Of the nation’s rental housing stock, nearly 1-in-5 (18%) is comprised of homes in two- to four-unit properties. These small apartment houses come in many forms and shapes – duplexes, triplexes, fourplexes, townhouses, rowhouses, or garden apartments – and can be found in urban areas and city blocks, as well as traditional and suburban neighborhoods across the country. Primarily purchased for investment purpose – although owners frequently occupy one unit as their primary residence – these small multi-unit houses make up one-third (34%) of the single-family rental (SFR) market. There are significant geographic variations in their market size, however. Consider the 10 major metros that make up the CoreLogic Case-Shiller Composite-10 Home Price Index, for example. When sized by the entire rental housing stock (i.e., single-family and multi-family combined), 2- to 4-unit rental homes range from 36.1% in the greater Boston metropolitan area to a mere 6.7% in Washington DC metro. But within the SFR housing market, 2- to 4-unit rentals commonly make up a significant portion, particularly in many urban areas in the Northeast and Midwest. In Boston and New York, for example, over 70% of the SFR stock consists of 2- to 4-unit dwellings. On the opposite end is the Denver and Washington DC metropolitan areas where 2- to 4-unit rentals represent only about one-fifth of the city’s SFR (21.2% and 19.1%, respectively). However, whether they dominate the landscape of the SFR market or not, 2- to 4-unit properties provide important affordable housing to low- to moderate-income households, particularly in high-cost markets. For owner-occupants and investors, 2- to 4-unit properties offer a number of advantages as income and investment property. When used as a principal residence, purchasing or refinancing is eligible for FHA financing and often for more favorable mortgage rates and possibly greater leverage from lenders offering conventional loans. Second, the monthly rental income provides short-term cash flow that can be used to pay some of the property expenses. And in the long term, the investment offers potential capital appreciation from rising property value.
The total gross return for the same 10 cities discussed above has two components – short-term return from rental income and long-term return from property appreciation. Gross rental yield is annual rental income (current monthly rent multiplied by 12) divided by the property’s market value. The rate of property appreciation is measured as one-year change in the property value, proxied by the 12-month year-over-year change in single-family attached home price index. In the chart, property appreciation is stacked atop gross rental yield, labelled with the total gross return. Both the yield and property appreciation are five-month averages of January to May 2019. Despite based on a very small sample, it is nevertheless quite noticeable that high-cost cities such as San Francisco, San Diego, Los Angeles, and New York tend to have lower gross rental yield – largely depressed by high property value amid moderate rent growth. Less-expensive cities such as Miami, Chicago, and Las Vegas generally show above-average gross rental yield (9.3%, 9.2%, and 9.0% respectively). The national average of annual gross rental yield was 8.4% during the first five months of 2019. During the same period, annual long-term return from capital appreciation averaged 2.7% across the country. In Las Vegas, average capital appreciation for single-family attached reached double-digits: 11.7%. Denver and Washington DC metros also had above-average long-term return from capital appreciation. San Francisco, on the other hand, showed a small negative return in capital appreciation which contributed negatively to the total gross return. With the exceptions of Denver and Las Vegas, eight of the 10 metros recorded a small to moderate total gross return underperformance relative to the national average (11.1%). In Las Vegas, average yearly total gross return topped an impressive 20% in the first five months of 2019.
Trump: Love me or hate me, you’ve got to vote for me
President Donald Trump hit the campaign trail in New Hampshire Thursday night, explaining his policies and influence on the markets won’t compare to his Democratic rivals. “The bottom line is – you have no choice but to vote for me.” Using a story to reflect this point, the president noted a successful businessman he never liked was visiting the White House Opens a New Window. , and to his surprise, was there to help his re-election campaign. Trump said the businessman, who he did not name, felt he had no choice but to help keep the president in office due to the impact Trump and his administration has had on the economy. “Whether you love me or hate me, you’ve got to vote for me.” The president admitted the volatility of the markets have led to “a couple of bad days,” over China tariffs, but that good days were on the horizon. By the afternoon, stocks rallied to finish positive for the day — after Wednesday’s dramatic 800 point drop in the Dow and the worst day for the stock market in 2019. Still, the market is up more than nine percent for the year-to-date. The market swings of late have been attributed by most market watchers as concerns over trade with China and the U.S. imposed tariffs. “I never said China Opens a New Window. was gonna be easy,” Trump explained noting that China’s devaluation of its currency Opens a New Window. will lead to the U.S. “taking in” money. “Ultimately their devaluations are going to hurt them badly.” “If for some reason I wouldn’t have won the election, these markets would have crashed.” “The U.S. right now has the hottest economy anywhere in the world.” He blamed “decades of calamitous trade policies” for shattering American prestige and leading to the end of nearly a quarter of manufacturing jobs in the state of New Hampshire. The crowd helped POTUS make a decision on which of his campaign phrases they liked best: Make America Great Again, or Keep America Great! Trump requested audience approval for each phrase – generating more applause for the second, with people chanting “USA!” New Hampshire was lost by the president’s 2016 campaign by a mere 2,700 votes. June figures released show the state had the fourth-lowest unemployment rate in the country, which Trump noted could break records when the next jobs Opens a New Window. report is released.
MBA – July new home purchase mortgage applications increased 31.2 percent
The Mortgage Bankers Association (MBA) Builder Application Survey (BAS) data for July 2019 shows mortgage applications for new home purchases increased 31.2 percent compared from a year ago. Compared to June 2019, applications increased by 11 percent. This change does not include any adjustment for typical seasonal patterns. “July’s strong new home sales increase on a monthly and annual basis was driven by the ongoing decline in mortgage rates, combined with steady housing demand and a still-healthy job market,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “The average loan size decreased last month, likely influenced by the increase in the first-time homebuyer share, as these buyers are likely to choose lower-priced, entry-level homes.” Added Kan, “MBA estimates that the pace of new home sales in July increased over 16 percent.” MBA estimates new single-family home sales were running at a seasonally adjusted annual rate of 754,000 units in July 2019, based on data from the BAS. The new home sales estimate is derived using mortgage application information from the BAS, as well as assumptions regarding market coverage and other factors. The seasonally adjusted estimate for July is an increase of 16.7 percent from the June pace of 646,000 units. On an unadjusted basis, MBA estimates that there were 63,000 new home sales in July 2019, an increase of 8.6 percent from 58,000 new home sales in June. By product type, conventional loans composed 69.1 percent of loan applications, FHA loans composed 18.1 percent, RHS/USDA loans composed 1.0 percent and VA loans composed 11.7 percent. The average loan size of new homes decreased from $329,593 in June to $325,457 in July.
Apple touts US job growth despite China trade tensions
As concerns continue about the direction of the U.S economy, Apple touted its contributions to the U.S. economy in updated employment statistics on Thursday, noting that it now employs or contributes to the employment of 2.4 million people across the country. The iPhone maker said the 2.4 million total includes 90,000 direct Apple employees, as well as roughly 450,000 jobs for its U.S.-based parts suppliers and 1.9 million workers active to some degree in its “App Store.” The company’s total employment imprint is four times larger than it was four years ago. Apple affirmed that it is on track to create another 20,000 jobs in the U.S. by the year 2023 – a pledge the company initially made in late 2018. In New York, the California-based is looking around Manhattan for between 200,000 and 500,000 square feet of space for a new office according to The Real Deal, Sources told the Ne York real estate publications that the search for new office space is to accommodate new hires the company plans to make
Apple shares are up more than 25 percent this year as growth in the company’s services business has offset sagging iPhone sales and the impact of an ongoing U.S.-China trade dispute. The company asked the Trump administration in June to exempt its products from further tariffs, warning that the duties would limit its contributions to the U.S. economy and provide a boost to its international rivals. The company said it spent a combined $60 billion with 9,000 U.S.-based suppliers in 2018. North Carolina, Florida and Pennsylvania saw significant increases in Apple-supported jobs. Apple is set to add a combined 3,200 employees in expansions in San Diego and Seattle.
CoreLogic – home-price growth faster for low-priced homes
Our CoreLogic Home Price Index has reported a strong rebound in prices from the trough in March 2011. The national index has increased by more than 60% from its nadir with lower-priced homes experiencing much faster appreciation: Comparing homes priced 25% below the median price in their locale with homes priced 25% above the median, the less expensive homes have had price growth that has been nearly twice as rapid through June 2019. Two causes of the imbalance in price growth across value tiers are a reduced supply of and increased demand for the lowest-priced homes. The net result of these forces is a low months’ supply for sale for the less expensive homes, the homes that entry-level buyers and investors are generally looking to buy. In part, these trends reflect existing homeowners staying in their homes longer, thereby reducing the flow of homes listed for sale, and increasing numbers of millennials beginning to purchase their first home, accelerating demand for starter homes. Two factors have added to the demand and supply imbalance for lower-priced homes. One is that investors are a much larger share of buyers than had been the case. During 1999 to 2003, investors were 10.7% of the buyers of entry-level homes, but this had risen to 19.2% in 2015 to 2019. A second reason is the dearth of new construction of lower-priced homes. In 1999 to 2003, 3.8% of entry-level sales were new construction, but by 2015 to 2019 this had fallen to only 1.8%. The lack of new-building supply for lower-priced homes has occurred throughout the U.S. In four metros that had some of the largest number of new home sales during the last year, new construction generally added about 20% or more to the supply of higher-priced homes, but added only about 3% to the supply of lower-priced homes. Limited supply and rising demand for lower-priced homes, relative to premium-priced homes, explains much of the difference in price growth.
NAHB – builder confidence trending higher as interest rates move lower
Builder confidence in the market for newly-built single-family homes rose one point to 66 in August, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI) released today. Sentiment levels have held at a solid 64-to-66 level for the past four months. “Even as builders report a firm demand for single-family homes, they continue to struggle with rising construction costs stemming from excessive regulations, a chronic shortage of workers and a lack of buildable lots,” said NAHB Chairman Greg Ugalde, a home builder and developer from Torrington, Conn. “While 30-year mortgage rates have dropped from 4.1 percent down to 3.6 percent during the past four months, we have not seen an equivalent higher pace of building activity because the rate declines occurred due to economic uncertainty stemming largely from growing trade concerns,” said NAHB Chief Economist Robert Dietz. “Although affordability headwinds remain a challenge, demand is good and growing at lower price points and for smaller homes.” Derived from a monthly survey that NAHB has been conducting for 30 years, the NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.
The HMI index gauging current sales conditions increased two points to 73 and the component measuring traffic of prospective buyers rose two points to 50. The measure charting sales expectations in the next six months fell one point to 70. Looking at the three-month moving averages for regional HMI scores, the South moved one point higher to 69, the West was also up one point to 73 and the Midwest inched up a single point to 57. The Northeast fell three points to 57.
CoreLogic – post-recession housing market at the state and metro level
affordability concerns, unemployment rates and the rise of millennial homebuyers
Home price growth began falling just before the start of the Great Recession and continued declining rapidly throughout 2008 and 2009. Over the past decades, state and metro housing markets have experienced numerous highs and lows in terms of home price and overvalued markets. The latest CoreLogic special report looks back at some of the areas hardest hit by the housing burst and how they’ve fared throughout the current economic expansion. In 2009, home prices dropped by 11.2% nationally, with North and South Dakota being the only states to see any annual growth that year. Meanwhile, Nevada experienced the largest decline at 25.5% – followed by Arizona (-21.3%), Florida (-19.7%) and California (-14.5%). While California’s home prices grew considerably from 2013 to 2018, affordability issues in the state have since hampered growth with the state’s average annual home price dropping from 7.4% in 2018 to 4.9% in 2019. However, other western states are seeing the opposite. Between July 2017 and July 2018, Idaho and Nevada not only became the fastest-growing states, but they also led the country in annual home price growth. During this same time, New York, Connecticut and Alaska were three of only nine states experiencing population decreases. Connecticut has been one of the slowest-appreciating states for the past five years with home price growth varying from 2.4% in 2014 to 0.9% in 2019. New York and Alaska have also experienced similar modest growth over the past few years. In May 2019, when the U.S. unemployment was at 3.6%, both New York and Nevada’s unemployment were above the national average at 4%. Idaho had the fifth-lowest unemployment (2.8%), while Connecticut’s was just slightly higher than the national average (3.8%) and Alaska’s took the spot for the highest unemployment rate in the nation at 6.4%.
The CoreLogic Market Condition Indicators (MCI) categorizes home prices in individual markets as undervalued, at value or overvalued, by comparing home prices to their long-run, sustainable levels, which are supported by local market fundamentals (such as disposable income). According to CoreLogic MCI, 32.4% of the 392 metro areas analyzed were overvalued in May 2019. This number more than doubled in September 2006, during the last expansion, to 70.2%. The largest increase in the share of overvalued metros occurred between 2012 and 2013 when the average annual share jumped from 9.9% to 15.8%. Millennial homebuyers are moving away from overvalued markets and toward more affordable areas. Of the top 10 metros for millennial buyers in May 2019, four were undervalued (Pittsburgh; Rochester, New York; Wichita, Kansas and Grand Rapids, Michigan), five were at value (Buffalo, New York; Milwaukee; Albany, New York; Provo, Utah and Des Moines, Iowa) and only one was overvalued (Salt Lake City). With current economic expansion being the longest in U.S. history, and with local housing markets stabilized from the aftershocks of the Great Recession, it’s only natural to wonder about what comes next. While some experts remain split on if there is another recession in the near future, most signs are positive. “We expect the housing market to enter a normalcy phase over the next 24 months,” said Ralph McLaughlin, deputy chief economist for CoreLogic. “With prices neither rising too fast nor too slow, and with a growing stream of young households looking to buy homes over the next two decades, the long-term view looks healthy.”