Young Optimism

SoCal home prices up 21%; February sales volume hits 6-year high

The six-county Southland saw the median home price rise nearly 21% over the year, while remaining essentially flat compared with January, real estate information provider DataQuick said Wednesday.
A total of 15,945 new and resale homes and condos sold in February — the highest volume for a February in six years. Buyers in Southern California paid a median of $320,000 last month as fewer homes sold in lower-cost Riverside and San Bernardino counties that have become a haven for investors looking to flip or rent out houses.

“Most every gauge shows prices are up significantly over the past year, even after adjusting for changes in the types of homes selling,” DataQuick President John Walsh said in a statement.
Still, last month's median price was still well off the 2007 peak of $505,000, Walsh noted.
The median sales price is the point at which half of homes sold for more and half sold for less; it is influenced by the types of homes selling as well as a general rise or fall in values.
Home prices have been on the rise as inventory has tightened significantly and interest rates have remained low. Investors have scooped up many low-priced and bank-owned properties to rent or flip and foreclosures have made up a declining share of homes sold.
Foreclosed homes were 15.8% of the resale market last month, down from 32.6% a year earlier.
Absentee buyers — chiefly investors, along with some second-home buyers — accounted for 31.4% of home sales in February, the highest figure since DataQuick began tracking the figure in 2000. Buyers paying with cash purchased a near-record 35.6% of homes.
Data from the previous two months shows investors playing a major role, Walsh said. But that may be influenced some by the holiday house-hunting season, which tends to skew the buyer pool more toward investors.
“March and April will offer a better view of how broader market trends are shaping up this year,” Walsh said. ”One of the real wild cards will be how many more homes go up for sale. More people who've long been thinking of selling will be tempted to list their homes at today's higher prices.”
As prices rise, more homeowners will escape their negative equity positions, allowing them to sell their homes and potentially loosening supply. “A meaningful rise in the supply of homes on the market should at least tame price appreciation,” Walsh said.
All counties — Los Angeles, Orange, Riverside, San Bernardino, San Diego and Ventura — saw significant price increases.
Orange County saw the most dramatic price gains as the county’s median sales price rose 22.3% to $477,000.  In Los Angeles County, the median sales price rose 17.1% — a sizable jump, but the smallest of the region. Buyers there shelled out a median of $350,000.

Top Architecture Trends of 2014

1. Tranquility
More homeowners are seeing their homes as a place to get away from it all and relax, especially in certain rooms, particularly the bathroom. The spa bathroom is really big as a result of more people traveling to nice hotels. In 2014, we’re likely to see bathrooms with walk-in showers, roomy bathtubs and tranquil designs become a big trend for homeowners.

2. Mission Control
In the past the kitchen was often built at the back of the house, attached to the garage, and away from high traffic areas, but that tradition is changing. In 2014 we’ll see the kitchen as the focal point of the house, often placed in the center of an open floor plan, especially as more homeowners start to use their kitchen space as a multitasking room, or as “mission control.” By having the kitchen centered and open, parents can help children with homework, talk or pay bills all while making meals.

3. Traditional Design
While “midcentury modern design is thriving” and will continue to do so in 2014, more homeowners are looking at traditional home styles. For example, Craftsman homes with large porches, front columns and detailed gables will make a comeback in 2014. Queen Anne-style homes with asymmetrical facades and detailed gables may also see a resurgence. However, attention to detail will be important as homeowners look for exact replicas of the original styles.

4. Passive Homes
More U.S.-based architects are expected to include passive-house elements in their 2014 designs. Originally a European design, a passive house is built to work with the climate. For example, its roof may be pitched to make use of wind power, or it could have large windows installed to attract sunlight that heats the home. A passive-house design can slash energy consumption by up to 90 percent, according to Passive House Institute U.S.

5. Flex Rooms
Between the recession and the growing number of senior citizens in the United States, more households are becoming multigenerational. That change is leading to a developing trend in home building flex rooms. Typically bedrooms, flex rooms are designed to give more privacy to larger families and usually include a separate space such as a reading area or study off the main bedroom area. These rooms may also be built with a change in mind. Many flex spaces include a private entrance, which could later become a rental unit.

10 Hottest Cities For Millennial New-Home Buyers

Most people in the 18-to-34 age bracket spend the bulk of their time trying to get their foot in the door at work and in life. However, a lucky few have managed to put their foot in the door of their very own home.

While saving for a down payment and making mortgage payments may seem out of reach for many Millennials, a recent Builder Online study cited demographic data to show that twenty-somethings are purchasing new homes. The site analyzed home sales from 2012 and 2013 to pinpoint the cities with the largest year-over-year increase in new-home sales among Millennials.

Popular vacation destination Honolulu topped Builder’s list, and while the cost of living in Hawaii is steep, there are other factors to consider when it comes to popular Millennial new-home buyers markets.

“Honolulu was ranked highly by Builder due to growth in new home sales among the 50 largest new-home markets for millennials, meaning that Honolulu has a big base of demand, and it’s growing,” said Jonathan Smoke, Chief Economist for realtor.com®. “That may surprise some because of the high cost of living, but it isn’t always about the lowest cost places to own a home.”

“Markets can be attractive for many reasons to Millennials—and this list screams variety,” Smoke added. “In some places, it’s affordability, but in others it’s jobs, and for Honolulu, I would expect it’s about a lifestyle that appeals to today’s 20-somethings. Be careful in making assumptions that millennials are all challenged by income—some of the fastest-growing companies in the world are headed by Millennials.”

1. Honolulu, HI

2. Birmingham, AL

3. Palm Bay, FL

4. Daphne, AL

5. Madison, WI

6. Sacramento, CA

7. Fort Collins, CO

8. Stockton, CA

9. Cape Coral, FL

10. Spokane, WA

 

 

Happy 4th of July!

L.A. Council backs $39-million subsidy for downtown hotel project

The Los Angeles City Council moved forward Tuesday with plans to allow a real estate developer to keep $39.2 million in taxes expected over 25 years from a downtown hotel and residential project planned next to the 110 Freeway.

The council voted 11 to 0 to negotiate agreements that would let Greenland L.A. Metropolis Hotel Development retain one-fourth of the property, sales, hotel, parking, business, utility and other taxes that would normally flow to the city budget.

Ovrom has said Greenland officials knew what could be built on the property when they purchased the land for $150 million. He argued that the company probably would have constructed the project without taxpayer assistance.Greenland L.A., a company afiliated with Shanghai-based development firm Greenland Group, is seeking to build a 19-story hotel and a 38-story residential tower on a site just north of the L.A. Live entertainment complex. The taxpayer help was approved despite objections from Robert "Bud" Ovrom, top executive at the city's Convention Center.

Policy advisors to the council disagreed, saying Greenland proposed a hotel tower only because city officials had asked them to do so. "If no assistance is provided, the developer would construct a residential tower instead of hotel," Chief Legislative Analyst Gerry Miller said in a report to the council. 

Ovrom had no comment Tuesday. City officials say even with the subsidy, Metropolis will generate more than $117 million for city coffers over 25 years.

  

Miller has been recommending taxpayer subsidies as a way to lure hotel builders to downtown, saying the added rooms would help the convention center book more national events. Over the last decade, the council has agreed to let hotel builders retain more than $500 million in tax revenue -- projects that are all within three blocks of Metropolis. Yet another hotel developer, Related Cos., is looking to keep at least $138 million from a project through 2043.

  

The vote on Metropolis took place minutes before employees with the Coalition of L.A. City Unions showed up at the council to decry what they described as "predatory" fees charged to the city by Wall Street banks. Labor activists who packed the council chamber voiced similar concerns about the deal for Metropolis.

"To say that the city is having a hard time on the one hand, and then say here's free money to a developer who's going to make all this money back, is outrageous," said Roy Stone, president of a union local representing city librarians. "Don't give away the house to encourage them to build something."

Victor Gordo, an attorney for the coalition, also questioned the proposal, saying lawmakers need to re-evaluate their strategy for improving the economy.

LA's Median Home Price Tops $500k For First Time Since 2007

Los Angeles County median housing prices hit $510,000 in May, their highest point since December 2007, according to the LA Business Journal. Prices bottomed out around $300,000 in April 2009 and again in January 2012. So how'd they shoot up 66 percent in only about two and a half years? (One broker calls it "a harp and definite turn in the market, like a switch being turned on ... Everybody tried to jump back in all at once.") Mostly it was the arrival of fresh rich people: the tech boom on the Westside brought a crop of techies to town and foreign investors realized they could score sweet all-cash deals in Los Angeles. The bidding wars started in earnest in spring 2012 and "Most purchases were 100 percent cash. Mortgage lending standards were still very tight." Meaning anyone who couldn't afford to lay out all cash on a house was still SOL.

High-end is doing great but low-end is still way of.                       

Predictably, the Westside and other "high-end, desirable markets" have benefitted most from this swift rebound. The high-end overall is only 10 percent off its pre-housing-crash peak, but the lower-end is 30 percent below the peak. That major imbalance is probably preventing any further bubbling ("The increases have recently slowed to the single-digit range."), because there are only so many buyers who can pay top dollar (especially now that it's harder to get a mortgage). As one broker says, "This recent price rise has brought the whole affordability issue back into the picture."

 

HAPPY FATHERS DAY!

HAPPY MEMORIAL DAY!

A New Plaza and Restaurant for Downtown L.A.

The 20 Most Important Projects in Downtown in 2014

DOWNTOWN LOS ANGELES - You know that boom you heard? It was the sound of the Downtown Los Angeles development scene exploding into 2014.

Over the next 12 months, the Central City will be a hotbed of openings, groundbreakings and milestones. In every micro-community, from South Park to the Historic Core to the Arts District and beyond, area stakeholders will either be celebrating the additions or complaining about all that darn noise and traffic. That makes sense, as cranes and road closures are sprouting everywhere.
 Below is a rundown of 20 of the most important projects of 2014. It’s not close to a definitive list, however. For that, check back in February, when Los Angeles Downtown News publishes its Development section.

The Broad: Philanthropist Eli Broad’s $140 million art museum may be the most anticipated and important Downtown cultural project since the opening of Walt Disney Concert Hall in 2003. The development, being designed by the New York firm Diller, Scofidio + Renfro, is rising directly south of Disney Hall, and the honeycomb-like exterior is expected to be placed on the building in the coming months. Broad said in September that he hopes to open the museum in late 2014, though no date has been revealed. The striking structure, which will have free admission and 50,000 square feet of exhibition space, is expected to create a new tourist boom, drawing thousands of local, national and international visitors to Grand Avenue.  

Ace Hotel: Everyone in Downtown is looking forward to Jan. 6, as that is the day that the uber-hip Ace Hotel will open in the former United Artists Theatre at 929 S. Broadway. The 180-room boutique establishment will instantly be a new anchor for the southern end of Broadway, and will dovetail with the recently opened retail arrivals Urban Outfitters and Acne Studios, and provide customers for area restaurants Les Noces du Figaro and Umami Burger, among others. The project will give new life to the 1927 theater; it will include a 1,600-capacity performance space that will be christened on Valentine’s Day with a show by the English band Spiritualized.

One Santa Fe: The Arts District will forever be changed, and will be much more crowded, on the late summer or fall day that the $160 million One Sante Fe opens. The Michael Maltzan-designed mega-development comes from McGregor Company, Polis Builders, Cowley Real Estate Partners, Canyon-Johnson Urban Funds Investments and Goldman Sachs Urban Investment Group. That’s quite a team, but that’s what it takes to bring a 438-unit project with nearly 80,000 square feet of retail and commercial space to market. The development, just east of SCI-Arc, will also have a 47,0000-square-foot plaza and more than 800 underground parking stalls. Get ready to start complaining about traffic and the impossibility of finding a street parking space in the Arts District.

Wilshire Grand Replacement: The replacement for the hotel on the northwest corner of Seventh and Figueroa streets won’t open for years, but on Feb. 15-16 it will be the site of what its developers claim will be the biggest cement pour in history. For more than 20 hours, 2,100 trucks will pour 21,600 cubic yards of cement into the pit, completing an 18-foot thick foundation. The development team for the $1.1 billion project spent 13 months razing the old edifice and excavating the site in preparation for the tallest building west of the Mississippi. The 900-room, 73-story hotel/office tower being developed by Korean Air, a subsidiary of Hanjin International, is scheduled to be complete in 2016. Local firm AC Martin is Korean Air’s partner on the project.

Grand Avenue Plan: Grand Avenue project watchers got a pleasant surprise in November when developer Related Cos. announced that architect Frank Gehry was back on board and is designing the two towers and plaza across the street from the Walt Disney Concert Hall. In 2014, the vision will be refined and will be paraded in front of city and county officials. Early plans call for an approximately 300-room hotel (Related is in talks with boutique chain SLS) and a 380-450 unit residential tower. Meanwhile, Related’s 19-story apartment tower south of The Broad art museum topped out in December; the building will offer 271 apartments and is slated for a late 2014 opening. 

Los Angeles State Historic Park: Downtown lovers of green space only have about six more weeks to enjoy Los Angeles State Historic Park. The whale-shaped attraction is scheduled to close in mid-February for renovations that will last a full year. The shutdown is necessary because the approximately $20 million plan calls for simultaneous excavation and construction across the property in order to save time and resources. When completed, the 32-acre facility will have restrooms, an amphitheater, parking lots and seasonal wetlands, among other improvements.
1111 Sunset: One of the most striking buildings in Downtown is just north of the urban core. Developer Linear City is wrapping up its conversion of the former Metropolitan Water District headquarters at 1111 Sunset Blvd. and should be ready for move-ins by February. Linear City paid $6.8 million for the seven-story edifice originally built in 1973 and designed by William Pereira. The project will offer 92 apartments ranging from 800-1,000 square feet. Each will have a balcony.

Marriott Tower: The $172 million Marriott Tower in South Park is scheduled to open in July. It will instantly strengthen Downtown’s tourism scene, with a 174-room Courtyard by Marriott and a 218-room Residence Inn in a 23-story building just north of the Ritz-Carlton/J.W. Marriott. The project comes from Seattle-based American Life Inc. and Portland’s Williams/Dame & Associates.

The Bloc: Retail fans will breathe a sigh of relief in the first quarter of the year, when developer Wayne Ratkovich embarks on a $160 million renovation of Macy’s Plaza. The transformation of the tired shopping center/office/hotel complex fronting Seventh Street in the Financial District is slated for completion in late 2015. The project will transform the brick fortress into a plaza with 400,000 square feet of retail and commercial space. Plans also call for 750,000 square feet of office space and a $40 million renovation of the Sheraton Hotel. 

Jia Apartments: Chinatown is getting a massive mixed-use addition in the form of Jia Apartments. The $92 million, six-story project from developer Equity Residential is set to begin move-ins on Jan. 27, according to Jia’s leasing office. The complex at 639 N. Broadway offers 280 studio, one-bedroom and two-bedroom residences, along with 18,000 square feet of retail. The design by Thomas P. Cox Architects will offer 17-foot-wide sidewalks and a pedestrian plaza. It also will create a major new southern entrance to Chinatown and provide hundreds of customers for area restaurants and businesses.

Eighth and Grand and Whole Foods: The bad news: Anyone driving north on Olive between Seventh and Eighth streets this year will be stuck in a squashed and slow traffic lane, as San Francisco-based Carmel Partners continues work on its massive 700-apartment complex. The good news: Construction will rise above street level this year as the developer moves toward its anticipated opening date in 2015. The construction also means that Downtown is getting closer to having its own Whole Foods: A 42,000-square-foot supermarket is part of the project. Other retail and commercial tenants in the project may also be announced this year. 

950 Third Street: Legendary Development and Associated Estates are on track to break ground this spring on 472 units in three buildings next to the Southern California Institute of Architecture. Dilip Bhavnani, a managing member of Legendary, said the development on the six-acre site at 950 E. Third St. in the Arts District already has city entitlements and would be comprised of five- to six-story structures. Once it starts, construction would take about three years, with a first phase of 248 units. The cost has not been finalized.

Blossom Plaza: Chinatown stakeholders this year will see a long-held dream come closer to fruition, as developer Forest City Residential West moves forward on the $95 million Blossom Plaza. The complex will feature 240 apartments (both market rate and affordable), 20,000 square feet of retail and, perhaps most importantly for area businesses, an expansive plaza that will connect pedestrians from Broadway to the Metro Gold Line. This may end up being the last full year that area visitors have to get off the Gold Line, walk down several flights of steps, then trudge up College Street to the heart of the community. Blossom Plaza is slated to open in 2015.

G12: The South Park boom continues, as Astani Enterprises and Wolff Company plan to break ground early this year on a $245 million mixed-use project. Astani and parking company L&R Group spent $29 million to acquire the property in 2012; last September, Sonny Astani announced that the three-acre site at 12th Street and Grand Avenue had been sold to the Scottsdale, Arizona-based private equity firm Wolff Company for $45 million, and that he would develop it with Wolff. The project, dubbed G12, should take two years to build; it will have 640 residential units along with 40,000 square feet of retail space, a screening room and two pools. Plans also call for 740 bike parking spaces, yet only 595 slots for cars.

Mack Urban Project: All eyes will be on South Park this year, as developer Mack Urban moves forward on a mega-plan to build a network of 1,500 residential units in buildings connected by green space and pedestrian plazas. Construction on the initial phase of the approximately $1 billion project could begin late in the year if the city approval process goes smoothly. In October Mack Urban — a new partnership that includes longtime Downtown developer Urban Partners — announced that it had scooped up six acres of land for more than $80 million. 

Medallion 2.0: Historic Core residents and workers could get some exciting new eating options this year, if developer Saeed Farkhondehpour’s Medallion 2.0 advances as hoped. The project is Farkhondehpour’s attempt to activate some underutilized retail space that never got filled when the mixed-use complex at Fourth and Main streets debuted in 2010. Now Farkhondehpour is moving toward community-serving uses — among them Big Mista’s Barbecue — instead of Toy District tenants. Also this year, expect Farkhondehpour to refine his plans for a new round of building on the site — he has discussed creating another 400 residential units and a parking structure. Farkhondehpour has said he hopes to break ground by 2015. 

Avant: South Park is a hotbed of development, and one of the biggest projects scheduled to open this year is the Avant Apartments. The first phase of the complex at 1360 S. Figueroa St. is slated for a February debut and will offer 247 units. The adjacent 193-unit second phase (at 1420 S. Figueroa St.) began construction in late April and could wrap up by the fourth quarter of 2014. The buildings offer residential units above 11,000 square feet of combined retail space. They will also establish a new residential beachhead across from the Convention Center.

Eighth and Hope Apartments: Though much of the housing development in Downtown is in buildings that are seven stories or lower, a 22-story tower is rising at Eighth and Hope streets in South Park. Atlanta-based developer Wood Partners is building the 290-unit edifice, which is slated for completion by the end of the year. The apartment complex will feature a pool deck, a six-floor garage and 5,000 square feet of ground-floor retail space. 

Lotus Garden: Affordable housing is always in demand, which makes Chinatown’s Lotus Garden apartments at 715-721 Yale St. all the more significant. The $24 million development from Affirmed Housing, which is slated for a first-quarter opening, has 60 units with studio, one-bedroom, two-bedroom and three-bedroom layouts. It will serve tenants making 30%-60% of the Los Angeles County median income. One of the coolest things about the project is its $289,000 automated parking structure. Known as the Carmatrix, the 17-stall machine lifts cars vertically and moves them horizontally, creating a space-saving, stacking effect.

Barker Block Phase Two: New condominiums have been a rare thing in recent years in Downtown, as developers have tended to open their buildings as rentals. However, developer CityView, which teamed with financial backer Blackstone, plans to begin selling units in the second phase of the Arts District’s Barker Block by the end of January. The $25 million project at the corner of Palmetto and Molino streets features 68 townhomes and lofts. Kor Group helmed development of the 241-condo first phase and will help market the new units. Many in Downtown are watching the project closely, and if the prices go high enough, other under-construction rental buildings could flip to for-sale status.

Mixed-Use Affordable Housing Headed Towards Expo/Vermont

Although Metro's Expo Line has experienced no lack of proposed office, residential, hotel and retail developments near its Westside stations, investment has noticeably lagged in-between Culver City and Downtown LA.  Well get ready South Los Angeles: Expo/Vermont Station is finally getting some much needed TOD action.  Non-profit organizations T.R.U.S.T. South LA and Abode Communities are partnering on the redevelopment of Rolland Curtis Gardens, a 48-unit affordable housing complex located one block west of Vermont Avenue.  According to an environmental report just released by the city, plans call for the demolition of Rolland Curtis' existing buildings, followed by the two-phased construction of a mixed-use development with 140 affordable residential units and 8,000 square feet of ground floor commercial space.
Residential structures would rise five stories, flanking the southern and western sides of the project site.  Apartments are centered around a grassy courtyard which would serve as both gathering space and a children's play area (see after the jump).  The project also includes multiple community rooms, on-site laundry facilities and parking for 114 vehicles and 154 bicycles.

Commercial space would consist of a one story building stretching along Exposition Boulevard, with proposed uses including a community serving health clinic, non-profit office space, and perhaps some small business retail.  Plans also call for a small amount of surface parking for bikes and cars in the rear of the retail structure.  Buildings would be clad with materials including plaster, smooth finish concrete and metal siding.

According to a document created by the developers, the Rolland Curtis redevelopment is scheduled to begin construction in December 2015, with full occupancy expected in November 2017.  T.R.U.S.T. South LA and Abode Communities shaped the project with input from the community on a variety of subjects, including potential retail tenants, urban design, and architecture.

February Newsletter

January 10, 2014 economic update

 

The labor market closed out 2013 by adding just 74,000 jobs in December, the lowest number of new jobs since January 2011. However, the unemployment rate fell from 7% to 6.7%, the lowest since October 2008, the Labor Department said, mostly due to a drop of 347,000 in the labor force -- the number of Americans working or looking for work. Most economists feel that the low number was an outlier and not an indicator of the future of the job market. By contrast, ADP’s survey showed that businesses added 238,000 jobs in December, the most in 13 months and economists were predicting a jobs report closer to the 200,000 mark.  The Labor Department's report showed businesses added 87,000 jobs while federal, state and local governments cut 13,000. Job gains for November were revised upward to 241,000 from 203,000. All told the economy gained an average of 182,000 jobs per month in 2013 essentially the same as in 2012 (2.18 million jobs in 2012, 2.19 million in 2012). Congress continues to debate an unemployment insurance bill that would extend emergency unemployment insurance for the 1.4 million Americans.

This disappointing job report caused rates to drop sharply throughout the day. By the end of the day rates dropped by about 1/8% in rate or 1% in loan fee! It was a shockingly low number that took everyone by surprise. The question now is: what does this do to the Federal Reserves announced drawing down of mortgage and bond buying stimulus program? The announced draw down has driven rates up.

 

Stocks were mixed this week as investors processed the jobs numbers as well as disappointing returns from Sears, and news that the Target credit card data breach was larger than expected. TheDow closed out the week at 16,437.05 down -0.2% from last week’s close of 16,469.99. The Nasdaq closed at 4,174.66 up 1.03% from last week’s 4,131.91 close. The S&P 500 finished the week at 1,842.37 up 0.6% from last week’s 1,831.37 close. 

  

The 10-year Treasury note yield rate spent the week diving back under 3% ending at  2.88%, after last week’s 3.01% close, the highest number seen since July 2011.  It was 1.91% a year ago.

 

Interest rates remained relatively flat this week as the Market waits the see how the Federal Reserve will move forward with the bond-buying program. Policy makers at the Fed including the newly-appointed Janet Yellen will meet later this month to set the pace for the bond-buying taper. The Freddie Mac Weekly Primary Mortgage Market Survey showed that the 30-year-fixed rate dropped slightly to 4.51% from 4.53% last week.  The 15-year-fixed rose to 3.56% from last week’s 3.55%. A year ago the 30-year fixed was at 3.40% and the 15-year was at 2.66%. Expect these rates to be lower when announced next week due to today's drop. Jumbo and high balance conforming rates are about 3/8% higher than the Freddie Mac rate.

 

The new mortgage rules issued by the Consumer Financial Protection Bureau take effect today. The rules are designed to discourage predatory lending. Most lenders have already adopted these practices so there shouldn’t be too much difference however there will be increasing attention paid to a borrower’s debt-to-income ratio; it may become harder for people with higher debt loads to get approved for a new home if they cannot stay below the 43% debt-to-income ratio.

 

The latest Fannie Mae Monthly National Housing Survey for December shows that 49% of U.S. adults say home prices will rise throughout 2014, up from 43% in December 2012. The survey showed that 33% of homeowners say it’s a good time to sell, up from 21% a year ago. People also believe that home values will rise more this year: 3.2% in December compared to 2.6% in December 2012.

CoreLogic released data showing that U.S. home prices increased 0.1% in November, up 11.8%from a year ago but showing a slowing pace of increase. These figures aren’t adjusted for seasonal patterns.

The Top Ten Real Estate Trends for 2014

Millennials are moving the market, but not as homeowners

Though the so-called Millennial generation has been much-maligned in the media, real estate movers and shakers are increasingly interested in where this generation is headed -- quite literally. A number of the cities have seen increased economic activity in the real estate sector led by this generation, particularly Austin, Seattle, Portland and the Twin Cities in Minneapolis.

Minneapolis' place as number nine on a list of the top 10 cities for developers came as a surprise to Andrew Warren, director of PwC, a research and advising firm that co-authored the report with ULI.

"This is a city that's attractive to younger generations," he said, adding that its diverse economic base is helping to bring in a lot of college grads that don't want to leave the Midwest.

However, this same group isn't forming new households, and they're not buying as many homes as their parents' generation were at their age.

Second-tier cities will lead the recovery next year

Investors, developers and builders are losing some interest in the so-called 24-hour gateway cities -- San Francisco and New York City -- and have developed more interested in cities like Dallas and Portland, where there are more housing deals to be had.

For example, in 2011 only New York City and Washington, D.C. had good prospects for real estate investors and developers, according to the ULI report, but now Austin, Boston, Dallas, Houston, Miami, Orange County, Portland, San Francisco, San Jose and Seattle make that list -- and D.C. actually dropped out.

Real estate recovery still hinges on job growth

The slow pace of job growth as well as income and wage growth is still holding back the real estate recovery and that's not likely to change quickly.

Many cities in the Bay Area and in Texas have seen strong housing recoveries based on the strength of their economy, said Stephen Blank, ULI senior resident fellow for finance, so places with low unemployment can expect better recoveries next year, while places still haunted by economic issues won't.

The "smile investing" philosophy is back

Real estate developers are interested once again in a so-called smile investment philosophy, Warren said. According to the philosophy, developers and investors start looking at cities in the Northeast and moving south to cities along the Sun Belt -- Florida, Texas, Arizona -- and then coming back up to the Northwest -- Northern California, Oregon and Washington state. So expect to see more activity in those areas than in the Midwest.

Multi-family apartment building will wane

With rapidly rising demand for apartments during the recession -- boosted by increased demand from homeowners-turned-renters -- multi-family building surged. But that's likely to quiet down in 2014, as supply and demand have swapped places -- and there may actually have been too much multi-family building in 2013, Blank said.

Condo development is still on the back-burner

The recovery in the condo market hasn't matched that of the single-family market, and developers aren't willing to take the risk on putting up new condo buildings.

Instead, builders and developers are taking a dual-track option: They build a rental apartment building with an eye on switching it to condos in 12 to 16 months, depending on market conditions, Warren said.
High-end apartment buildings are also proving problematic for developers, as the interest from well-heeled potential renters simply hasn't been consistently strong.

Inventory is coming back

The experts at ULI are predicting that 2014 will be the last year that low inventory will aid property prices. Distressed inventory is drying up and sellers are looking at better profits than they have in years.

The buyer's market is long gone

Homes right now are priced to please sellers. "For buyers, they're priced to disappoint," Blank said.

Sellers now know they can squeeze buyers eager to buy before interest rates and home prices shoot up even further.

Shadow banking is emerging

There's optimism among those surveyed by ULI that lending standards will loosen next year, but Blank isn't as sure.

To fill the void, a concept called "shadow banking" has started to emerge and may take on a larger role in the lending market next year. Shadow banking is similar to traditional bank lending, but it's done outside banks and can therefore get around bank regulations.
Borrowers going this route will find a hodge-podge of private funds, wealthy individuals, family offices, and refugees from other lending markets, according to the report.

The suburban is going urban

There's not a lot of interest in developing suburban areas, Warren said. But where there is, it's surrounding more urban-minded projects located in spots where amenities and public transportation are easily accessible.

Happy New Year!

December Newsletter