Markets With the Largest Increase in Rent in 2014

Another Top-10 List -- Markets With the Largest Increase in Rent in 2014

 

As with all pricing, rent is a function of the interaction of supply and demand.  In many markets, construction has not kept pace with job growth, and rents continue to climb.  Compounding that is an increase in renters in general as mortgage lending standards restrict many from becoming homeowners.

 

This week I gave several presentations in Minneapolis-St Paul, a market where job growth is far outpacing construction of new rental units.  In the latest 12-months, while the Twin Cities has had 12,629 residential building permits issued, job growth was 42,500.  That works out to 3.36 net new jobs per new dwelling.  In a normal market,  each new dwelling requires from 1.25 to 1.5 net new jobs. From an economic perspective, construction could double in the Twin Cities and still not result in an over-built market, assuming that job growth continues at that pace. 

 

So where are rents expected to increase the most?  Reis, a nationwide source of market information, analytics and data, compiled a list of the top-10 growth markets.  They include:

 

 

 

To read the entire article clickhttp://www.multifamilyexecutive.com/rent-trends/top-10-rent-growth-markets-of-2014_o.aspx?dfpzone=home&utm_source=newsletter&utm_content=jump&utm_medium=email&utm_campaign=MFEBU_121213&day=2013-12-12

 

In the past, markets have been overbuilt and rents have retracted.  That may well be the situation in Washington, D.C. today.

 

In general, renters will see rising rents in 2014.

Home prices remain at least 20% below peak

Years after the bubble burst, home prices in 12 states remain at least 20% below local peak levels, pointing to a lopsided recovery for the U.S. housing market, according to data released Tuesday.

Nevada’s home prices in October, including distressed sales, were 41% below a 2006 peak, the largest drop from bubble levels, despite explosive growth of 26% over the past year, according to CoreLogic, an Irvine, Calif.-based provider of financial and consumer information. Prices in Florida and Arizona in October were more than 30% below local peak levels.

But the picture on the national level is much milder. In October, national home prices were down 17% from a bubble peak.

Here’s what’s happening: While homes prices in some states are still recovering from sharp bubble drops, others recently hit new peaks. According to CoreLogic, home prices in 10 states have hit fresh peaks this year.

So what does this mean for a housing bubble?

“We went through the biggest housing bubble in U.S. history in the 2000s, and there is a knee-jerk reaction among some people who think, well, maybe we are doing that again,” Yale economist Robert Shiller, a home-price expert and Nobel Prize winner, said in a recent Barron’s interview. “But you have to consider that these are very rare phenomena, and it was such a decisive break at the end of the last housing bubble that we might not be psychologically ready for another bubble.”

The 2014 housing market is just around the corner

The housing market is just around the corner from the new year, and besides an onslaught of new regulations, the year 2014 is also estimated to bring a new high: 5% mortgage rates.

By the end of 2014, Frank Nothaft, chief economist with Freddie Mac, predicts that mortgage rates will approach and perhaps touch 5%, mostly due to theFederal Reserve’s quantitative easing.  

At some point the Fed will scale back their bond purchases, Nothaft said, but when they will start and how gradual it will be, is very unclear.

“I do think in the first half of the year they will announce something on tapering, and they will start to pull back. But when you have a big investor like the Fed scale back their purchases, it will lead back to an uptick in yields, which will translate into higher mortgage rates,” Nothaft said.

Personally, Nothaft said he believes that if Janet Yellen is nominated as chairman, one of her first acts will be to get a consensus statement from theFederal Open Market Committee that is as transparent as possible as to what the Fed will do about tapering.

And while mortgage rates will take a hit from the tapering in the beginning, the pull-back will be gradual in order to avoid further volatility, he estimated.

But the true consequence of tapering and 5% rates falls into the hands of the borrowers.  

“As rates climb, I see the issue lying in move-up houses,” said Chris Randall, Real Estate Mortgage Network Capital Markets Vice President. “It will be much harder for the family to make the next step as interest rates rise. Supply will be tight and there will be a lot of people trying to make the next step.”

There will be a lot of consolidation across the industry and fewer players and refinance shops in the market, Randall explained.  

Overall, Nothaft emphasized that affordability will remain high in most markets, but not in all.

“Even if rates go up to 5%, given the level of house prices and family income, most markets would remain affordable, and the monthly PITI would be below 28%. But high-cost markets are a challenge,” Nothaft said.

Furthermore, if rates do continue to increase, it will reinforce Freddie Mac’s estimate that 2014 will usher in a purchase-driven market, which will be the first time since 2000.

However, Nothaft cautioned that a purchase-driven market will not make up for the lack of refinance volume and predicts $1.4 trillion in primary mortgage originations for 2014.

As a result, Randall said lenders need to drive their purchase business and make sure they are doing things efficiently. Most lenders who have been around awhile and are more prepared will be OK, but those who are not will have difficulties.