Archive for April, 2011
Recent trends in rental housing are creating a dismal environment for many Americans and if public policy doesn't intervene, things will get worse, according to a study from one Ivy League university.
The Harvard University Joint Center for Housing Studies released a report Tuesday, analyzing conditions in the housing market from 1999 to 2010. The study found the price to rent a home is trending inversely to renters' annual income, just one of many factors hindering growth in the rental space.
"Following the 2001 downturn real renter incomes failed to rebound and now remain below their 1980 level," the report said. "At the same time, real contract rents have climbed by more than 15% since 1980." Rents rose steadily from the mid-1990s on, the report added.
One in four renters — representing about 10.1 million households — spends more than half his annual income on rent and utilities. Another 26.2% of renters spend between 30% and 50% of yearly income on the same amenities. This data aptly depict what the report later notes about the socioeconomic breakdown of renters.
"While severe housing cost burdens are still anchored among those in the bottom fifth of the household income distribution, over the last decade the number of renters even in the next two higher quintiles facing such burdens increased by 1 million households," according to the report.
About 56% of lower- to middle-income families currently use one-third to one-half of their income for rent and utilities, compared to 38% of these families at the beginning of the decade. Some 23% of middle-income families now spend that much annually for these expenses, up from 10% a decade ago.
A lack of affordable housing also is driving unfavorable rental conditions, the Harvard study said. Affordable rental housing stock is diminishing, the report said, but the main reason is not increasing occupancy rates. Of the 6.2 million vacant or for-rent units with monthly cost less than $400, almost 12% were demolished between 1999 and 2009, according to the report.
More than 28% of the 1999 low-cost stock was lost by 2009, the report said.
"The road to removal typically begins once a unit becomes temporarily uninhabitable," according to the report. "But abandoned homes often languish in this state for years, bringing blight to the surrounding neighborhood. Indeed, nearly one-third of all housing units that were abandoned, condemned, or otherwise temporarily lost from the stock between 2001 and 2005 were still in those conditions in 2009."
As the economic downturn wore on, the number of low-income renters grew to 18 million in 2009 from 16.3 million in 2003, increasing competition for affordable rental housing. People who would normally be considered high-income renters were now searching for more affordable housing because of macroeconomic factors such as job loss, the report said. However, this coincided with decreases in housing supply, widening what authors of the report call the "supply gap" — more demand for less supply.
This trend will continue, warn Eric Belsky and Chris Herbert. Blesky is managing director of the Harvard Joint Center for Housing Studies and Herbert is director of research.
They said the 2000s were "terrible for (rental) affordability," and any improvement requires higher renter incomes and moderating housing costs.
"With persistently high unemployment, the prospects for renter income gains are dim and rising demand for rental housing may well put added pressure on rents," Blesky and Herbert said in their report. "Innovations in housing products may, however, be able to help bridge the gap between what low-income renters can afford to pay and the rents necessary to maintain affordable housing."
Herbert said investments to preserve existing assisted housing may be cost-effective, adding the public sector can’t tackle this problem on its own.
"Policy makers must look for ways to support efforts by the private sector to invest in both existing and new rental housing, while keeping prices affordable,” Herbert said.
Write to Christine Ricciardi.
Follow her on Twitter @HWnewbieCR.
New deals through a rejuvenated commercial mortgage-backed securities market, known as CMBS 2.0, may reach as high as $35 billion in 2011, according to Barclays Capital analysts. Although this remains short of historical highs during the boom years, the new issuance is at the expense of the strict underwriting seen in earlier CMBS 2.0 deals.
At its peak in 2007, the CMBS market produced $200 billion of issuance. When the financial markets froze in 2008, conduit originations were put on hold until the fourth quarter of 2009. Green shoots emerged in the back half of 2010, resulting in $6 billion of new issuance. The trend continued growing in the first quarter with another $7 billion issued. So far in the second quarter, $14 billion of CMBS has been issued in 13 deals, BarCap said.
While capitalization rates — or the ratio of net operating income for investment compared to cost — declined across all property types since the middle of 2009, property values increased and investor appetite is up. PricewaterhouseCoopers said commercial real estate investors were looking for more risk in a survey conducted during the fourth quarter.
"This further boosted confidence for investors looking to take credit risk," BarCap said. "With this self-reinforcing cycle in place, we expect brisk issuance over the coming years, with $30 billion to 35 billion in 2011 alone."
Investors wanting more risk became the catalyst for these new deals, BarCap said, especially as underwriting standards sunk in 2010. Last year, the average loan-to-value ratio at issuance of the securities dropped to 58% from 70% in 2007.
CMBS 2.0 registered its first delinquency in April. And new risk-retention requirements put out by regulators could keep some deals from getting to market. The new rules proposed in late March require MBS issuers to put excess proceeds from a deal into a premium capture reserve account to cover potential losses.
However, the rule does allow issuers to pass the 5% risk retention on to investors buying the securities at a riskier slice, which could limit its effect on CMBS issuance.
"To be sure, these are only preliminary proposals that will likely be modified before the final rules are drafted," BarCap analysts said. "As such, CMBS issuers still have two years to comply with these regulations once the rules are finalized; we expect these to come into effect only in the middle of 2013."
For an in-depth look into CMBS 2.0, grab the May issue of HousingWire.
Write to Jon Prior.
Follow him on Twitter @JonAPrior.
An article in Tuesday's American Banker reminds us that the top spot at the Consumer Financial Protection Bureau remains up for grabs. Furthermore, two options are mentioned for the president-appointed position: a "safe" candidate or an appointment made during the current congressional recess.
If the latter, we will have our CFPB head within days.
The current head, Elizabeth Warren, may be considered in the case of the former.
Warren, for her part, has hinted publicly that it is a job she is willing to take. Warren is a brilliant speaker, and after her Q&A session at a recent Society of American Business Editors and Writers conference, one Bloomberg staffer said she reminded him of his sweet aunt.
The comparison is perfect. I instantly reminisced about the BBC back in Britain. The broadcast behemoth there is often referred to as Auntie Beeb. The name comes with an undertone of hurt, however, every time one comes to pay the $60 quarterly television tax.
Warren is on the record saying that as long as mortgage firms operate within the law, there will be no problems.
The mortgage industry is not expecting this sugar-and-spice stance to last.
"Our inclination is that come July 21, when the CFPB opens, they will look to quickly take down one large lender, and many smaller firms," a mortgage industry source who consults with the CFPB tells me.
The source talked about how the CFPB isn't hiring staff from prior regulators, like the Office of Thrift Supervision and the Office of the Comptroller of the Currency.
"They don't want anyone who worked with those regulators who are today seen as not being forceful enough in the lead-up to the recession," he said.
One extrapolation is that the CFPB is looking for younger, more consumer-minded staffers who support the political shift against the housing industry status quo.
But it may just be good old-fashioned paranoia to envision a regulatory entity more concerned with taking down an industry than helping to rebuild it. And it is certainly not a position endorsed by the CFPB.
However, the head of the CFPB is a compelling issue as it exemplifies the hand wringing of a mortgage finance industry anxiously waiting to finally see who its boss will be.
Many are predicting a Sheila Bair-esque appointment. Or at least someone with a long association with the "going out of business" moniker.
But even if Warren is appointed, make no mistake; Auntie CFPB will own a pit bull.
Write to Jacob Gaffney.
Follow him on Twitter @JacobGaffney.
Tags: Bloomberg, CFPB, Elizabeth Warren, OCC, OTS, Sheila Bair
Posted in Commentary, Jacob Gaffney, Voices | 3 Comments »