Here's a little nugget of good news for the Twin Cities housing market: The number of homeowners in the metro who have mortgage that exceeds the value of their house continues to fall, and is below the national average. Zillow says that in the Twin Cities metro, 107,785 homeowners – 15.6 percent of all homeowners with a mortgage – were underwater during the third quarter. That's down from 21.1 percent a year ago and 60.1 percent below the peak. Nationwide, the negative equity rate fell from 16.9 percent from 31.4 percent at the peak.
Here's what Zillow's chief economist, Stan Humphries, had to say about the situation: “Looking at negative equity helps us understand so many of the currently out-of-whack dynamics in the housing market, including low inventory, rapid home value appreciation and weak sales volumes. None of these problems will be solved overnight, in large part because negative equity will likely be a part of the housing market for years, and easily into the next decade in some hard-hit areas. But we’re moving in the right direction, and time will heal all wounds.”
Nationwide, owners of less-expensive homes were more likely to be underwater than owners of more expensive homes. In Detroit, for example, 49.2 percent of homes valued in the bottom price tier were underwater, while just 7.6 percent of the area’s highest-priced homes were upside down. And in Chicago, 41.4 percent of bottom-tier homes were in negative equity, compared to 23.9 percent of middle-tier homes and 10.4 percent of top-tier homes. Nationwide, 27.4 percent of the least-expensive homes were in negative equity in the third quarter, compared with 15.7 percent of middle-tier homes and 9.3 percent of top-tier homes.
The U.S. commercial real estate market moved from hot to “on fire” in the third quarter this year, according to a new Real Estate Research Corp. report that draws several parallels between current market trends and those of pre-recession 2007.
An increase in “undisciplined off-shore” capital is pressuring the commercial real estate prices in the United States to escalate, particularly in secondary and tertiary cities. Additionally, the RERC report – titled “Prices Pressure Values” – juxtaposes the increase in available capital with the loosening of underwriting standards, i.e. a commercial bank’s own rules governing debt and lending.
While the report’s authors offer up cautionary data, they also soften the information by pointing out several regulatory standards and market conditions that are in sharp contrast to those of 2007.
“As the commercial real estate market shifts from being hot to being on fire, there is increasing concern over the prices investors are paying, as well as the risks that lenders are taking on,” wrote Constantine Korologos, managing director of Situs, the parent company to RERC. “It is normal to be apprehensive, but investors should be careful not to confuse where we were seven years ago with where we are today.”
Korologos appears to be spurring his readers toward continued investment by outlining the differences between the present environment and the mistakes of our recent past that led to the meltdown:
In the end, Korologos says rising liquidity and competition are positive signs, but reminds investors to keep their eyes open and remember market basics: supply and demand, and vacancy, rental, yield, interest and cap rates.
U.S. rental vacancies rise for the first time in nearly five years, according to a preliminary apartment sector trends report from Reis. The report says the apartment vacancy rate in the Twin Cities was 3.2 percent, virtually unchanged from the previous quarter despite the addition of hundreds of new apartments. Other highlights from the report:
The market for industrial space continues to improve. The Opus Group said Tuesday that it signed an agreement with Capp Industries Inc. to design and build a 121,000-square-foot speculative warehouse and distribution facility at 4551 12th Avenue in Shakopee.
The building will be adjacent to the first phase of project, which Opus built for Capp in 1996. The new building will have 32-foot height ceilings and 50-foot deep structural bays. Capp is a Bloomington-based commercial and industrial real estate developer that’s been in business more than 50 years.
With the economy on the mend and the commercial sector heating up, a growing number of companies are trying to anticipate future growth by building more commercial and warehouse space in the Twin Citeis metro. My colleague, Janet Moore, explored that trend in a story earlier this year. The vacancy rate for industrial buildings in the metro is just 10.8 percent, according to a Compass report from Cushman & Wakefield/NorthMarq.
This is not the first collaborative effort for the two companies. “We’re looking forward to again working with Capp Industries to bring another top-of-the-line facility to the Twin Cities industrial market,” said Leith Dumas, director, Opus Design Build, L.L.C. “This project will build on the success of our previous work for Capp Industries and provide a flexible, well-located facility to fill the demand for industrial space in the area.”
Construction is expected to begin this fall and be ready for completion in January 2015. Capp will own and lease the project.
More than 1,000 new apartments hit the market in the in the Twin Cities during the first quarter, but the average vacancy rate increased only slightly to 2.7 percent, according to a new Twin Cities Metro Area TRENDS report from Marquette Advisors. Here's a snapshot of what's happening around the region during the first quarter:
In many parts of the country house prices are rising faster than rents, making it difficult to find investment opportunities that will cash flow. A new analysis by RealtyTrac takes a closer look at where median home prices and average rental rates make for good — and not so good — returns on rental properties. That rental return, by the way, for each county is the gross rental yield, calculated by taking the 2014 fair market rent for a three-bedroom home multiplied by 12 (months) and then dividing that 12-month total by the median sales price of residential properties in the county. Here's what they found: