Real Estate Transactions: Aug. 17, 2019 . 3960 Estate Drive – $805,000, 07-08-19 [4 Bdrms – 3089 SqFt – 1993 YrBlt], Previous Sale: 00/1989, $108,000.

What are the signs of a real estate bubble? Are we in one currently ?

Here is what I dug up this past quarter:

MFH rents are up $2 in August to $1,412, up 3.1% year-over-year and 10 basis points from July. A record high for seven months in a row – Yardi Report – [How long can this increase? Not forever but it is steady expansion. New supply is coming online (300,000) new units this year. Be careful when you read these national reports cause you need to dig into the submarkets]

  1. Renter By Necessity (3.5%) continues to outperform Lifestyle (2.4%) as new supply hinders rent growth of luxury units. [This is why you are seeing Class A rents dip in places like San Fran, Seattle, Chicago]
  2. Economic Expansion: More Room to Run? – “At 3.9 percent, the August 2018 unemployment rate is at an 18-year low. However, it took the jobless rate, which peaked at 10 percent in October 2009, more than seven years to reach the trough of the previous cycle
  3. Deals Pick Up the Pace in Q2 – CPA Executive – [Graph of deal volumes]
  4. Article on Opportunity Fund Zones – Yardi – [Could smart money dumping gains to go into Opportunity Zone Funds causing the sell-off?]
  5. Yardi Report for September 2018
  6. Freddie Mac Launches Workforce And Targeted Affordable Mezzanine Loans To Strengthen Housing Preservation – BizNow“Strong candidates for the mezzanine programs have experience with affordable housing and a history of transactions with a GSE like Freddie Mac. Mezzanine borrowers are required to pledge a first-priority lien for 100% of equity interests in the senior borrower. Borrowers must also keep at least 80% of the units — including the 50% that are affordable to households making 100% area median income — over the life of the mezzanine loan. Borrowers can’t pay off the mezzanine loan to get out of affordability restrictions.”[Interesting new program which shows how the government is trying to help out the little guy] Additional article.
  7. Apartment Market Has Bright Future at 2018’s Midpoint – MFH Housing NewsDelayed marriages, an aging population looking to move out of single-family homes and increasing international immigration are some of the reasons a study from the National Apartment Association (NAA) and the National Multifamily Housing Council (NMHC) predicts soaring demand for apartments over the next decade-plus. According to the study, 4.6 million new apartment homes will need to be built by 2030 just to meet the demand, the report says.[More and more people are being forced into apartment lifestyles]
  8. MBA: Commercial/Multifamily Originations Up in Second Quarter, on Pace With Year Ago – MBA – “Second-quarter commercial and multifamily mortgage loan originations came in 4 percent higher from a year ago and 32 percent higher than the first quarter, the Mortgage Bankers Association reported this morning.” – [Despite some volatility growth is steady]
  9. Inside the scandal that could explode multifamily real estateHousing Wire –[I have heard of sellers falsifying docs which is why you check rent rolls and follow up with on-site checks. In this case, it was the new buyers. I suspect this is mortgage fraud in order to get the non-recourse debt]
  10. In this stage of the market cycle, the search is on in Tertiary markets – Forbes – [I’m seeing secondary markets as too hot at this point in the national market cycle]
  11. Where is the growth going? – ULI – [Very insightful source from a non-biases real estate publication]
  12. Surviving the Retail Revolution – CP Executive – [Everyone thinks Amazon is going to kill retail (I think mid-range retail like Macy’s is going away) but when everyone thinks one thing that may mean the opposite is true]
  13. My friends in Seattle tell me all the time that the Class A rents are coming down 10-15%…
  14. Looks like the Hedge funds are playing in the Mobile home park space – Bloomberg – [The smart money is starting to flow into MHP space]
  15. Clear Skies for Multifamily Investors – MFH Housing News“While these increases are starting to cause upward pressure on cap rates, apartment values have held relatively steady since tighter occupancy levels are simultaneously causing upward pressure on rental rates. “interest rates ticked up another 25 basis points in June, marking the second time this year that the Fed has raised its fed fund rate. There will likely be two more rate hikes this year, and at least two anticipated in 2019.”
  16. Self Storage Shakeout Ahead? – CP Executive – [I have been trying to learn different asset classes and so close to jumping into a guru educational program or feeder conference just to get into the group. It’s hard to tell what is the real story but for now, I will just absorb info like a sponge]
  17. Rising Interest Rates: The Calm Before the Storm? – MFH Housing NewsThe Federal Open Market Committee announced the second short-term interest rate hike this year, prompting industry professionals to give their take on the possible effects this might have on the lending process. – “There has been talk about the Fed raising rates every three months. The Fed has penciled in two more rate hikes this year—we should expect one more for sure in my opinion.” However, despite rising rates, the yield curve has flattened” [An older article but you can see the clues of what is coming ahead here]
  18. Commercial Property Executive mid-year 2018 – [I have been reading this material (example page 24) and trying to learn about different sectors. Shopping retail is notoriously beat down by Amazon but is that the whole story??? Sounds like opportunity if you know what to look for, also look at pg 66 for self-storage]
  19. July MFH Yardi Report – link
  20. It is no secret that cap rate compression is upon us. But “Rents grew 2.6 percent during the first half. “Those numbers compare favorably to most years except the peak years of the cycle in 2015 and 2016,” – MBA.org
  21. Economists predict the economy will recede by 2020 – Property Management Insider – [Who knows these are headlines just to sell articles]
  22. Discussion on absorption in ABCD classes – https://drive.google.com/open?id…
  23. Latest market data – https://drive.google.com/open?id…
  24. This is why we use 1.5-2.0% increases in my of our underwriting models –
  25. An eye on vacancy as we test rents higher
  26. Texas, North Carolina Dominate Fastest-Growing Apartment Markets List – Real Page – [I think these articles are misinterpreted as Dallas is not where smart investors are looking anymore because it is overplayed]
  27. At what point can we put the average consumer? – Arbor – [Rule of thumb is 33% in the previous decade]
  28. June 2018 Yardi Report – [Hints of oversupply in next couple years]
  29. Huntsville brings on Facebook – $750M investment is expected to yield only 100 jobs – Join us on the next deal
  30. Has Our Government Spent $21 Trillion Of Our Money Without Telling Us? – Forbes article
  31. Pools of SFH becoming a real asset class – Arbor Lending Cheatsheet
  32. NY Times – Tax collections would be sufficient to pay about three-fourths of promised Social Security benefits for 75 years.
  33. Looks like the money runs out in 2030
  34. Trade Wars!Tariffs imposed on EU, Mexico, & CanadaEU is retaliating with tariffs on US steel, agricultural, and other productsMexico is retaliating with a tariff on US steel and farm productsCanada is retaliating with tariffs on US steel, aluminum, and other6/22, US threatening 20% tariff on European cars25% Steel, 10% Aluminum, effect will either lead to hoarding of material or less production (loss jobs in USA) ArticleTrump administration adds to China trade pressure with higher tariff planReutersChina Vows It Won’t Back Down After Trump’s Latest Tariff ThreatBloomberg,China Says It’s Ready to Retaliate on Latest U.S. Tariff ThreatBloomberg
  35. Dallas and Fort Worth Rents Diverge – BizNow – [The Dumb money has really started to flow into Dallas]
  36. I don’t think rates will really rise much in 2019Fox News – [But then again it’s a FOX source]
  37. REBusinessOnline: “The commercial real estate industry shouldn’t be worried about rate hikes, which are happening in baby steps,” says Dhawan. “If the cash flows on your properties are there, who cares about the rate hikes? The real thing to worry about is what happens in the interest rate market as a result of trade developments.”
  38. Crowdfunding sites are dropping like flies because I see so many broken links on my simplepassivecashflow.com/crowdfunding directory.
  39. Some of the top 30 U.S. metros over the next five years might be at risk of oversupply – MFH Housing News – [I keep my eye to units coming online and how it is affecting rent increases]
  40. Time to Step Up the Value-Add Game – MFH News – [Just have to focus on forced appreciation and not just walk into value by just bumping the rents with the market]
  41. Banks still love multifamily deals, but with pricing and rental rates hitting records numbers, they are being more selective – Source – [Where 1.25 Dept Service Coverage Ration was the standard, no longer is DSCR of 1.20 being accepted]
  42. The similarities to the years leading up to the “Apartment Recession” of 1972 are eerie – Crowdfunder – [Although coming from a crowdfunding guy and not an operator himself – these guys don’t know the people or the operation]
  43. Life sciences trends report [I don’t know how this relates to picking markets or deals but its really interesting]
  44. 180911 Yardi-Matrix-Monthly-Aug-2018
  45. “Economists report that workers are starting to act like millennials on Tinder: They’re ditching jobs with nary a text” – Seattle Times – [A sign of the times. I can remember when it was 2009 sitting in my work truck at 2am in the morning but being so lucky I had a good job]
  46. 12/11/2018 Forbes – The Yield Curve Just Inverted–Sort Of–And That Is A Sell Signal For Stocks – “the spread between the 2-year and 5-year Treasury notes went negative yesterday, the first inversion of the yield curve since 2007. Why wasn’t this the top headline in the financial media? Because the 2-year/5-year spread is much less widely followed than the 2-year/10-year spread. The 10-year U.S. Treasury note is the most liquid of the Treasuries and one of the most liquid securities in all of global markets and thus it the true benchmark for interest rate traders. The 5-year Treasury lies in what is known as the “belly” of the yield curve and attracts far fewer investor dollars than the 10-year.” https://www.forbes.com/sites/jim…
  47. [I do believe that real estate will go down because of consumer instability. But if you have stocks you should sell those before even thinking of lumping it into cashflow type rental real estate.]
  48. ITR Experts Say: Actionable Advice for the 2019 Economic Slowdown – ITR“Be judicious with your capital; conduct a cash-flow assessment plan for proper allocation during the upcoming period of slowing business expansion and weaker topline growth. Continue to focus on talent development but include some redundancy and cross-training initiatives to protect your company in the event that the slowdown becomes a full-blown recession.”[Don’t underwrite any MFH over 2.5% rent increases per year and be prepared to just cashflow a property long term]
  49. The National Association of Home Builders Housing Market Index monthly reading, an effective measure of home-builder sentiment, was down 13.0% in November 2018 from the November 2017 level, the sharpest year-over-year drop since 2011. – ITR
  50. New US Home Sales, at 42.0 thousand in October, were down 14.3% from the October 2017 level, again the sharpest year-over-year contraction in monthly data since 2011.- ITR
  51. US Existing Home Sales are in recession, down 1.8% during the last 12 months, on average. Existing Sales in October alone, at 5.2 million units, were down 5.1% from October 2017 – ITR – [Look it’s not getting any easier but you definitely can’t sit on the sidelines, get into solid cashflow deals]
  52. US Single Family Housing Permits, which have a short lead time to Starts, are sharply decelerating as well, suggesting that Starts are unlikely to reverse course in the near term.- ITR
  53. Commercial sales weakness – ITR
  54. The first big rollback of Dodd Frank [I don’t really know what huge impact this makes yet]
  55. Apartment construction starts not yet slowing [I am watching for deceleration – seems we are in steady velocity state]
  56. Homeownership very slightly goes up to 64% due to younger people [finally moving out of Mom/Dad’s]
  57. Syndication cartoon video (for those visual learners) – https://drive.google.com/open?id…
  58. Syndications comparisons – https://drive.google.com/open?id…
  59. Syndication chart – https://drive.google.com/open?id…
  60. May Yardi Report – Link – U.S. multifamily rents rose $4 to $1,381 in May. This represents a 2% year-over-year increase but a 50-basis-point decline from April, as new deliveries took a toll on occupancy rates and growth.
  61. Traders Can Obsess Over Treasury Yields Once Again: Taking Stock – Bloomberg – [A lot of people geek out over divergences and intersection of keystone graphs but I don’t really understand them yet]