The FortuneBuilders Market Insider. Monthly Newsletter June 2015

Transcription

1 The FortuneBuilders Market Insider Monthly Newsletter June 2015

2 The birds are chirping and buying season is in the air. Investors are finding new and better ways to flip houses and expand their inventory. Speaking of inventory, it s still very tight in most of the country, making bidding wars a plenty. Some positive news for borrowers, as they appear to be handling their mortgages much better than years past, some bad news, interest rates likely to be increasing. Finally, is the U.S. dollar doing so well that it s pricing out foreign investors? Keep reading to find out. Investors Expand Searches, Adapt to Healthier Market Investors are expanding their property searches, buying in higher price bands, and broadening their strategies in 2015, according to a recent report by Visio Financial Services. Visio s Annual Residential Real Estate Investor Report showed growing trends in the multi-billion dollar residential real estate investment market. Adapting to a Healthier Market Investment Portfolio Growth: 49% of investors are planning on buying four or more houses in 2015, compared to the 25% who actually bought four or more in Higher Price Bands: 63% more investors are considering $200K-plus properties than last year, whereas interest in sub-$40k properties has decreased. Broadened Property Searches: 34% of investors are searching for investment property out of their home states as local property deals dwindle. Source: Visio Annual Residential Real Estate Investor Report 2015 Although investment properties are not as abundant as in previous years, investors are finding new and better ways to flip more houses and grow their rental portfolios, Visio CEO Jeff Ball said. We lend exclusively to residential investors, so we see the challenges that they face in responding to rapid market changes. The results of our survey support our experience that investors are smart, resilient, and resourceful as they embrace the rebounding property market. Visio found that 63 percent more investors are considering purchasing properties over $200,000, while sub-$40,000 deal interest has decreased, compared with last year s report. Investors are also looking to fix and flip homes in order to build their rental portfolios and enhance their returns. Eighty-three percent of our part-time investors expressed interest in going full time, and are seeking fast, simple, and dependable financing in order to do so. Of our full-time investors, more than 90 percent are looking to accelerate their businesses with more options for working capital, Ball said. Each year, our survey continues to tell us that investors want to build their small businesses, and are looking for the tools they need to succeed. What This Means For You When the market is good everyone seems to get into the real estate investing business so it s not surprising the part-timers are transitioning to full time. The reason the 40k and below market has diminished is because the product doesn t exist in vast quantities like it did during the downturn. Over the remainder of the year the part-time investors and hedge funds gobbling up property should keep values on the rise. -Professor Moore West, Zhevrije, DS News, Real Estate Investors Expanding Property Searches, Broadening Strategies.. 14, May 2015, 26, May

3 Housing Continues to Spring Forward Spring season continues to show great promise going forward in 2015, according to National Association of Home Builders Chief Economist David Crowe on the NAHB s Eye on Housing blog recently. New home sales spiked by nearly 20 percent year-overyear in March up to about 481,000, according to a report from HUD and the U.S. Census Bureau. Existing home sales also jumped upward in March, by 6.1 percent, the largest monthly increase since December 2010, according to the National Association of Realtors. The pace of existing sales in March rose by 10.4 percent from March 2014 and has increased yearover-year for six consecutive months. The NAR Pending Home Sales Index increased by 11.1 percent year-over-year in March and has been gaining momentum, meaning that existing home sales will likely increase in the coming months. In March, the index hit its highest level in nearly two years (since June 2013). Market share for FHA-insured mortgages on new homes spiked from 10 percent in Q4 up to 16 percent in Q1. Previously, the share of FHA-backed loans had seen a general trend of decline for four years. Even with all of this positive activity, homeownership nationwide had fallen to 63.7 percent in Q1, its lowest level since the 1990s, according to a Census Bureau report. While much of this increase is and will continue to be concentrated in rental housing, higher rents will encourage existing renters to transition to homeownership in the coming years, Crowe said. Future quarters will prove to what degree this recent increase is a significant break with prior levels. Let The Bidding Wars Begin With inventory tight and spring buying season in full bloom, it s only natural for a few heated bidding wars to spark up around the country. Inventory is still fairly low in a lot of markets across the country, said Skylar Olsen, senior economist at real estate data firm Zillow. Buyers are not going to have the easiest time out there. With tight inventory comes higher prices. While the overall rise of home prices has stalled a bit this year, competition is certainly going to contribute here. According to CoreLogic, prices are peaking or coming close in roughly half the country. The same day the house gets listed, it s not unusual to get four, five or six offers, said Brian Callahan, an agent for real estate brokerage Redfin in Madison, Wisconsin, where homes take fewer than four months to sell, on average. Homes valued at $135,000 or less climbed 9 percent in price for the 12 months ending in February, according to data from CoreLogic. This is the hottest home price appreciation prior to the spring selling season in nine years, said Anand Nallathambi, president and CEO of CoreLogic. Among the toughest markets for buyers: San Jose San Francisco Los Angeles Seattle Denver Dallas-Fort Worth Nashville Boston Source: Zillow Honea, Brian, DS News, Spring Gains Mean Good News For Housing Moving Forward 14, May 2015, 20, May 2015 Associated Press, Business Insider. 12, May 2015, 22, May

4 Borrowers Doing A Better Job Managing Their Mortgages A substantial decline in write-offs and severe delinquency rates proves that borrowers are handling their mortgage debt much better. According to Equifax s Q National Consumer Credit Trends Report, the total balance of write-offs for first mortgages and home equity lines and loans for Q declined 32.6 percent. The percentage of loans severely delinquent on first mortgages declined from 3.27 percent to 2.35 percent. We re seeing borrowers become increasingly better at making ontime payments, but we re also seeing a faster rate of amortization due to low interest rates, said Amy Crews Cutts, Chief Economist at Equifax. Because a larger portion of each payment is going to principal, consumers are now paying off their mortgage debts faster than they would have just a few years ago. Overall mortgage balances are unchanged from a year ago which means new mortgage credit is exactly offsetting the payoffs. Housing Markets Likely To See Interest Rate Increase While low mortgage rates may have kept affordability high in the first quarter of this year for buyers, interest rates increases are right around the corner, according to Freddie Mac s U.S. Economic and Housing Market Outlook for May. Market participants attempting to anticipate the Federal Reserve s timing around rising short-term interest rates are thought of to be the likely cause of the increase. For the remainder of this year, we re likely to continue to see these mortgage rate swings as market participants try to anticipate Fed timing around rising short term interest rates, said Len Kiefer, deputy chief economist at Freddie Mac. Unfortunately, perspective homebuyers may experience bouts of affordability shock in many housing markets. The labor market has added 5 million additional jobs, the unemployment rate is significantly lower, and housing markets are generally in much better condition than two years ago, Kiefer said. So far it s been low mortgage rates that have helped to keep homebuyer affordability strong in the face of rising house prices, while income growth remains stagnant. What This Means For You It s inevitable. The rates are not going to stay this low for any extended period of time. Savvy investors know this and are gobbling up rental properties by the truckload. The difference in 3-4% on a mortgage is the difference in having a cash flowing rental or being in the red each month. The reason our home values are increasing at an alarming pace is simply because the interest rates are so incredibly low. Once they move up into the 5-6% range you will see buyers not being able to qualify for higher price points thus stabilizing values. -Professor Moore Honea, Brian, DS News, With Fewer Write-Offs and Severe Delinquencies, Borrowers Are Managing Mortgage Debt Better. 20, May , May 2015 Honea, Brian, DS News, Freddie Mac Predicts Interest Rate Volatility As Capital Markets Try to Anticipate Fed s Timing 19, May , May

5 U.S. Dollar Pricing Out Some Foreign Investors For foreign investors, the previous down real estate market provided great deal of bargains in U.S. housing. With the U.S. dollar strengthening relative to most foreign currencies over the past year, the market is becoming less attractive. Foreign buyers have been a big part of the rebound in home prices in the U.S., said Stan Humphries, chief economist at Zillow. The recent strength of the U.S. dollar has significant implications for the attractiveness of the market for foreign buyers. For a Russian investor using rubles, for example, the price of Miami real estate was twice as high in February as it was a year earlier, according to Zillow data. A resident of the eurozone buying in New York City faced a 24% price increase during that time, and a Canadian now has to pay 20% more to buy a vacation home in the Phoenix area. This shift has the potential to reshape certain U.S. housing markets where foreign buyers have been a stabilizing force. Morath, Eric, Wall Street Journal. Strong Dollar Makes U.S. Real Estate Less Attractive to Foreigners. 15, May 2015, 27, May

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