"It's About Time For Recession" Property Manager Warns As Rents Drop "For First Time In Career"

Tyler Durden's picture

As we've pointed out numerous times in recent months, real estate in America's largest metropolitan areas like New York and San Francisco looks to be rolling over in a big way.  Earlier this week we pointed out that the volume of apartment sales in New York was down 20% YoY in 3Q 2016 as buyers disappeared while sellers, who have grown accustomed to selling above asking price, were slow to concede pricing concessions (see "NYC Real Estate Bubble Bursts As Apartment Sales Crash 20%").  Now, the Wall Street Journal seems to be catching on to the carnage noting that residential rental rates have collapsed in San Francisco, San Jose and New York. 

“San Francisco and New York are leading the way in the downturn,” said Ken Rosen, chairman of the Fisher Center of Real Estate and Urban Economics at the University of California at Berkeley. “People are going to be surprised that this is happening but they shouldn’t be. It’s been too far, too fast.”

 

The rental market is coming off its biggest boom in decades. The foreclosure crisis, along with a trend toward urban living, has created seven million new renter households since the housing-market peak in 2006, as the home ownership rate declined to 51-year lows.

Rental Rates

As we previously pointed out in a post entitled, "Of San Francisco Rental Market Shows Signs Of Cracking Under Pressure Of Excess Supply", one of the biggest factors contributing to a soft rental market is the massive increase in supply of multi-unit housing complexes versus minimal job growth to fill those new housing units.

The main cause of the rent slowdown is a flood of new supply, with more than 555,000 units under construction across the 100 largest U.S. metro areas, according to MPF. Tenants also are beginning to tighten their purse strings as rents have jumped by as much as 60% in some markets since 2010. Growth of high-paying jobs, meanwhile, is slowing in New York, San Francisco and nearby Silicon Valley.

 

Almost 6,700 additional apartments are expected to be built in San Jose and nearly 6,500 more in San Francisco by the end of 2018, according to Axiometrics. New York is expected to get more than 42,000 new units during that same period.

Below is a look at the staggering growth in construction of multi-unit housing facilities compared to minimal growth in employment levels over the past 16 years.

Rental Rates

 

San Francisco, Oakland and San Jose are facing among the largest supply gluts in the country with a 76% surge in new housing units coming online in 2016. 

SF Housing Units

 

Just as employment levels are peaking...

SF Employment

 

Which is causing luxury apartment buildings in San Francisco to offer some pretty serious incentives as pointed out by Yahoo Finance:

“Listings that once rented in just two to three weeks can now take two to three months to rent,” explains Paul Hwang, principal broker at Skybox Realty, a San Francisco-based real estate agency.

 

At least four new apartment buildings have opened within a three-block radius of one another during the last 18 months in San Francisco’s thriving South of Market neighborhood, which is home to major tech companies like Airbnb, Pinterest and Yelp (YELP).

 

Those four buildings — Jasper, 340 Fremont, 399 Fremont and Solaire — frequently offer some sort of bargain for prospective renters. 340 Fremont is offering six weeks of free rent; Solaire is pitching four weeks of free rent, free on-site storage and $1,000 discounts to renters who work at tech companies like Apple (AAPL), Facebook (FB) and Yahoo (YHOO). Meanwhile, another building, 399 Fremont, even tried giving away free bikes one weekend.

Meanwhile, the glut of new supply, like in New York, is also forcing down rental rates on existing capacity. 

Eugene Korsunsky, president of Intempus Realty, a San Jose real-estate brokerage firm that manages apartments and single-family homes for landlords, said for the past couple of years apartments sat on the market for about a week. Now it can take him nearly a month to find a tenant, he said.

 

“We’ve actually had to drop the rent on some properties, which I don’t think I’ve ever done in my career,” he said.

 

Tenants are even gaining the upper hand on renewals. Landlords typically drive a harder bargain on such leases because they know residents would rather avoid the hassle of moving.

To summarize, while low rates may offer an enticing cost of capital to real estate developers even low return hurdles can't be met when a sluggish job market fails to produce renters.

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Lost in translation's picture

Plenty of Muslims moving in to my area. Overweight and obviously well-fed, they sit around all day having barbecue after barbecue, watching TV, doing nothing. Very noisy group, btw.

Meanwhile, nothing but English-speaking white males living in the homeless camps dotting the banks of the Santa Ana River, all up and down the length of the 57 freeway...

ebworthen's picture

Hitlary, the MSM, the Bi-Coastal Elites, and Wall Street and the Banksters call that "progress".

gdogus erectus's picture

It's not just rents that are sinking in San Francisco. This new 58 story tower is sinking and now tilting: http://www.sfexaminer.com/condo-owners-sinking-millennium-tower-estimate...

johngaltfla's picture

It isn't just rents, resale prices on existing and new homes have peaked also. It's going to be one super fugly housing crash this time because when the credit bubble pops, it takes out those institutions who have bet on another government bailout which I just can not see happening again.

Apocalicious's picture

Yep. home prices have flatlined in Austin, and possibly started to roll. Just 2 years ago it was super hot - places were going 20% ABOVE ASKING PRICE within a day or two of listing, if they weren't already lifted pre-listing..

Kasperfx's picture

same in Florida you always seen the street beggers always to be white or black and the the lines in wall marts filled with (Snap/gov welfare card users of middle eastern descent filling their minie vanes with cases of goods.

JailBanksters's picture

Subsidies for Property Owners, why not everything else is subsidised

And who pays for the subsidy, well nobody that's the beauty of it.

The Government just borrows it, and never repays it.

 

sinbad2's picture

Here in Australia the owners of rental properties are subsidized(negative gearing), if the property is mortgaged.

It pushes up prices, and the real beneficiary is the banks.

Funn3r's picture

UK leveraged residential property investors ("buy-to-let" landlord wannabees)  similarly get tax relief on their loans,  which is a huge freebie for them but also a severe market distortion.

Clause 24 of the Finance Bill should start hammering that into nothing however, beginning April 2017. This will comprehensively crush a large number of those "investors" even if they have not realised it yet. 

rlouis's picture

Subsidies for owners & renters.  I would like to see a study of Sec. 8 vouchers over the last 10 years.  The number of applicants that have $2,000 per month vouchers is way too high for ordinary markets, which only serves to drive up rents and put excess profits (above market rents) in landlord pockets.

offwirenews's picture

so your saying, soon I won't have to keep paying a monthly mortgage equivalent for an apartment?

not holding my breath on that one anytime soon

PT's picture

Hint 1:  If tenant only has $100 in his pocket, he can not pay $101 in rent.
Hint 2:  Plus he also needs money for food.

errr, well that's how it used to work, anyway.

migra's picture

Rent prices are still going up crazy high in San Diego. I guess the property managers around here didn't get the fucking memo.

Offthebeach's picture

Tbe cost to build. The Empire State and the iconic Chrysler Building were built in a single year. In the 30's, with steam shovels and hot rivets. During WWII the Alaska Canada Highway, from the US mainland, through the forrests, swamps and rivers, to Alaska, IN THE WINTER, during war time, with black troops from the deep south, was built in under a year.

 

It takes me, or my clients, almost a year to get a permit to build a house, on a no problem piece of land. When i was a kid in the 70's, about the same house, on the same lot, the permit was 30 minutes.

 

Governments, local, state and Federal are the enemy of the people.

 

Ps. If you think you can build quicker, cheaper better, go do it.It is a miserable buisness. It is the last of local manufacturing that hasn't been chased out of your town, to the south or china. I can not count the number of guys that have gone broke, busted, wiped out. The die like flies. I'm third generation and I've learned never to use my money and since Jimmy Carter have twice handed back 2-3 years work to the banks. ( I was well ready for '09, but existed on fumes for years after in the zombie zones of foreclosures and flipps ) Structures from shutting down saw mills and forrests, from the cost of trees and lumber, to EPA new diesel engines, to "safety " requring near bomb bunker engineering for light frame residential homes have more than TRIPLED the per square foot costs for home tax serf "owners". Id love to see a buyers strike. A consumers strike. A tax revolt. You, me..we are all working for the man. Serfs. I'd starve, the banks will take my trucks, again, but so be it.

zippy_uk's picture

"What do you think of THAT, Yellen ?..."

Ralph Spoilsport's picture

Most of the fancy new houses built along the shoreline for rental were only occupied during the Big 3 summer holidays. Several of them are now up for sale. Lots of empty marina slips up for sale too. That's never happened before

I am Jobe's picture

Austin, Texas rentals are over priced for the wages. No one is talking about that

indio007's picture

Come to Boston and check the rents. Your head will spin.

$1100/month for a 1 bedroom shithole.

Anything nice will cost $1750

3 bedrooms are running $3000/month

Offthebeach's picture

Yeah but think of the cultural diversity you get. Learning FU in foreign language. Cooking stink. Animal planet rats, free street side auto repair demonstrations, getting on a first name basis with the cops EMTs, having all the local authorities basically say to you, "FU, pay me". Your kid learns street smarts that your dead grandfather learned in the 1920's. You'll save money because paying for even a decent used car is just thief, junkie, and or smash bait. Not to mention a ticket farm ( FU Pay Me )

Have a nice day in the People's Democrat Republik de Boston.

cornflakesdisease's picture

Same as Houston.  New Apartments everywhere (just like the row sof new cars and trucks on vacant lots and on the top floor of parking garages: not selling).

FarmerBoy's picture

Rents dropping here in the West Texas oilpatch.  Came here in may 2014, rent on a decent 2/2 was $1800.  

Signed a new lease after 6 months, had fallen to $1600.  Property mgmt company broke lease after six months so the building could do renovations.  They wanted $1400 for the same place in another building.  

Found exactly the same apartment in the complex next door for $1250 for 9 month lease.  

Signed a new lease in April on the same place for $950.  

According to craigslist the complex is now renting this same apartment for $750.

~60+% drop in just over two and a half years.

Offthebeach's picture

Could go to what ever the tax plus interest carry costs. Maybe if the investor has profit somewhere else to write off against, even less then treadwater costs.

Ive been around long enough to see nice, clean people get space on short term paying next to nothing just to have someone watch the property, keep the building heated. Like someting that might have been $3k/mo go for $500. Even less.

Omen IV's picture

wages plus # of jobs will move the marginal price on housing - first effect is rental - but owned single family is the bomb.

selling on payments due to low interest rates will revert to prevailing income contraction in the area everywhere for new buyers

in a perverse way if clinton is elected TTP goes thru and H-1b unlimited will be in full force within 18 months and then the dike will break - do you buy? and what is the bottom?

kekekekekekeke's picture

Houston has a bunch of housing projects that were conceived in Q2 2014

waiting for rents to go down by a third 

Funn3r's picture

A lot of folks just assume that rental prices are set by purchase prices. Not true - if you can't afford to buy some place all you have to do is borrow more. You can't borrow to make your rent though, not gunna happen, so rents directly match wages. 

Bernardo Gui's picture

Prices and rents are still climbing in Seattle.  Bezos and his army of millenials are still renting apartments faster than developers can build them.  A two bedroom unit in a new building goes for upwards of $4500 a month.  A small one bedroom is in the $2200 range.  And forget about buying a house.  $1 million buys you a tear down in a gentrified neighborhood.  Rents won't deflate until demand dries up and waves of bankruptcies work through the system.

saveUSsavers's picture

any phucker saying he hasn't seen a drop in rents in an entire career has a lamppost waiting for him, moron arsewhole idiot

robertocarlos's picture

"The rent's too God damn high"!