In Case You Missed It: Week of March 28, 2016

The Employment Situation – March 2016
U.S. Bureau of Labor Statistics
April 1, 2016
“Total nonfarm payroll employment rose by 215,000 in March, and the unemployment rate was little changed at 5.0 percent, the U.S. Bureau of Labor Statistics reported today. Employment increased in retail trade, construction, and health care. Job losses occurred in manufacturing and mining.”

Housing will have its best year in a decade
Freddie Mac 
March 31, 2016
“This year is shaping up to be the best year for housing in a decade.  Home sales, construction housing starts and house prices are set to reach decade-level highs. Here are several reasons why we think this will happen.”

Hell without the L?: Here’s how real estate players are bracing for the train shutdown
The Real Deal
March 30, 2016
“The Real Deal spoke to residential and commercial brokers, developers and business owners to gain some insights into what North Brooklyn will look like after 2018, without the L train (or, as in the MTA’s alternate plan, an L train with no night and weekend service for five years). Here’s what they had to say:”

What Inning Are We In? Let’s Play Two!
National Association of Real Estate Investment Managers
March 28, 2016
 “Commercial property investors are at a confusing spot. After growing at a double digit pace in the last few years, both property prices and volume have now fallen. When positive trends were steady, experts and professionals at industry conferences were asking the same question, “What inning are we in?” We are now in game two of a double header.”

NYC March 2016 Economic Snapshot
New York City Economic Development Corporation
March 28, 2016
“Private employment in New York City increased 4,200 between January and February 2016. The unemployment rate increased to 5.4%, down from 6.3% this time last year.”

The Drop in Oil Prices Has Had a Negligible Impact on CRE
National Real Estate Investor
March 24, 2016
“further volatility in oil prices will continue to affect stock market prices and potentially the real estate market, but largely in a macroeconomic and indirect way by creating uncertainty on the decision making of market participants. As long as job growth remains positive, the real estate market will remain positive as well. Some smaller areas that have shed jobs from drilling and ancillary oil demand will continue to decline, but these markets are isolated and generally small.”

How does Rent Factor into the Consumer Price Index (CPI)?

"One economic tool which has stood the test of time is the shelter component of the Consumer Price Index (CPI). Provided by the U.S. Bureau of Labor Statistics (BLS), the shelter index is a measure of the costs associated with housing, not including investments and upgrades. It’s a major component of CPI — making up 32.8% of total CPI — and has been included since its inception in 1913."

Full Article: ALEX Chatter

Foreign Investment in U.S. Multifamily Hits New Highs

"According to the latest data from Real Capital Analytics, foreign investment volume in U.S. multifamily properties totaled $16.3 billion during 2015 — nearly triple the 2014 total of $5.7 billion.

Foreign investment in the U.S. is expected to increase even further during 2016, in part driven by changes to the Foreign Investment in Real Property Tax Act (FIRPTA) enacted in December. The changes reduce tax obligations for non-U.S. investors investing in U.S. real estate."

Full Article: ALEX Chatter

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