“Despite overtures of the headwinds from new supply, our April survey results showed positive gains in both occupancy and rents ahead of expected seasonal trends,” she wrote in a report to clients.

(Read More: Apartment Building Bubbles as Single-Family Homes Struggles)

Zelman noted an intentional slowing by home builders, who are strapped by labor and supply shortages and who are looking to gain pricing power as the market recovers, as a key driver of apartment demand.

Rising rents are pushing some tenants to move, but not as many as expected. 11.5 percent of departing residents in April left due to rent increases, according to the report, up from 10.9 percent in 2012 but way down from 17 percent in 2011. In addition, more than half of those moving out remained in the apartment rental market. Thirty percent bought a home, and ten percent rented a single family home; the remaining moved in with family or friends.

The concern for investors in the apartment sector, especially in multi-family REITs (real estate investment trusts), is that there is too much new supply coming on line, just as demand is about to turn. The government numbers for housing starts in April added confusion to that argument, but some say the monthly numbers, especially for new construction, which have a wide margin of error, are just “noise.”

(Read More: Rising Rates Rattle Mortgage Market)

“Multi-family starts plunged 38.9 percent to 23,000 units, but the more important average of March and April was still a solid 321,000 units,” noted Michael Montgomery, an economist at IHS Global Insight.

Article source: http://www.cnbc.com/id/100746253

Realtors® who specialize in commercial real estate expressed optimism and confidence in the market during a forum at the Realtors® Midyear Legislative Meetings Trade Expo. Despite a slow turning economy, commercial practitioners believe the market is not only better off than it was a year ago, but also will continue to improve.

National Association of Realtors® chief economist Lawrence Yun joined several Realtor® commercial practitioners on a panel to discuss the economy and regulatory issues and their impact on the commercial real estate market. Through a live polling of the audience, a majority of members expressed that their local economy is either a little better or showing a major improvement from a year ago.

“Right now we are experiencing a unique recovery phase,” said Yun. “Those in the high income brackets are seeing much improvement in the economy, particularly related to stock market wealth. However, those in lower income brackets are not seeing any growth in their income. Commercial real estate is dependent on the American economy and with an uneven recovery the market still has a way to go before a full recovery.”

Yun reported overall transaction volume in the commercial real estate market is slowly improving and that property sales are rising. In terms of markets, New York City continues to top the list in sales volume; however, Yun pointed out smaller markets like Seattle and Austin are also experiencing significant year-over -year improvements. This indicates that large investors are more willing to purchase in midsize markets.

NAR commercial members typically handle small transactions of one million or less and Yun reported that these sales are starting to improve. “While the prices for deal sizes most frequently handled by Realtors® have not yet stabilized, we have recently seen a positive upturn in sales volume,” said Yun.

In an audience poll, a majority of members reported credit availability for commercial deals is still not good, but better than a year ago.

“There’s capital available out there,” said panelist Daniel Sight, vice president and broker for Reece Commercial. “My feeling is that credit has opened up, but it still helps to have a healthy down payment and good credit history.”
 
According to NAR data, commercial members receive their financing from mostly regional and local banks, as well as credit unions. Many have reported that it’s still difficult to receive credit because of regulatory conditions and uncertainty. A majority of members say recent legislative and regulatory impacts, such as the Dodd-Frank Wall Street Reform and Consumer Protection Act, have decreased the flow of capital in the U.S. real estate market.

Yun said the multifamily sector has continued to rapidly gain market share at over $84 billion, while the office space sector remains closely behind with over $77 billion. Yun also suggested the apartment sector might be facing a potential mini-bubble. “A bubble for the apartment sector is not out of question,” said Yun. “Apartments are in high demand and multifamily financing is easier to obtain.”

Fifty-eight percent of the polled audience reported they believed the commercial real estate would improve in 2014. “I believe the market will be a little bit better,” said Realtor® Linda St. Peter, Prudential Connecticut Realty. “I don’t think it’s ready for a big improvement, but that fear that paralyzed people is starting to fade and confidence is returning.”

Yun echoed that sentiment and said that improved confidence among business owners could help improve the economy. “What is lacking for a stronger economic growth is confidence,” said Yun. “Our Realtor® members are feeling a little better and that sentiment will hopefully translate to a better market soon.”
Additional panelists for the session were Randy Scheidt, president of Don R. Scheidt Co., and H. Blaine Walker, president CEO of Walker Co. Real Estate.

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1 million members involved in all aspects of the residential and commercial real estate industries.

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Growth in home sales and prices is contributing to a broader improvement in the overall economy, aided in part by current homeownership tax treatment, according to presentations at a residential real estate forum during the Realtors® Midyear Legislative Meetings Trade Expo.

Lawrence Yun, NAR chief economist, said a multiyear housing recovery is likely. “Steady job creation and household formation have been helping to unleash a pent-up demand in the housing market,” he said. “Lagging housing starts and a continuing housing shortage mean home prices are primed to rise further, by 13 percent cumulatively in 2013 and 2014, which will add more than $2 trillion to household wealth over this period.”

Existing-home sales continue to improve, although Yun said inventory constraints are preventing stronger growth. After four years of relatively flat activity from 2008 through 2011, existing home sales rose 9.4 percent to almost 4.3 million in 2012 and are forecast to increase to nearly 5.0 million this year; he projects 5.3 million sales for 2014 and 5.7 million in 2015.

Investment home sales jumped to elevated levels in 2011 and 2012, and are holding up this year, while vacation home sales slowly recovered in the past two years. “Growth in household wealth will help vacation home purchases moving forward,” Yun said.

Home price growth is likely to moderate with more new home construction. “Double digit price gains are within reach in 2013 because inventory is bouncing near 13-year lows, but some relief to inventory will occur later in the year,” Yun said. After rising 6.4 percent in 2012, the median existing-home price should increase about 8 percent this year and 5 percent in 2014.

Yun calculates that 51 percent of renters are financially qualified to purchase a home, up from 24 percent in 2005 and 33 percent in 2000, although their credit scores are unknown and not factored.  “Just looking at the financial qualifications, this means there about 8 million more renters with the income necessary to buy a home now than in 2000, but they are choosing not to, or are unable to become a home owner,” Yun said.

With the financial industry enjoying high profits, Yun hopes it may be ready to dial down the credit stringency. If the average credit scores of approved loans return to normal, about 720 for conventional loans and 660 for FHA loans, he projects home sale could be 15 to 20 percent higher. During the past four years, the average credit score of approved conventional loans has been in the range of 760 to 770.

Mortgage interest rates are expected to rise gradually this year, with the 30-year fixed rate reaching 4.0 percent in the fourth quarter and averaging 4.6 percent in 2014. Housing starts, which remain below the long-term average of 1.5 million per year, are seen at 1.1 million in 2013, up from only 780,000 last year, and are projected to reach nearly 1.4 million in 2014.

Yun doesn’t expect a recession and said the Gross Domestic Product should grow 2.1 percent this year and about 3.0 percent in 2014.

LaVaughn Henry, vice president and senior regional officer at the Cincinnati branch of the Federal Reserve Bank of Cleveland, noted that all of the housing measures have been showing positive movement. “We are in a solid, sustainable recovery, with an alignment of fundamentals of what makes housing work,” he said. “While lending for residential real estate is increasing, underwriting standards remain tight, thus slowing the rate of recovery.”

The ratio of home prices to rents, considering norms over the past 30 years, indicates that home prices have recovered to a fair value, and builders are responding to higher demand by gradually rebuilding the diminished supply.

Henry noted that housing has always led an economic recovery, but the market is still picking up speed and he hopes it can boost the economy into a stronger recovery.  “Growth in the Gross Domestic Product is running at about half speed for this point in the recovery,” he said.  Fiscal austerity is a drag on growth in the short term, but it’s important to get control of debt, said Henry.

“Household wealth continues its recovery to pre-financial crisis levels,” he said.  Since the economic crisis, consumers have reduced the ratio of household debt to disposable income, reversing a 30-year trend of rising debt, and the debt service ratio is at a 30-year low.

Foreclosure rates continue to decline across all major loan types, and mortgage delinquency rates also are declining. “Banks are becoming better managers of their credit.  Lenders remain reticent in loosening tight underwriting standards on mortgage loans, but are selectively increasing lending in response to growth in demand,” Henry said.  “Lenders aren’t quick to change their standards, but they will become less restrictive over time.”

The Federal Reserve’s monetary policy has helped to reduce mortgage interest rates to historic lows.  It expects to keep the fed funds rate low as long as unemployment remains above 6.5 percent, the inflation outlook for the next year or two is no more than 2.5 percent, and longer-term inflation expectations continue to be well anchored.

Danielle Hale, research economist at the National Association of Realtors®, also spoke at the session and addressed homeownership tax policies. “While U.S. publicly held debt has exceeded 75 percent of the Gross Domestic Product, there are some misconceptions about the mortgage interest deduction that are important to consider when reviewing the tax code,” she said.  Approximately three out of four home owners with a mortgage – a quarter of all tax payers – claim the MID, which is about the same number of taxpayers who claim charitable contributions.

Almost all first time home buyers, who are critical to the overall health of the housing industry, finance their purchase. While the MID provides great benefits to owners in the early years of a mortgage, toward the end of a loan the amount of interest paid is so little that the standard deduction becomes a better option.

“At any given time, only half of home owners claim the mortgage interest deduction, but over the course of a lifetime we estimate that roughly 70 percent of households that ever own a home will use the MID,” Hale said.

The typical beneficiary of the mortgage interest deduction is under 45 years old, married, has children and earns less than $200,000.

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1 million members involved in all aspects of the residential and commercial real estate industries. For additional commentary and consumer information, visit www.houselogic.com and http://retradio.com.  

Information about NAR is available at www.realtor.org. This and other news releases are posted in the “News, Blogs and Videos” tab on the website.

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Institutional investors are especially drawn to REITs because they provide not just earnings growth, but strong dividend growth. REITs are required to distribute at least 90 percent of taxable income to shareholders in the form of dividends. Also, real estate is relatively inexpensive right now.

(Read More: The Other Housing Recovery: Agents’ Pay)

“Physical real estate is attracting institutional investors because there is a positive spread between how much it costs to finance real estate versus the income generated,” added Goldfarb.

On a total return basis, the FTSE NAREIT All REITs Index gained 5.80 percent in April and the FTSE NAREIT All Equity REITs Index gained 6.33 percent, while the SP 500 was up 1.93 percent.

While almost all sectors of U.S. REITs have delivered double-digit gains year-to-date, some are outshining others. Health care was the industry’s top-performing major sector, with a 23.77 percent total return, according to the NAREIT report. Lodging was up 17.51 percent, and retail was up 17.34 percent, led by shopping centers.

An improving economy is clearly sending consumers back on vacation and back to the malls. Health care has been a consistent leader, as Baby Boomers fuel the aging population.

(Read More: Map: Tracking the US Real Estate Recovery)

A product of the real estate recovery, Mortgage REITs were up nearly 19 percent and Home Financing REITs were up over 17 percent. Commercial financing is driving much of the former, but these sectors are benefitting from a potential thaw in mortgage credit in residential as well.

“There are signs that conditions are beginning to loosen,” according to analysts at Capital Economics, who also noted that mortgage demand is on the rise.

Article source: http://www.cnbc.com/id/100734766

“Underlying interest rates are moving higher, dragging mortgage rates along with them,” said Keith Gumbinger, vice president of HSH.com, a data and analytics site. “This has come as the result of somewhat better conditions in the labor market, helping investors feel more confident that the recovery will overcome its recent soft patch.”

(Read More: REITs Return Big as Investors Pour In)

The higher rates cause a drop in mortgage applications. Refinance volume fell 8 percent, while mortgage applications to purchase a home fell 4 percent, according to the MBA report.

Article source: http://www.cnbc.com/id/100738799