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Silicon Valley & Peninsula Multifamily ENews – January 2017

Welcome to the Silicon Valley Multifamily Group monthly eNews.  This newsletter provides a collection of multifamily related articles and insights from various industry publications to help you as a building owner have a better understanding of the market. This newsletter is distributed with no obligation to multifamily property owners and investors in Santa Clara and San Mateo counties. If you would like to see specific information in this newsletter, or not see this newsletter at all, please let us know.  We welcome your comments.

Rents in San Jose & San Francisco Continue to Cool Off
Averaged out across the US, asking rents for apartments still rose in November on a year-to-date basis, though more slowly than before, with the median asking rent for a one-bedroom up 1.8% and for a two-bedroom up 2.2%, according to Zumper’s National Rental Price Index. In July, rents had still been up over 4% year-to-date. Since then, they’ve started ticking down on a monthly basis. But averages can cover up more than they reveal.  On a city-by-city basis, a different scenario emerges, with rents going totally crazy in some la-la lands, as if it were still the summer of 2015, and in other cities, including the three most expensive rental markets in the US, rents are coming down hard.  read more

But Rent Growth in 2017 Still Expected In Bay Area Cities
California once again dominates the list of rent-growth leaders for the coming year, with more than half of the top markets, but it may come as a slight surprise to some. Oakland tops the list, with San Francisco and San Jose still in the top 10. Oakland’s rent-growth pace has slowed significantly recently, and San Francisco and San Jose are both experiencing rent cuts. There’s been a lot of fear about oversupply in these markets, which could be contributing to the current situation. The Bay Area economy has experienced a notable decline recently, but its job-addition volumes are substantial. “[Apartment operators] will pretty quickly realize that the [Bay Area] market hasn’t gone off the edge of the cliff, regaining some confidence on pricing power,” says Greg Willett of MPF Research.  read more

The Future of California Rents
Zillow forecasts California rents will continue to rise in the coming year, though this trajectory will flatten and continue at a flat pace in most metros. This is consistent with the (slow) rise in multi-family construction, which adds to both the condominium and rental inventory.  Further, renters are simply maxed out at current rent prices, since average incomes have been slower to rise than rents. Many working residents have been forced to move outside their city into the suburbs to combat fast-rising rents. In turn, landlords are seeing less competition for the same units, causing the price of rents to increase more marginally.  read more

Multifamily Construction Starts Decreasing
Multifamily construction starts have decelerated and have actually decreased 8% from a year ago. Despite multifamily’s down performance in 2016, demand for multifamily rentals has generally been higher during this residential construction recovery compared to new SFRs. Multifamily construction reports showed a 21% increase in 2015 over 2014, driven by the continued demand for rentals. However, the trend reversed direction in 2016, and the number of multi-family starts is likely to end the year about 10% below 2015.  read more

Lousy (Economic) Growth and Rising Rates?  
The bond market is already doing the math.  For the year 2016, economic growth is expected to be a miserably slow 1.6%, according to a survey of “professional forecasters,” released today by the National Association for Business Economics.  For next year, the forecasters are more optimistic, but it’s the same lousy optimism that would have been considered rampant pessimism before the Financial Crisis. They lowered their forecasts to 2.2% growth for next year.   read more

FED Raises Rates, Boosts Outlook for Borrowing Costs in 2017
Federal Reserve officials raised interest rates for the first time this year and forecast a steeper path for borrowing costs in 2017, saying inflation expectations have increased “considerably” and suggesting the labor market is tightening. read more

Facebook Commits $20M for Affordable Housing 
The unusual contribution is the largest it has committed to alleviate the housing crisis, a problem that has long pitted the tech elite against the region’s poorest residents. Facebook has teamed up with a coalition of East Palo Alto community groups and the governments of East Palo Alto and Menlo Park to form the Catalyst Housing Fund. The company calls the partnership “unprecedented.”  read more

Trump Nominates Carson to lease U.S. Housing Urban Policy
President-elect Donald Trump nominated retired neurosurgeon Ben Carson to run the Department of Housing and Urban Development, an unconventional choice that underscores Trump’s willingness to forgo traditional policy expertise in some Cabinet positions to surround himself with allies.  read more

2017 Predictions From the Big Boys (and Girls)
Multifamily executives share their predictions, plans, & fears for the year ahead. 
To get an idea of how the industry is preparing to handle the maturing cycle, Multifamily Executive asked five executives across the country to share their thoughts on current market conditions. Here, they reveal what surprised them this past year, what indicators they’re watching now, and what has them excited about the year ahead.  read more

Top 3 Trends Shaping the Real Estate Industry
Every industry is changing rapidly due to technological advances, but the real estate industry remained largely unchanged until recently. With a growing number of tech investments in the real estate sector and the rising influence of millennials on the market, a few trends are emerging as ones that should be closely watched by industry professionals. These include: Predictive Analytics for Short Term Rental Investing, The Rise of 18 Hour Cities, and Customizing Options and Expectations.  read more

What are your tactics for rent controlled properties?
We all know that rent control is an ineffective measure to create affordable housing.  We also know that is it extremely detrimental to properties, neighborhoods, and cities.  I am working on a white paper that outlines strategies landlords employ to lessen the blow and keep rental properties profitable.  I’d love to hear your tactics and strategies for coping with a rent controlled property.  Please send your ideas to Michael Shields via email or call me at 408-356-1900.

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