WSJ Blog on Housing's 'New Normal'

Over on the Wall Street Journal's real estate blog, there's a good summary of research on housing's 'new normal' from John McIlwain of the Urban Land Institute. McIlwain predicts that:

• Home prices will fall an additional 10% this year
• Foreclosures and underwater mortgages will increase and could hit 21 million by year-end
• Home appreciation will slow to 1% or 2% annually in the coming decade, and the home ownership rate of 67% could drop to 62%

All of this means that "more people will stick with renting - whether by choice or necessity. Mr. McIllwain says that housing in and around major cities will remain unaffordable for many who work there. (We’ve previously reported that some 42% of those who once purchased, but don’t currently own, do not think they’ll own again.)"

January Rent Check

The January issue of Rent Check -- Urban Igloo's monthly newsletter -- hits email boxes today. Check it out.

DC Apartment Trends from Delta, Part I: For Landlords

Urban Igloo recently caught up with Grant Montgomery, VP at Delta Associates, an authority on DC area real estate trends. Montgomery heads up Delta’s apartment practice, which just last week released its much-anticipated 2009 year-end report on the local rental market. He was kind enough to talk with us and share highlights of Delta’s findings, along with insider tips for DC landlords and renters. In Part I of our interview, we share the year-end numbers, and focus on implications and advice for landlords. Next month, in Part II of our interview, we’ll shift to the outlook and tips for renters.

Looking Back: The Good News

Despite tough economic times and record apartment vacancy rates nationwide, DC’s rental market “is holding up quite well,” says Montgomery. “Vacancy rates are not as elevated as we thought they would be at this time when we were looking out 12 months ago.” To see the full picture, he notes, you can’t just look at the overall numbers for DC; you have to pay attention to submarkets. In particular, if you pull out the Capital Riverfront sub-market (where 4 new properties were built within a 24-month period), rent growth for metro DC goes from negative to positive.

In fact, the region is seeing record-high rates of existing and new rental units being occupied – or what Montgomery refers to as “absorption.” If you’re a landlord, this is exactly what you want to see given the current market. “To improve the market, you need to absorb more than you’re delivering. And the good news is, we will be delivering even less this coming year.” Montgomery identified two main factors that have boosted absorption and cushioned the blow of the economic downturn for the rental market:

1. More renters. In the early 2000s, the renter vs. owner ratio shifted significantly in favor of owners. Now we’re seeing a big shift back to the historical norm. “People who in 2005 would have bought a house are renting today … just like they would have in 2000.”

2. Job growth. While job growth has been weak in the economy overall, “the job sectors that populate [higher end] rentals are still gaining jobs … professional services, government jobs, health, and education jobs.”

Looking Ahead: The Better News

So as bad as conditions are for some landlords, these trends have saved them from becoming worse. The better news for landlords, argues Montgomery, is that “there’s light at the end of the tunnel.” And a key reason is that new construction, so prevalent in recent years, is grinding to a halt. At the start of 2009, there were over 50 rental properties in the market that had recently been built. Since then the number of new properties has been declining, and the pace of that decline is accelerating rapidly.

New properties are now down to around 35. And towards the end of this year, they “are going to fall of a cliff. … It’ll be like back in the middle of the condo boom when [apartment properties] weren’t being built because they were becoming condos, but this time there just won’t be any [buildings]. Or you’ll get 1 or 2 [new buildings] a quarter, rather than say 8.”

The result: “vacancy will start to decline in 2011, and really dive in 2012” and “the market will change from a renter’s market to a landlord’s market within the next 36 months … In submarkets where demand is strong, this may happen sooner.”

Montgomery’s advice in the meantime: “watch the bottom line”. “Rent growth will not really be found this year marketwise,” so the key for now is “how well you operate the property rather than rent growth. It’s about managing your costs and expenses. That’s what you can control.”

Key Numbers

And now for the key 2009 year-end numbers for the Washington Metro area from Delta Associates' new report:

Vacancy Rates
Overall: 4.3% (vs. 4.3% in 2008)
Class A: 3.6% (vs. 4.4% in 2008)
Class B: 5.2% (vs. 4.2% in 2008)

Absorption
Total: +6,061 units
Class A: +7,955 units (record)
Class B: -1,894 units

Concessions
Class A Existing: 7.2% (off monthly rent) (vs. 5.7% in 2008)
Class A New: 15.7% (vs. 11.5% in 2008)

Next month, we’ll continue our talk with Grant Montgomery, this time focusing on implications and tips for renters.

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Are you a local real estate expert interested in sharing insights and tips with thousands of renters, landlords, and other Urban Igloo followers? We’d love to interview you for our blog and newsletter! Contact us today at info@urbanigloo.com.

Neighborhood Expert Interview: Columbia Heights

As part of an ongoing effort to share valuable information on DC’s neighborhoods, Urban Igloo is launching a series of interviews with local experts – bloggers, community association leaders, listserv moderators, and others who have unique, on-the-ground insights and tips. For our inaugural interview, we are excited to chat with Andrew Wiseman, author of the New Columbia Heights blog.

Thanks for joining us, Andrew, for our first neighborhood interview. Tell us a little about yourself. How did you get into blogging about Columbia Heights?

I've been in DC about 12 years, staying here after finishing college at GW. I read a lot of local blogs and wrote one about GW basketball, but there wasn't one about Columbia Heights, despite the fact that so many new things were going on. So I decided to start one!

Briefly describe Columbia Heights to someone moving to DC who's looking for the right neighborhood fit.

It's a rapidly gentrifying (or maybe already gentrified) urban neighborhood with lots of nice older townhouses, brand new condo buildings, and a lot of new restaurants, bars, and retail, plus Latin American food and shops. Really almost a brand new mini-downtown in an older and diverse neighborhood. Very close to downtown also.

What are the people like who live there?

There's a real mix -- families who've been in the area for generations, young people looking for less expensive townhouses to rent, urban professionals in new condos and renovated homes.

What are the best things about living in Columbia Heights?

Everything I need is within walking distance -- groceries, bars, Target, restaurants, the Metro, friends, U Street, and Adams Morgan. I always run into people I know on the street or going out.

What impact has the opening of the big-box stores (Target, Best Buy, etc.) had on the neighborhood?

Huge! It's a real magnet -- all your needs are basically there. Much easier to walk over to Target and Best Buy than to take the Metro or drive to Virginia, as I used to have to do.

What other trends are you seeing in the area?

Other than the new big boxes, there have been a few new yoga places, chains like Chipotle, and great ethnic restaurants like Pho places and Latin American chicken.

Please share some of your favorites:

- Favorite bar: tough one. Red Derby is a cool dive with lots of beer, Wonderland is a neighborhood watering hole, and Room 11 has great food and a great and very knowledgeable bartender, Dan Searing.

- Favorite nice restaurant: CommonWealth -- hearty English pub food -- meat, cheese, Scotch eggs. Good happy hour deals too.

- Favorite cheap restaurant: El Rinconcito II, a traditional Latin American place across from the Giant. Great pupusas and other Central American food. Taqueria Distrito Federal is also really good.

- Favorite place to shop: Got to be DCUSA, with the Best Buy, Target, Marshall's, Linens and Things, etc.

- Favorite coffee shop: Columbia Heights Coffee. Laid back vibe and good drinks.

- Favorite area to walk around: Meridian Hill Park, a beautiful park with great views and a big fountain.

- Favorite (other) DC neighborhood blog: DCist.com is a good site, covering a lot of the city. Also like pqliving for Penn Quarter and Borderstan for the area between Logan Circle and Dupont.

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Are you a blogger or leader in your neighborhood? Share your expertise with thousands of DC area readers of our newsletter and blog. Contact us today at info@urbanigloo.com.

New Web-based Property Form for Landlords

We are excited to share a brand new feature available on our website: a web-based form for landlords to post their properties.

Those of you who have posted properties with us in the past know that our old PDF-based process was too clunky and time-intensive. Our new form moves the process online, and we've gone to great lengths to create a very intuitive, user-friendly form that works equally well for both condo owners and institutional landlords. The new form will also allow us to get your apartments and houses live on our site much faster.

Please take advantage of this new feature and let us know what you think!

Property Search Improvements

We've just released a new and improved version of the property search tool on the Urban Igloo site. As we've added a lot of new apartment buildings, condos, and houses to our inventory in recent months, we had outgrown some of our search functionality. With today's changes, property searches are now more comprehensive, easier to browse, and easier to act on. Happy hunting!