Multifamily Rents: Class A vs. Class B/C

The gap between class A and class B/C rents in multifamily properties has reached the lowest level in 15 years, representing a value opportunity for small balance investors.

According to data from Reis, the average asking rent for class B/C apartments represented 70.4% of the class A average during Q2 2015. This was the smallest difference on a percentage basis since the same 70.4% rate was measured for the same period during 2000. The largest difference was in 2009, the end of the recession, at 73.4%. Additionally, the net difference between property classes reached a record high of $411/unit during Q2 2015.

Reis data also showed that class A rents have recently grown at a faster pace than class B/C rents. The average asking rent for class A apartments was up 4.2% during Q2 2015 compared to the same time one year ago, while the class B/C average increased 2.5%. Overall, Reis forecasts 2015 year-end rent growth for multifamily properties to finish at 3.8%.

Rent growth in class A properties has been driven by new construction, with Reis reporting nearly 80,000 new units completed so far this year. However, no new class B/C properties have been added to the market so far this year, which could lead to constrained supply in the longer term.


All market data from Reis, Inc.

This report was produced for Arbor Commercial Mortgage, Inc.

Word ‘Millennials’ Forced Into Headline To Boost Pageviews

CHICAGO—Seeking to maximize the potential reach of their latest post, sources confirmed Thursday that the editors of news website The Daily Blotter managed to force the word “millennials”into the article’s headline in order to boost pageviews. “This post was about to go live when I realized that shoehorning the word ‘millennials’ into both the header and the lede somewhere would probably double the number of eyeballs we get on it, so I sent it back to the section editor for another pass,” senior editor Jeffrey Gein told reporters, noting that though the 400-word article concerning new workplace regulations has no connection whatsoever to the millennial demographic, he was nonetheless able to make the attractive, eye-catching term the first word in theheadline. “Sometimes we’ll be having a pretty slow day, so I’ll toss a few ‘millennials’ into our feed so that we drum up some traffic. Of course, sometimes I’ll just do that anyway. As long as we get those click-throughs, I’m happy.” At press time, Gein had managed to garner even more pageviews for the post by shrewdly squeezing the terms “controversial,” “viral,” and “you won’t believe” into the headline as well.

Via: The Onion | Word ‘Millennials’ Forced Into Headline To Boost Pageviews

How will an increase in the federal funds target rate affect mortgage rates?

The Federal Open Market Committee (FOMC) of the Federal Reserve announced in June that it will maintain the current 0.00% to 0.25% target range for the federal funds rate, the recommended rate at which banks lend to each other. The Federal Reserve can control the rate by buying or selling government bonds, in an effort to maximize employment and control inflation. The economy has been operating in a low interest rate environment since the recession and many fear that a rise in the federal funds rate will have a negative impact on mortgage rates.

Mortgage rates are market driven by lenders competing to attract investors, not just the federal funds target rate. Although they are affected indirectly because of the impact on borrowing costs, mortgage rates are largely affected by the direction of the economy and yields on competing financial products, such as treasuries and bonds. Mortgage rates don’t increase simply because the target rate increases, although some economists are worried a rate increase will have a direct impact on mortgage rates in the current economic environment.

The Federal Reserve has not officially announced a date to raise the target rate, although 15 of the 17 FOMC members surveyed stated that they believe the hikes will begin before the end of 2015. Some economists have predicted that the first rate increase will be announced at the fed’s September meeting. However, Chair Janet Yellen ensured this week that rate increases will be gradual and that policy will remain accommodative, indicating the target rate will likely end the year between 0.5% and 0.75%. The committee’s median target rate estimate for 2016 is 1.625% and 2.875% for 2017.

Given today’s low interest environment, even small increases could have a large impact. The federal funds rate has remained below 1% for nearly seven years, while the average rate for Freddie Mac 30-year mortgages has remained below 6% during that time. Prior to the most recent recession that started in late 2007, the effective federal funds rate held steady at 5.3%, while mortgage rates averaged just over 6%. In the early 1980s, mortgage rates peaked at over 18% and the fed rate climbed over 19%.

The FOMC’s economic projections also play an important role in the direction of mortgage rates, since a strong economy usually means higher rates, while a weaker economy leads to lower rates. The committee’s June projections estimate that the economy will grow at a 1.8% to 2.0% pace during 2015, which was revised down from the 2.3% to 2.7% projection published during March. Growth for 2016 is projected at 2.4% to 2.7%.

The federal funds target rate plays an indirect role in the direction of mortgage rates, with the marketplace and other key indicators of the economy playing larger roles. Given the Federal Reserve’s statements regarding accommodating policy and that the economy has still not recovered to full strength, any increase in mortgage rates driven by an increase in the federal funds target rate are expected be gradual.

Urban Institute - Headship and Homeownership: What Does the Future Hold?

This longitudinal study of household formation and home ownership rates from 2010 to 2030 reveals that new renters will outpace new homeowners in the coming decades and, that, while there will still be more owners than renters, the homeownership rate will continue to decline. This will create intense competition for rental housing. In addition, the aging of the population will also create the urgency to develop policies to allow the 20 million new seniors that we will have by 2030 to stay in their homes, as most want to do. The study also projects that African Americans will fall further behind and Hispanics will improve their rates of homeownership. These estimates make it clear that we do not have adequate policies in place to support the rental surge and adequate affordable rental housing and homeownership for all, regardless of race and ethnicity.

Key findings:

- For the next 15 years, new renters will outpace new homeowners.
- The headship rate—the pace at which people create new households—is declining further.
- The overwhelming majority of new households formed from 2010 to 2030 will be nonwhite.
- The overwhelming majority of new homeowners will also be nonwhite.
- The number of senior households will expand dramatically from 2010 to 2030.

Full Report: Headship and Homeownership: What Does the Future Hold? | Urban Institute

Federal Reserve Board: Senior Loan Officer Opinion Survey on Bank Lending Practices [INFOGRAPHIC]

LINK: infogr.am