RealEstateNews 1.21.25

Weekly News Roundup

• High-End Apartment Glut
• Housing in Los Angeles After the Fires
• Property Insurance Rising with Disasters

High-End Apartment Glut

America has a serious housing shortage, but not for the type of apartments that real-estate investors have been building in record numbers. The national vacancy rate for multifamily apartments reached 8% in the last quarter of 2024—higher than it was before the pandemic. Part of the problem is a herd mentality that saw real-estate developers pile into the same cities to build the same kinds of properties. Investors focused on constructing four-star and five-star units that command average monthly rents of $2,139.

The vacancy rate for four-star and five-star units in the U.S. has hit 11.4% according to data from CoStar—double the rate of more affordable properties. Sunbelt cities have a bigger oversupply of high-end apartments than coastal markets. Vacancy rates in Austin, Texas, have reached 15%, for example. Landlords need to offer generous concessions to persuade new tenants to move in, such as two or three months of free rent on a one-year lease.

Cities such as Boston and Chicago that investors largely left for dead during the pandemic are proving more resilient. New York’s vacancy rate is 2.8%, making it one of the tightest rental markets in the country as little new supply was built between 2021 and 2024. Rents are rising in many other coastal cities and the Midwest, where construction was muted. Cities that were hollowed out in recent years by hybrid working are starting to recover. Source: Wall Street Journal

Housing in Los Angeles After the Fires

Thousands of families were displaced on Tuesday when fires torched homes throughout Pacific Palisades and Altadena, kicking off a regionwide house hunt as victims scoured a tight market looking for homes to rent — or even buy. People are desperate, local agents said. Their homes are in ashes, and they’re looking for stability — somewhere for their family to go that’s not a shelter, a friend’s house or a hotel room. Some landlords are now sharply raising rent, even beyond what temporary price gouging protections allow. And some would-be renters are offering a year’s rent upfront in cash and engaging in bidding wars.

The mass displacement from the fires already has pushed up already sky-high prices, with rentals leasing for over asking, agents said. For many, short-term leases, especially furnished ones, are the obvious answer. Volunteers have compiled spreadsheets and lists of available leases, but most are snapped up minutes or hours after listing. So many families are scrambling to get leases that every rental on the market is getting multiple offers. For others who’ve lost their homes, buying, even out of desperation, makes more sense. Some families are already receiving insurance stipends and can choose to spend it on either rent or a new mortgage.

Natural landing spots for people fleeing the Palisades might be Malibu or Santa Monica, but people are also shopping in Venice, Westchester, Mar Vista and over the pass in the San Fernando Valley. State price gouging rules took effect Jan. 7 once Gov. Gavin Newsom declared a state of emergency and are supposed to rein in rental costs. Under those rules, landlords can generally not charge more than 10% above what they were charging or advertising before the state of emergency, according to the California attorney general’s office. Real estate broker Michael Nourmand, however, said he estimates single-family rentals are being advertised around 20% higher than what he would have expected before the fires. Source: Los Angeles Times

Property Insurance Rising with Disasters

You may live hundreds or thousands of miles away, but the wildfires tearing across Los Angeles and other natural disasters stand to raise your home-insurance bill. The wildfires are estimated to have caused insured losses of as much as $20 billion or more. Hurricanes Milton and Helene inflicted insured losses approaching $50 billion. Insurers have tended to raise rates on homeowners in regions where disasters strike. But researchers say the scale of losses leads companies to tap faraway customers to recoup their money.

A Harvard Business School study found that expensive disasters in some parts of the country affect insurance rates in others, as insurers bump up premiums for homeowners in other areas to help cover big losses. And the people bearing that cost often live in states where insurers face looser rules about what they can charge. Insurance regulations are set up to make sure companies’ rates reflect the cost of doing business in a particular state. But in reality, the study found, homeowners in places like Vermont and Virginia, which have lighter regulations, can see increased bills.

Still, premiums have risen the most in states that are especially prone to natural disasters such as hurricanes or wildfires, sometimes upending the entire market. In California, for instance, homeowners have had to look at alternative policies, such as the Fair Plan, an insurer of last resort after some insurance companies exited the market. The insured losses from the Los Angeles fires are almost certain to mean higher costs inside California, because the rising risk of loss that factors into insurers’ models is shared among homeowners inside the state, analysts say. Already Californians’ premiums have risen a lot. Source: Wall Street Journal