Sale housing & credit on the brink, how about apartments…

Implications: Mr. Zuckerman, the Editor-In-Chief, writes persuasively here of declining, nay plummeting, home prices and new home construction and of the possible passing of the U.S. auto industry and of healthcare funding problems.  He makes the point that 10 million home mortgages exceed the value of the underlying security and goes on to point out that wages are not rising to cover the average $ 2,000 loss to the family budget from recent food and fuel prices.  He doesn’t tell you that the next few months will have meat prices rising again on a step upward curve and that the family budget will bulge again from this new stress.  The balance he points out is an inflation risk from low interest rates versus a progressively weaker economy.

Analysis: So where’s the pro to this con.  I can tell you that the benefactors of this adversity are not the current residential landlords of this country if they are anything like the owners of residential rental communities in the Phoenix metro area.  Flat rents (actually slightly declining), high vacancies (overall 12.5 %) and rental concessions (sometimes one to 2 months on a 12 month lease) are the indicators of the difficult Phoenix market.  It appears that Phoenix is the most impacted of the dozen or so major apartment markets, but the others can’t be far behind.  Condo re-conversions and standing single-family inventory are directly competitive with the major apartment communities.   The pro to all of this will occur when supply meets demand in the sale market.  No doubt, though, that supply is still rising although the home builders are not able to burn lots as they have for the past few years.  Foreclosures are still coming on gangbusters and more millions of holdout, underwater home-owners may be/likely are reaching the end of their savings accounts.  Now, too, we do not have third-party loan markets which will facilitate the movement of this inventory.  Funds available for housing in the average household budget, too, are moving away from supporting the current market.  
The futures market, I believe, in predicting a 30% further decline in housing values, is looking the right way.  I’m not so sure, however, that there’s going to be any support to prices, or for that matter rents, until sustainable family incomes have principal and interest, taxes and insurance payments, or rents, down around 25% of family gross income.  In my opinion, that number for most families in reality will not support prices at the futures market predicted levels either.  My thought is that we’ve got a bunch more to go on top of that for much of the housing product out there.  No doubt, too, that the timing for stabilization is still a few years away at best.