Mark Bridges, vice president of investments at Marcus & Millichap, is a 16 year veteran in the commercial real estate field. According to their recent research report, market stability in Orange County is predicted to continue into the new year with buyer demand strong for multifamily assets.
Q: How is the housing market outlook for 2017?
A: Taking into account the interest rates just went up this week and are foreseen to go up another three times next year, I believe this will have an effect on the short-term psyche of current buyers that are active right now. But by the first or second quarter of next year this will come to pass. Our market research reports it will be a bullish economy due to the incoming Trump administration. An outlook of inflation, higher wage growth, potential deregulation, tax reduction and higher rents should lead to higher prices. We foresee a very positive outlook in the next three years with a very bullish housing market.
Q: Your report for the Orange County metro area cites elevated rental demand. Why is that?
A: It basically all falls back to the high prices on housing in our area that reinforces the demand for rentals. Orange County’s economic prosperity comes from places like its tech sector, which continues to grow. Many employed by these companies as ell as other potential buyers cannot afford the high housing prices. Instead they rent which continues the demand for rentals, giving Orange County one of the highest income to rent ratios in the state. Of course, our desirable coastal area versus more inland keeps the market price higher as well. It is also noted the millennials would rather rent, albeit in nicer areas, as opposed to buying a home in a less desirable area. And sometimes it is just more cost effective to rent with the high cost of taxes, insurance, HOA dues, maintenance and repairs that come with owning a home.
Q: What do people seek in rentals?
A: Large complexes like Park Newport hold social events and activities for the tenants. The millennials like to rent in nice places with lots of amenities more so than any other previous generation. Though I don’t believe it’s necessarily all the goodies that keeps them renting. My observation is they came out of college in a recession where the opportunities to get a well-paid job were much lower than past generations, and therefore haven’t had the necessary income to save for a down payment on a house, but still want a nice place to live.
Q: Is this just a cycle?
A: I believe many different factors are involved. Some do believe in a 10-year cycle. I don’t necessarily align with that. With the incoming Trump administration and policies, things could keep going with a very bullish market, keeping it positive for commercial real estate. Lower taxes and deregulation can prompt more spending, more savings and more money in people’s pockets to spur the economy.
Q: With rising housing costs, is this another avenue where the middle class will be eased out of this area?
A: It is true there is no rent control in OC. What happens is as rents go up you’ll see higher occupancy per household where more people live in one unit. This is typical in cities such as Santa Ana, where the tenants have less income and more people are needed to share the rent. It happens everywhere actually, to a lower degree even here in Newport.
Q: So with interest rates increasing, will this increase the demand for apartment complexes?
A: Yes and no. Yes, a higher interest will cause a higher loan payment and could price some people out of a house and into a rental. No, because it’s expected that the Dodd-Frank regulations will be whittled back by Trump, which means more people will be able to get a home. Those who couldn’t get a home loan because of tight regulations, now have a good chance of getting one even though the interest rates are higher.
Q: Will multi-family housing be a good option for investors next year?
A: It definitely has been and still is a great market for apartment owners. They have been able to raise rents 5.5% in 2015, though slightly lower in 2016 at 5.2%. As for next year, that is hard to project. The increase in rents started in 2010 when vacancy started to dry out and occupancy rates started to go up in the coastal regions, eventually filling throughout the surrounding areas. Currently our local vacancy rates have been very, very low, at 2.9%. And even that small percent is basically caused by turn-around time such as clean-up for the rental. Nobody is really sitting on any vacancies unless they are asking above market rent.
By Gina Dostler
CONTACT INFO:
Mark Bridge
Marcus & Millichap
19800 MacArthur Blvd Ste 150
Irvine, California 92612
949-419-3297
Mark.Bridge@marcusmillichap.com
www.marcusmillichap.com
