 22 each year (though analysts used to use 18 as the age people left home, young people have delayed forming new households). This number is expected to remain above 4 million until 2025. And, of course, fewer people looking to purchase a home also bodes well for the multi-housing industry.

See the whole article at: Gen Y for Multifamily on MHN Online