- Housing Market Shaky Not Plummeting

Housing Market Shaky Not Plummeting
Saturday, March 31, 2007

Two reports that contribute to the picture of the housing industry were released on Monday. After news from the subprime mortgage market, the quarterly delinquency report, and the accompanying reaction of the stock market the two most recent pieces of information were pretty much non-events and the stock market reacted enthusiastically. Two reports that contribute to the picture of the housing industry were released on Monday. After news from the subprime mortgage market, the quarterly delinquency report, and the accompanying reaction of the stock market the two most recent pieces of information were pretty much non-events and the stock market reacted enthusiastically. The National Association of Home Builders and Wells Fargo released their Housing Market Index (HMI) which measures the state of builder confidence in the construction market along several parameters; their perceptions of the current state of the market in terms of sales; their measure of buyer traffic at present, and their predictions for the market over the next six months. The HMI has been hammered in recent months, dropping to 39 (anything less than 50 on the index as a whole or any of its three component parts is considered negative) on revised figures for February which was originally given a score of 40. This month the overall index dropped another three points to 36. This is not terrific news, but is still up from the low of 30 the HMI hit in September. The three component indexes also declined in March after going up in February. Current single-family home sales and sales expectations over the next three months each declined three points to 37 and 50 compared to February's revised numbers and the index measuring current buyer traffic was down one point to 28. NAHB Chief Economist David Seiders said, "Builders are uncertain about the consequences of tightening mortgage lending standards for their home sales down the line, and some are already seeing effects of the subprime shakeout on current sales activity. The fundamentals of today's housing market still are relatively strong, including a favorable interest-rate structure, solid growth in employment and household income, lower energy prices and improving affordability in much of the single-family market - due in part to price cuts and non-price sales incentives offered by builders. NAHB continues to forecast modest improvements in home sales during the balance of 2007, although the problems in the mortgage market increase the degree of uncertainty surrounding our baseline (i.e., most probable) forecast." The second report, the official one coming out of the U.S. Census Department in conjunction with the Department of Housing and Urban Development, is the February count of new home construction including permits issued and homes started. The two were a mixed bag. Permits were issued in February for privately-owned housing units at a rate that was 2.5 percent below the revised rate for January; the annualized estimate is now 1,532,000 and 28.6 percent lower than the number of permits estimated in February 2006. However, this number is on a par with permits issued since September, 2006 after the figures for the previous six months took a precipitous drive from 2,1470,000 to 1,727. In other words, its not 2005 but it's not a disaster either. Housing starts totaled 1,525,000 units, up 9 percent from revised January figures but still 28.5 percent below figures for February 2006. Single family housing starts fared even better, rising 10.3 percent above January numbers. The figures from both studies indicate that the housing market is shaky but not plummeting to the bottom. We will, hopefully, see nothing worse than a few more months of data that goes up and down.

- For the investor

Rents On Increase In Much Of Area As People Delay Buying
By ROBIN STANSBURY, Courant Staff Writer
 
Strong growth in the apartment market last year is leading to rent increases throughout most of the Hartford region in 2007 - with hikes of as much as 8 percent. But just how much more you pay this year will depend on where you live. ADVERTISEMENT SPONSORED LINKS Landlords say demand - and occupancy rates - for apartment units is strongest in the West Hartford-Farmington Valley area, as well as the Wethersfield-Rocky Hill corridor. There, renters can expect to pay an average of 3 percent to 5 percent more this year, and in some of the best buildings with the best locations, as much as 8 percent. But demand in the Manchester area, and in the Norwich-New London area, has slowed in recent months, the landlords said, because of an increase in the number of apartments, as well as condominiums. As a result, monthly rents in those areas will, in most cases, stay flat this year, and in some cases owners are offering a month or two of free rent, or reduced security deposits, to attract new tenants. "Last year started out with a bang, but then those markets started softening in the later part of 2006 as more product came on line," said Marie Mazzotta, vice president of Konover Residential, which owns almost 3,000 apartment units in Connecticut. "I think New London and Norwich will have a resurgence in 2007, but I'm not sure about Manchester yet," she said. "I don't see that percolating." Overall, the apartment rental market has strengthened dramatically during the past 12 months because of a slowdown in the purchase of homes and because there has been little construction of apartment complexes in the area. Fewer home buyers has meant more renters, and more renters means that occupancy rates in mostparts of the area are increasing. "In the midst of the housing boom, people moved out of apartments and into houses because interest rates were low and they were able to afford it, and so the apartment market suffered," said Ron Van Winkle, a West Hartford economist. "Now, mortgage rates are rising, costs of houses have risen, so people are holding off on purchases and the apartment market is doing better again. " That is not always the case. The apartment market can mirror the home purchase market. At those times, when one slows, the other slows, as well. Or, in areas with strong population and job growth, a strong home purchase market and a strong apartment rental market can exist side by side. But in central Connecticut right now, the slowing market is benefiting apartments. "The apartment market here is a fairly stable market, without significant ups and downs," Van Winkle said. "It should remain that way for the next couple of years." That stability has led investors to see a lot of strength in the local multifamily market, making the purchase of apartment buildings a good bet for 2007, said housing expert Steve Witten, senior director at Marcus & Millichap Real Estate Investment Brokerage Co.'s National Multi-Housing Group in New Haven. "It's my honest feeling that the bulk of the apartment sales for 2007 in the state of Connecticut will take place in Hartford County," Witten said. "The perception of the Hartford market is extremely positive. This is a burgeoning or growing market where stability will lead to reasonable appreciation. When you have investors who perceive you have a strong market, that is a good thing." Witten said the Hartford area is seen as so positive because for many years the market was undervalued, and at the same time development from private investors is finally taking place in the capital city. "Hartford's time is coming, and people are looking to position themselves in a market where they see excellent growth and appreciation of value," he said. In his report on the 2006 Connecticut apartment market, Witten said sales of apartment buildings statewide remained healthy, with 5,617 individual apartment units traded in 2006, compared with 5,676 units in 2005. At the same time, average per-unit sales value increased, from $88,368 a unit in 2005 to $122,803 a unit in 2006, a jump of 39 percent. That does not mean the typical value of an apartment unit increased by 39 percent; it could reflect the sales of higher-priced complexes. For example, two upscale apartment complexes in Middletown with 518 units sold for $73.2 million, or about $141,000 a unit, in early 2006. And already this year, a newly built 180-unit complex in Meriden sold for $30.2 million, or about $168,000 a unit. In addition, The Hawthorne at Gillette Ridge, a 246-unit upscale complex on CIGNA's campus in Bloomfield, is now under contract. The sale price is expected to value units at more than $200,000 apiece. In downtown Hartford, hundreds of upscale apartment units have been built in several projects, including Northland Investment Corp.'s Hartford 21, a 36-story, 262-unit rental tower with full amenities at the site of the old Civic Center mall. It remains to be seen how that market shakes out, although Northland and other developers say their rental plans are on track. ADVERTISEMENT SPONSORED LINKS Brokers said one area of weakness is in the development of condominiums. Although the condominium market in the area is still strong - sales of condos in 2006 outpaced sales in 2005 by about 6 percent - demand in recent months has softened, leading some projects to be scrapped. In other cases, developers have said they will build apartment units instead of condos. In recent months, about a half-dozen plans to build condos have been canceled or changed. Among them: Plans to transform the former Capewell Horse Nail Co. factory in Hartford into moderately priced condominiums was scrapped after investors cited concerns about the strength of the marketplace and profit margins. Another project that would have turned the city-owned building at 101 Pearl St. into condominiums also collapsed after the developer encountered escalating costs. A developer's plan to take a 12-story, city-owned building just blocks from Hartford's Bushnell Park and turn it into a few dozen luxury condominiums has collapsed - a victim of the project's small size, high remediation costs and the rising cost of construction. And in West Hartford, plans to build a second complex of condominiums at Blue Back Square were changed to include apartments instead after rising construction costs caused some concern about the ability of the units to sell. "There is no question there was a softening of the condo market," said Van Winkle, the West Hartford economist. "Condos did well for most of 2006, but by the end of the summer, sales started to slow, and they fell precipitously by the end of the year. When the market slows down, it makes a lot of developers rethink their market until it picks up again. " As sales slowed, construction prices increased - a bad combination, the economists said. "A lot of projects planned at a certain dollar value weren't able to be built," Van Winkle said. "With rising costs and slowing demand, you don't have to be an economist to figure out why the projects were canceled. It will come back. I think the market will revive itself later in 2007."

- Buying With Help From Mom and Dad

By CHRISTINE HAUGHNEY
March, 2007

LIKE many parents, Madhu and Kishore Agrawal do whatever they can to help their children. For their 25-year-old daughter, Natasha, that help has ranged from sending her through Tufts University to watching her cat, the General, when she traveled to India to visit relatives late last year. Recently, they made the most financially demanding commitment so far: they are putting up most of the money to help her buy a two-bedroom penthouse apartment in Williamsburg, Brooklyn, for $900,000. Space and privacy will be a big change for Ms. Agrawal, who now lives in a sixth-floor walk-up in Chelsea with three roommates, but it does not come without complications. Or, as some might say, strings. In exchange for getting financial help from her parents, there are certain things she knows she cannot do: for instance, she cannot let her boyfriend move in. She accepts that. More contentious is the matter of the couches she bought from a thrift store. Ms. Agrawal says the couches will be moving with her, because they will blend with the deep greens, yellows and oranges that she plans as the color themes for the new apartment. "I'm not ready to give in," she said while seated in a SoHo cafe during a break from her job, working in the promotions department at an independent music label. "It's not like me having furniture I like will depreciate the value of the house." Conflicts like this are becoming more common in New York City real estate as more parents - not all of them wealthy - help their adult children with their first home purchases. A decade ago, younger New Yorkers were able to buy their own apartments. That's because studios and one-bedrooms cost $150,000 or so. Now, first-time buyers are paying nearly four times that for the same apartments, according to data from the Real Estate Board of New York. Brokers say they see more buyers turning to their parents for help with $100,000 down payments or monthly mortgage payments, or for temporary loans to their bank accounts so that they can pass muster with certain co-op boards. As a result, more parents are remembering how their own parents helped them, looking at their own financial situations and entering into complicated business partnerships with their adult children. In many cases, they are expecting some control over the furniture, the appliances and even how often they can use the apartments for their own visits to New York. "There are a lot of stipulations in these deals," said Amy Herman, a Halstead Property agent who has represented about three dozen parents helping their adult children buy apartments in the past five years. "They gift with a caveat." She said that only one of these deals closed smoothly and that many brokers no longer represent parents and adult children. "It's just very time-consuming," she said. More buyers are turning to therapists to help them work through how they feel about depending financially on their parents when they have carved out independent careers and lives. Dr. Richard Shadick, a Manhattan psychologist who works mainly with 20- and 30-something New Yorkers, said that "a good portion" of his cases focus on the problems of seeking financial help from parents to pay for housing. Parents who lend money to help their adult children can make demands that include becoming engaged to the person they are living with, he said, or signing prenuptial agreements allowing them to keep the real estate in their names. He finds that no matter how generous parents may be, their children can feel embarrassed that they can't afford to pay for their own housing. "Even if the parents gift money, there is an emotional connection to the money that's given," Dr. Shadick said. "A recipient may feel that they are not able to do it on their own and that they're less of an adult. Part of the issue is the cultural trend of delaying separation with their children, and the other part is the high cost of real estate in New York." When these discussions get tough, first-time buyers in New York City can't opt for extra-large mortgages as buyers can in the rest of the country. According to the National Association of Realtors, 45 percent of first-time buyers nationwide put no money down, but in New York City most condominiums require down payments of 10 percent, and most co-ops require 20 percent. In many cases, parents make loans to their children under the assumption that New York City real estate will continue to rise in value. But because there is no guarantee that it will, Asheesh Advani, a former World Bank consultant who founded CircleLending Inc., a Waltham, Mass., company that organizes all types of loans among relatives, says that adult children should treat loans from their parents like loans from banks. He suggests that they draft a formal document stipulating that they will make monthly payments on their loans, rather than paying their parents back when they sell the apartment. This way the children get an annual tax deduction for the interest paid on the mortgage, and the parents don't pay all of the taxes that they would if they offered an outright gift. The children's contract might stipulate that if they sell they apartment, they must pay back their parents, just as they would pay off a mortgage to a bank. The children can keep the profits, if any, but if the apartment has declined in value, they still pay their parents back. In neighborhoods like Williamsburg, some parents are buying apartments outright for their children. Apartments there typically cost $700 or so per square foot, compared with more than $1,000 in the financial district in Manhattan, said Christine Blackburn, a Prudential Douglas Elliman associate broker at the building where the Agrawals bought. Skip to next paragraph Chester Higgins Jr./The New York Times One of the issues that Natasha Agrawal and her parents have yet to work out is whether her two thrift-store couches will be moved to the new apartment they are buying for her in Brooklyn. She added that parents or children with trust funds are buying about 25 percent of the inventory in Williamsburg. In Ms. Agrawal's new building, parents bought about 10 percent of the 36 units. Ms. Blackburn, too, finds that most of these arrangements carry conditions. "The girls are not allowed to have the boyfriend move in," she said. "With the sons, they expect them to have roommates." Dr. Agrawal is a surgeon at Staten Island University Hospital's South Site, and he and his wife, who live in the southeast Annandale section of the island, have investments in the stock market and in real estate. They said that they wanted to help their three daughters equally. They had already bought their daughter Monisha, 29, an apartment on the Upper West Side, but when she married, she needed a larger place. They have told their third daughter, Pia, 23, that they will help her in the future. For Natasha, they wanted more room to grow. The Agrawals began looking in Williamsburg after a family friend mentioned that he was working as a contractor on a condominium there and talked about the strength of the market. The couple decided that an investment there would be a good way to give Natasha a place to live and to teach her how to build equity. She is contributing about 20 percent of the down payment toward the purchase, which translates into about $18,000, and $1,000 for the monthly mortgage payment plus utilities. The Agrawals also tried to balance their daughter's requests to buy something understated and environmentally sensitive with what they saw as a potentially profitable investment. "She doesn't want high-rise," Mrs. Agrawal said. "She doesn't want fancy. She doesn't want amenities. We looked at every loft in Brooklyn." While the Agrawals are enthusiastic about the apartment that Ms. Agrawal chose, they haven't figured out all of the decorating and financial arrangements. Mrs. Agrawal offered to resolve the dispute about the thrift-store couches by taking her daughter shopping and buying her new furniture. To make her parents feel more comfortable, Ms. Agrawal countered by proposing to have the couches professionally cleaned before they go to the new place. The Agrawals do not plan to put the financial arrangements in writing. Because Ms. Agrawal is helping with the monthly payments, the deed to the apartment will be in her name and her parents' names, her mother said. She added that they would give their daughter 20 percent of the profits when they eventually sell. Ms. Agrawal said she did not expect her parents to share the profits with her. As she put it: "It's extraordinary that they bought me an apartment. But it's not what I expected. My parents have done enough for me. " These financial relationships can become far more complicated when the apartment in question is a Manhattan co-op, because boards have come up with rules that limit how much financial help buyers can get from parents. Brian Spence, a 29-year-old event planner in Manhattan at Deloitte, the accounting and consulting firm, discovered this late last year when he decided to live separately from his partner of five years, and he started looking for an apartment. He quickly found that many co-ops stated outright that they didn't accept buyers who received help from parents. While he had saved about $30,000 to buy a studio, he realized that he would need his parents to match that amount for him to come up with a 20 percent down payment. In December, Mr. Spence found a 300-square-foot studio at 457 West 57th Street for $299,000 and persuaded the seller to accept $265,000. The co-op board required that he get his parents to put in writing that their contribution was a gift and that he did not have to pay it back. So he called his parents in Midville, Ga., explained that he had negotiated a deal, and asked them to give him $26,500 and write a letter saying that this was a gift. They agreed. "I was asking for an equity partner in this," Mr. Spence said. "I felt like we were going into it together." His father, Gary Spence, a contractor, said that in 1972, his own father gave him three acres of land to help him build his first house and move his family out of a mobile home. He was sold on his son's efforts to buy when he found that Manhattan prices had dropped slightly. "I don't really see anybody losing money up there," Mr. Spence said. Brian Spence said that there are some implicit assumptions about accepting his parents' help. Three to four times a year, his mother and her cousins or her friends visit New York and stay with him. He expects that in his new apartment he will continue to play tour guide for his relatives. He also says that as their only child, he would be quick to move back to Midville (population: 457) if they ever needed his help. His broker, Jamie Breitman of Bellmarc Realty, said that the smoothness of Mr. Spence's deal was highly unusual. But even parents and adult children who work out such financial details smoothly have different attitudes toward the arrangement. Marilyn Kane, who has run Butler Kane Commercial Real Estate in Manhattan with a partner for 17 years, offered to help her 26-year-old son buy a $500,000 one-bedroom co-op in Murray Hill. The son, who has a different last name, asked not to be identified because he did not want his co-workers to know how much his mother had helped him. In preparing to buy the apartment, Ms. Kane said, she encouraged her son to live at home so that he could save some money. After he had accumulated $50,000, she offered to set up a proportional investment agreement with him. He would pay 20 percent of the down payment, 20 percent of the mortgage, 100 percent of the maintenance and 20 percent of any renovations to the apartment. If they were to sell, he would get 20 percent of the profits. Ms. Kane said that she plans to put this agreement in writing before they close on May 1. Ms. Kane, her husband and her son will have their names on the mortgage and apartment documents, but she said she had tried to limit the strings attached to the deal. She and her son shopped for kitchen appliances together and ultimately agreed on all of them. "He has a good sense of taste," she said. "I probably would have veto power if I thought it was awful because I wouldn't want my investment to have something uncomely." Still, Ms. Kane wanted to help because she had not received help from her own parents and could not buy in Manhattan until she was in her 40s. "Truthfully, at times, I really resented it," she said. "I believe in helping children and being generous, but not necessarily handing them things on a silver platter."