Why I’m excited about the Texas Multi-family real estate market:
Investment opportunities in the Texas apartment industry
A white paper by Keith O. Sanders
Keith.SandersTEXAPLEX@gmail.com
September 2011
Copyright 2011 by Keith O. Sanders.
Smashwords Edition
Please send all comments and questions to: Keith.SandersTEXAPLEX@gmail.com
Limit of Liability/Disclaimer of Warranty
This paper has been prepared solely for informational purposes, and it is not an offer to buy or sell, or a solicitation to buy or sell any security or instrument, or to participate in any particular investment transaction.
While the author has used his best efforts in preparing this publication, he makes no representations or warranties with respect to the accuracy or completeness of the contents of this publication and specifically disclaims any implied warranties of merchantability or fitness for a particular purpose. The strategies contained herein may not be suitable for your situation. You should consult with a professional. The author shall not be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or any other damages.
Overview
“It was the best of times, it was the worst of times.” Unemployment is 9.1% GDP growth is anemic, the price of gold soars as fear grips the economy, and yet corporations are sitting on billions in cash, borrowing costs are at historic lows, and we’re in the midst of the greatest real estate buying opportunity that the United States has seen in decades.
This paper will highlight several major economic and demographic trends that are impacting real estate markets across the United States and are accelerating the shift from homeownership to renting. By illustrating the interplay between these trends I plan to establish why now is the time to step-up investment in Texas multi-family real estate.
The Financial Crash of 2008
The financial crash of 2008 brought the United States to the brink of economic collapse. The market slowdown and credit crunch that followed put extreme downward pressure on all sectors of the economy, particularly real estate. Texas, however, the last state to go into recession was also the first state to come out of it, showing evidence of recovery in early 2010. By then, the seeds had been sown for strong growth in the multi-family real estate industry.
U.S. Housing Market Trends
Real estate investment models focus on the relationship between housing supply and demand to determine desirability. Below are some of the socioeconomic trends that are impacting U.S. multi-family housing markets.
Apartment Supply
• Apartment Completions: Per RREEF Research, the U.S. 30-year average for apartment completions is 153,000 units per year. However, completions of apartment units in 2011 and 2012 are forecasted to reach record-low levels in the U.S. with 28,000 units expected to be added in 2011 and 36,000 units in 2012.
• The Joint Center for Housing Studies of Harvard University reported that starting with the “Great Recession,” multi-family housing starts plunged below 100,000 a level not seen since record keeping began in 1959.
• Local market: David Oelfke, a broker with Apartment Realty Advisors told the Houston Business Journal, “The population of renters has increased over the last three years because it’s more difficult to buy single-family homes. During the same time, not many new Class A apartments have been built because developers could not get financing. [As a result] class A apartment fundamentals are better than they have been in decades.”
Apartment Demand
• Propensity to shun single-family housing: The second quarter 2011 home ownership rate fell to 65.9% – a drop of 1.0 percentage point year on year – and the lowest rate since 1998. A review of current literature suggests that due to tightening lending standards, and lack of confidence in the housing market, the U.S. is becoming a “nation of renters.”
• Echo Boomers: The children of the Baby Boomers, a tribe that is approximately 76 million strong, are entering the work force in increasing numbers. Their age group falls within the population segment that has a growing desire to live in rental housing.
• Increasing cultural diversity: Nearly 92% of U.S. population growth over the past decade came from minorities of all types and minorities make up a growing percentage of those living in rental housing.
• Population Growth: Total U.S. population is projected to reach 325.5 million by 2015. Immigration and migration trends are expected to push Texas’ population up 8.79% to 27.4 million between 2010 and 2015 compared to 4.61% growth for the United States as a whole. Texas’ strong population growth will continue to fuel demand for apartments.