2019 Apartment Housing Outlook

 

As we head into 2019, tailwinds for the apartment industry outnumber headwinds. Annual rent growth increased to 2.6 percent during the third quarter from 2.4 percent the prior year, according to CBRE Research; and most markets are absorbing new supply with relative ease. In fact, CB reported that third quarter absorption was at its highest level since the late 1990s.

A recent National Real Estate Investor survey revealed that 41 percent of investors plan to be net buyers of apartments in 2019, down from last year’s 47 percent, but far outnumbering the 14 percent who plan to be net sellers. The most common complaint from rental housing investors of late is the inability to find deals that will deliver returns within their target range. But this certainly hasn’t held back transaction volume this year, which was up 8.3 percent year-to-date through October, as reported by Real Capital Analytics.

Signs of softness were beginning to emerge in October monthly data with volumes down on a year-over-year basis. Still, pricing remained in high-growth mode, increasing 8.5 percent and 10 percent for mid-/high-rise properties and garden properties, respectively. RCA’s Commercial Property Price Index™ swelled by 9.6 percent for all apartment types versus 6.4 percent for all property sectors.

The national economy continues to impress in indicator after indicator: Consumer spending, corporate profits, business optimism, unemployment rates, job openings and job growth. Through November, average monthly job gains measured 206,000, a vast improvement over 2017’s average of 182,000. Job openings were at all-time high in October with 7.1 million positions available, outnumbering the unemployed by more than 1 million.

The most recent outlook survey from the National Association for Business Economics (NABE) revealed overall optimism for 2019 but risks weighted towards the negative. NABE economists were most concerned with trade policy followed by rising interest rates, while stronger wage growth came out on top for upside risks. Survey respondents put the odds of a recession in 2021 or later at 50 percent and 30 percent during the second half of 2020.

Wage growth, as measured by average hourly earnings, broke the 3 percent mark in August for the first time since the recession, and grew 3.1 percent during the past two months. Wages are forecast to remain elevated for the next two years and should handily beat inflation. This bodes well for increased consumer spending on all types of good and services, including housing.

Multifamily housing permits began to show some weakness during the summer and have now experienced three consecutive months of year-over-year declines in the seasonally adjusted annual rate. A number of factors may be contributing to the slowing of permit-filing including higher construction material and labor costs; construction labor constraints; a necessary pause in building some market segments such as luxury apartments, which have experienced a glut of new supply in certain submarkets; and general barriers to construction, whether in the form of regulations, complicated approval processes or community opposition to new construction.

Multifamily housing starts, on the other hand, have experienced increases this year, averaging 6.6 percent year-over-year monthly through October. Forecasts for next year range from 340,000 to 383,000 units. From 2012 to 2017, starts in properties with 5 or more units averaged 348,900 units and are averaging 365,000 in 2018 at a seasonally adjusted annual rate. Given recent declines in permits, starts can be expected to slow next year, providing some relief to the imbalance of the aforementioned overbuilt segments by the second half of 2020.

Last month, Freddie Mac reported it expects fewer home sales in 2018, down 1.6 percent from 2017’s level. A modest increase of 1 percent is forecast for 2019. The slowing in the for-sale market has been mainly attributed to rising mortgage rates, which hit a 7-year high back in mid-November. Freddie Mac is forecasting a 50-basis point increase in mortgage rates in each of the next two years, reaching 5.6 percent in 2020. Moody’s Analytics’ forecast is more conservative with rates leveling off at 5 percent through that same time period.

Apartment market forecasts are showing more of the same in 2019, with occupancy rates in the 94 percent to 95 percent range and rent growth averaging in the 2 percent to 3 percent range, although slowing in 2020. Potential headwinds for the industry come in the form of rising interest rates, a constrained labor market, inflationary pressures and additional regulations, which could stymie both new development and rent growth.

Demographic, economic and behavioral factors will ensure healthy apartment demand in 2019. Despite the homeownership rate ticking up beginning in mid-2016, it has been flat for the past two quarters when adjusted for seasonality and increased only 0.1 percentage points in the quarter before that.  Marcus & Millichap estimated the gap between a monthly home payment and apartment rent to be $339 as of the third quarter, its widest level since the recession. Rising mortgage rates, the lack of supply for buyers trying to transition into homeownership and tight credit standards are keeping apartments attractive for many potential first-time home buyers.

Renting as a lifestyle choice among all age cohorts is also sustaining demand. According to the most recent “Renter Profile Survey” from Freddie Mac, 63 percent of renters are satisfied with their rental experience and 58 percent feel this is a good choice for them right now. The number of renters who expressed having no interest in owning a home has increased gradually during the past three years. Add to that the post-Millennial generation, sometimes referred to as “Gen Z,” the oldest of whom will be graduating college and entering the workforce within the next few years, and you have a formula for continued steady growth in the apartment industry.

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The History of Alan A. Rezaie, CEO of Rezaie Companies #RezaieCo About Your Professional An elite real estate professional for more than 14 years, Alan A. Rezaie brings unparalleled experience, knowledge and a devotion to full-service customer care to every client. Alan's clients trust in him to expedite the process by using his unique abilities to problem solve and create a plan to get the deal done. Alan prides himself on his stellar reputation both personally and professionally. Determined yet empathetic, he earns the respect of the clients, attorneys and fellow brokers who are part of the many real estate transactions he has helped clients confidently and successfully close. Experience 2019- Present - Luxury Agent, Long & Foster | Christie's International 2017- Present - CEO, Rezaie Companies aka RezaieCo 2012- 2019- Property Manager, Metro Home Management 2015- 2017- Business Development, Keller Williams McLean 2014-2015- Designations in Accredited Buyer Representative & Seller Representative Specialist 2012- 2018- Managing Partner, Washington Luxury Properties 2006- 2009- President, Campbell's Landing HOA 2007 - Designations in Corporate Relocation Professional 2005- 2006- Committee Member, GCAAR-Community/Public Policy/Leadership Advisory 2005- 2012- Operations Manager, Long & Foster 1983- 2004- Sales/Marketing Manager- Carpet Center/ Atlanta Floor Covering Our offerings of fine properties in all price ranges, coupled with the experience of Alan A. Rezaie combine to offer our purchasers and sellers unparalleled real estate services. Let us be your #1 source on the luxury real estate market providing you access to an exclusive deep-dive report with analysis featuring a number of metrics including sales price, sales volumes, number of sales, sales-price-to-list-price ratios, days on the market, and price-per-square-foot. The comprehensive luxury market report will be provided upon request whether you are selling or purchasing a property. Since the beginning of time, real estate markets have proven to be fluid. As a result, real estate analytics and related market intelligence are needed more than ever to make informed and optimal decisions. We, at RezaieCo have the most recent, accurate and relevant data available- direct from the MLS. RezaieCo @Long & Foster - Fairfax Mosaic utilizes an elite network of powerful relationships, along with modern, effective tools to bring together buyers and sellers of luxury property. Our experience with local expertise and global connections drive benefits to our clients to achieving positive results. Company Perspectives: The RezaieCo Advisors is dedicated to creating exceptional real estate experiences for our clients and the communities we serve through passionate services. RezaieCo pledge to promote a fulfilling and respectful climate, one that is flexible in change, innovation, and providing growth opportunities for all involved in our environment. Key Dates: 2005: Alan Rezaie & Amal Lafhal join Long & Foster- Democracy Office in Bethesda, Maryland. - Awarded Best Team in Office- 1st Year, Chairman's Club $5m+ Sales 2006: Alan Rezaie joins Greater Capital Area Association of Realtors - Public Policy, Leadership Advisory & Community Service Board Member, Operations Manager- Lafhal-Rezaie Group, Chairman's Club $5m + Sales, Alan Rezaie elected President of Campbell's Landing Homeowner Association in Vienna, Virginia for a 4 year term. Team moves to Vienna Office in Virginia. Awarded NVAR Top Producer. 2007: Lafhal-Rezaie Group awarded Chairman's Club with Long & Foster, Promote & Network to International Clientele. Awarded NVAR Top Producer. 2008: Lafhal-Rezaie Group awarded Founder's Club -$10M + Sales. Build niche International Clientele base. Awarded NVAR Top Producer. Alan Rezaie achieves Corporate Relocation Professional Designation. 2009: Lafhal-Rezaie Group awarded Founder's Club - $10m + Sales, Awarded NVAR Top Producer 2010: Lafhal-Rezaie Group awarded Founder's Club- $10m + Sales. Awarded NVAR Top Producer 2011: Lafhal-Rezaie Group reached $20m+ Sales. Awarded Founder's Club, NVAR Top Producer. 2012: Lafhal-Rezaie Group venture to form Washington Luxury Properties. Alan Rezaie becomes Partner of the firm, and also establishes Metro Home Management catering to International Clientele. His role was in all facets of the company from human resource, education/development, marketing and IT. The firm networked to Embassies, IMF, World Bank & International Arena via Exhibitions at Cityscape Qatar/ Dubai 2012, 2013, 2014. The partnership of the business was not consistent with the business plan creating tensions. This, plus the partners being hit with an IRS audit eventually played a factor in the closing of the business. Alan realized the importance bookkeeping and accounting, not just sales and marketing. Alan realized the instability of the real estate industry from Realtors coming and going motivated by various factors. 2015: Recruited to Keller Williams Realty in McLean, Virginia as a member of Lafhal Associates becoming Business Development/Marketing Manager. His focus was on the property management business as his full-time career. After a divorce, Alan actively sought to understand the models/concepts of competing firms should he organize his own entity in the competitive real estate market. During a 2-year period, he joined Coldwell Banker in Vienna, Fairfax Realty in Tysons and Remax One Solutions in Tysons. While gaining experience of management styles and systems, Alan formulated his experience gaining traction in what ultimately would set him to the sales profession once again. 2019: Alan Rezaie joins Long & Foster Real Estate | Christie’s International as a Luxury Advisor serving the residential real estate industry once again. Company History: RezaieCo is the leading luxury real estate team representing Long & Foster Real Estate, Inc. | Christie's International in Fairfax, Virginia. Origins- Alan A. Rezaie was born in Washington, DC on August 17, 1967 at the Columbia Hospital for Women. He was raised in Silver Spring Maryland going to Springbrook High School and University of Maryland in College Park graduating with a Marketing Degree in 1990. Alan is one of three siblings. He was raised in the family business and stayed committed to the business while being married to his first wife. He was Sales Manager of Carpet Center, Inc. in Laurel Maryland. Alan later established his own company called Atlanta Floor Covering networking to Realtors in the Metropolitan Washington, DC area performing record breaking sales. In 2001, Alan opened his first retail store in Burtonsville Maryland called Carpet Direct performed top notch flooring products and workmanship. Soon thereafter opening his retail store, Alan experienced the effects of the 9/11 terrorist attacks, anthrax and sniper attacks in Montgomery County, Maryland that created a downturn in his retail business. The volatility of the real estate and stock market created a downturn in the niche business as well. The business eventually closed down, Alan and his wife-partner to be Amal Lafhal followed their dreams together eventually entered the real estate profession at “the beginning of a downturn nobody saw coming”. The challenges of the marketplace and the toughness of the combination of husband/wife duo brought an ability that few would experience in a downturn market. Alan Rezaie & partner Amal Lafhal created a thriving real estate career from 2005 to 2012. Alan Rezaie and his partner faced another personally and business downturn upon opening his own Real Estate firm, property management and travel businesses at the same time, same location. The tax audit, and the partnerships failing to establish the business plan from the get-go created a personal and business nightmare and ultimately a parting that least expected. Alan has two children, a son with Autism. Alan spends a lot of time trying to conquer Autism. He loves motorcycles & MotoGP, loves traveling especially the beach, and loves dogs including his Toy Fox Terrier named Roxie. Alan loves music from Classical to House. A couple of his favorite DJ’s are Camilo Franco- Spain and Rony Seikaly- Lebanon listening to music almost half of his waking hours. Alan takes pride in his stamp, watch and art collections. He has a vast collection of his favorite basketball player- Michael Jordan. He remembers the time when he unexpectedly met the great player in Washington, DC. At the height of MJ’s career, Alan remembers the moment of seeing people stand and admire the player from afar, where he approached MJ, shock his hands and indicated that “many people are trying to compare Kobe Bryant to him, but he will never win 6 championships”. MJ threw his hands up with a smile, while smoking a big Cuban cigar and said “You never know”. Alan over the years surprisingly saw Phil Jackson move from the Chicago Bulls to the Los Angeles Lakers and eventually three more championships to reach 5. Alan realized that you really never know in life how far one can go and still has those words echoed to him. Alan Rezaie is passionate about the environment, animals and children’s well being. He has a non-profit organization established (The Rezaie Foundation) in his quest on raising awareness for Autism. One day, Alan hopes to write a book on the problem skills he has acquired through various unexpected events that could ruin many people's dreams, health and mental state of mind.

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