Uh
Ooooh!
Did
someone say the “R” word? Is the housing market correcting? Is the 4% growth in
Q2 sustainable? Will rising interest rates and stagnant wages crush the economic
recovery?
What’s
on the horizon? Russia meddles in mid-term elections? Mueller probe? Trumpian
bluster? Government shutdown? Tariff and trade wars?
If
ever there was a muddled confluence of statistics, news and events on the
horizon this may be the time.
Some analysts/pundits are seeing the emergence of those proverbial red flags going into
the third quarter 2018.
Nationally,
home sales have dropped in four of the past five months while housing prices
continue to rise, in some cases at stratospheric levels such as Seattle and the
Bay Area. The S&P CoreLogic Case-Schiller National Housing Index analysis
report of July 31 notes that home sales are flattening nationally and that
affordability as measured by mortgage rates, income and housing prices has
worsened.
True,
in Seattle and the Bay Area there is an influx of tech talent into those metro
areas that thus far has kept markets stable, with prices rising 13.6% and 12.6%
respectively to lead the nation.
But
anecdotal accounts say even the well-paid young techies are yearning for better
value for their well into six-figure salaries.
In
Seattle this summer, 65 construction cranes—costing upwards of $50,000 a
month-- is 25 more than the next highest of other metro areas in the country. Office
buildings and new apartment towers are rising to accommodate active young
workers who can live close to work at such companites as hometown behemoths Amazon
and Microsoft as well as new facilities of Google and Facebook.
But
recent data shows that Seattle apartment rental rates have risen at the slowest
pace since 2011, faint solace for some when they are nearly 60% more than that
same year.
Another
sign of Seattle’s changing market- in June listing of single family homes in
King County, including Seattle, rose a whopping 43 percent over the same month
in 2017, while condos jumped by 73%. Those were the largest inventory increases
since the housing bust.
Veteran
commercial brokers point out that some of the new apartments are going up with much
higher vacancies at occupancy, developer financing is getting tougher and a few
projects have been put on hold.
“A
couple of apartment projects, just about to come out of the ground in the
Columbia City neighbordhood have been put on hold,” says a real estate
consultant at a leading Seattle brokerage.
“Vacancies
are high downtown, with a huge amount of new inventory coming on line. It will
be interesting to see what happens.”
In
the Bend area, Howard Friedman of Compass Commercial writes in the respected
brokerage’s newsletter that, “It’s not hard to hear the warning of an impending
downturn in commercial real estate if you pay attention to economic
prognosticators.”
Although
current second quarter statistics in Bend are positive, Friedman writes,
veterans of market cycles, “know that a downturn is inevitable.” One question
is when, he notes, and the other is whether Central Oregon will be an
exception.
A
significant factor nationwide, Friedman cites, is the creeping rise of interest
rates while cap rates (the measure of return on real estate invesment) are
historically low.
“The
result is a narrowing gap between a borrower’s interest rate and their rate of
return from investments.” The risk for
an investor is greater and margins to address unforseen circumstances more
narrow with commercial interest rates at 4.75-5.10% and cap rates for quality
properties at 5.5%, Friedman explains.
As
for Bend’s housing market, the median price of a single family home on less
than an acre rose 11.20% in a year-to-year comparison of the 12 months of June
through May 2017 and the same period of 2018. That would put Bend ahead of Las
Vegas, and only slightly behind Seattle and San Francisco in the statistics
reported by S&P CoreLogic Case-Schiller.
