The FortuneBuilders Market Insider. Monthly Newsletter May 2015

Transcription

1 The FortuneBuilders Market Insider Monthly Newsletter May 2015

2 Is springtime bloom causing housing booms? Yes and no. This month we look at how a steady growing and strengthening housing market is doing, as well as where we still need some serious work (hint, hint inventory). Also, top housing regulators are being asked to investigate what could be a pro-foreclosure campaign pushing homeowners into foreclosure and away from loan modifications. Finally, should you be changing your investment strategy? Find out in this month s Market Insider. Flippers Keep On Flipping According to Survey Momentum continues to build for home flippers across the country, according to Auction.com s recent First Quarter 2014 Real Estate Investor Activity Report. Overall, 53.5 percent of investors surveyed said they preferred flipping, while 44.8 percent said they intended to rent the houses they purchased, according to the report. This showed a 6.5 percent increase in investors who intend to flip the properties they bought. The trend seems to favor western states where the ratio of investors who preferred flipping to renting was as high as three to one in some places. The percentage of investors in both California and Washington who said they preferred to flip was 75 percent, compared to 24 percent for renting, according to Auction.com. It seems clear that the unusually low inventory of homes for sale has led to higher home prices, which makes it challenging for investors to rent homes out at a rate that s profitable, and still affordable for tenants, Auction.com EVP Rick Sharga said. So in states like California, Washington, Nevada, and Arizona a large number of investors have decided that the best opportunity today is to meet the demand of prospective homeowners by buying, fixing, and re-selling investment properties. Alleged Pro-Foreclosure Campaigns Being Questioned A letter has been sent to the top housing regulators in the U.S. asking for an investigation into alleged pro-foreclosure campaigns on the part of Wall Street investors. The letter was addressed to Department of Treasury Secretary Jack Lew, Federal Housing Finance Agency Director Mel Watt, and Consumer Financial Protection Bureau Director Richard Cordray. Ten housing groups signed the letter, asking regulators to investigate the investors for allegedly attempting to steer borrowers into foreclosure instead of loss mitigation plans. Many borrowers in hardest hit areas are struggling with mortgage payments that far exceed the value of their home, the letter said. Many borrowers have trouble making mortgage payments even when employed and are facing foreclosure and losing their homes, halting their transmission of wealth generationally. The letter also went on to say that loan modifications (including those that offer principal reductions) are critical in helping families turn around an underwater mortgage situation and in stabilizing the communities in which those families reside. Honea, Brian, DS News, Survey: Flipping Trend Continues to Gain Momentum Among Investors. 20, April 2015, 26, April 2015 Honea, Brian, DS News, Housing Advocates Ask Regulators to Investigate Possible Pro-Foreclosure Campaigns. 15, April 2015, 26, April

3 We are concerned by recent media reports stating that some of the largest hedge funds, mortgage bond traders, and insurance companies appear to be pushing servicers to foreclose on borrowers rather than offering them loan modifications and principal reductions, the letter said. These are many of the same Wall Street investors that contributed to the mortgage crisis and have continued their unscrupulous practices. The letter closed with the housing groups requesting a meeting with regulators to discuss the issues. We urge you to seriously investigate and prevent these private interests from promoting policies which lead to unnecessary foreclosures, the letter said. Access to principal reduction programs like Ocwen s Shared Appreciation Modification Program should be applauded; our communities need it. We ask you to encourage mortgage transfers to servicers who offer principal reduction as a solution to help struggling homeowners instead of other servicers who are more likely to pursue foreclosures. Springtime Shows Promise For Housing Demand Pent up demand from weak sales in January and February may be playing a significant role in the jump in existing home sales, according to Auction.com EVP Rick Sharga. Auction.com s April 2014 Real Estate Nowcast recent released a report projecting existing home sales to fall between seasonally adjusted annual rates of 5.15 and 5.47 million annually. Consumer psychology is likely also at play here: with talk of the Fed hiking interest rates as early as June, buyers who ve been sitting on the sidelines may have decided to buy now and lock in today s historically low interest rates. A 5.31 million target has been set for April, which is up both month-over-month and year-over year, according to Sharga. While this is a positive trend, Sharga noted that a truly healthy market should see about six million in existing home sales annually. He noted that the annual rate of existing home sales will likely continue around five million for the following year. Housing Market Continues to Strengthen The U.S. housing market is at its strongest level in 14 years, according to Nationwide Economics first-ever analysis of the market. The Health of Housing Markets Report is the first report in a quarterly series. The metric that it uses is called the Leading Index of Healthy Housing Markets (LIHHM). Nationwide found that the health of the overall market suggests that another downturn in housing is very unlikely during the coming year. What This Means For You I love that the market has fully corrected or close to in many areas. One thing that does concern me is that we run the risk of getting involved in the hype. One of the most unfortunate things we saw happen when the bubble burst in is that many builders, renovators, and contractors over leveraged themselves and bought into deals that simply were not deals. They did this because of the hype of a great market. Stick with quick turnaround time projects like we ve been taught or if you take on a larger scale project make sure there is adequate room to lower your pricing in case the market weakens over time. -Professor Moore Honea, Brian, DS News, Increase in Existing Sales and Prices Suggest Housing is Gaining Momentum in Spring. 22, April 2015, 28, April 2015 Jamrisko, Michelle and Glinski, Nina, Bloomberg,, This New Indicator Shows There s No Bubble Forming in U.S. Housing. 31, March 2015, 29, April

4 In the fourth quarter, the employment, mortgage market, and house price growth components of the LIHHM remained positive, Nationwide wrote in the report. Household formations increased at a faster pace, but a continued tight mortgage lending environment remains an impediment to even stronger national housing activity. Pittsburgh, Cleveland, and Philadelphia were ranked the healthiest cities. Blackstone CEO: Housing Still Good Investment Even though prices aren t rising as much as after the financial crisis, Blackstone chief Steve Schwarzman recently said that he still feels housing is a good investment. The market continues to go up for the value of houses, Schwarzman said. Blackstone owns almost 50,000 homes in the United States, making it the biggest single private owner. Source: cnbc.com Housing Inventory Remains Tight A recent report by Time.com looked to find out how long homes are staying on the market. Using information gathered from Trulia over a two-month period from February 5-April 5, here is what the study found: FASTEST MOVING MARKETS 1. San Francisco, CA 2. San Jose, CA 3. Oakland, CA 4. San Diego, CA 5. Orange County, CA SLOWEST MOVING MARKETS 1. Knoxville, TN 2. Columbia, SC 3. Syracuse, NY 4. Long Island, NY 5. Albany, NY California seems to be the best places in the country for sellers as 80 percent of the fastest-moving housing markets are found there. Nationally, the study found that 60 percent of homes listed for sale on February 5 were still on the market two months later on April 5, down from 62 percent during the same period last year. Breaking it down by price tier, the study showed that the low-tier homes took the biggest drop in terms of homes remaining on the market after two months. Low-priced homes may be moving quickly but it s also the fast-paced markets causing inventory problems. The fastest-moving markets have kept pace since last year, and in cases such as San Diego, Ventura County, and Salt Lake City, they actually sped up. Source: Trulia.com McLaughlin, Ralph, Time Money, This Spring s Hottest Real Estate Markets 20, April 2015, 29, April 2015 Lobosco, Kaity, CNN Money, The Starbucks Effect : Higher Home Prices 4, March , March

5 These markets tend to have higher price tags and bigger price increases. The tight housing supplies and limited construction means even the expensive ones are grabbed quickly. The combination of an expensive market and fast-selling homes at the lower end of the price tear means that first-time homebuyers are seeing even more of a struggle. Shadow Inventory Declining A steady decline of residential properties that are in foreclosure but not being sold because the owner is waiting for price appreciation is causing concern. Also known as shadow inventory, these properties have created a broad trend nationwide that can hurt the country s short housing supply, according to National Association of Realtors (NAR) Chief Economist and SVP Lawrence Yun. means that home prices will strengthen. The low shadow inventory paralleled with rising home values has caused the share of distressed home sales to drop to single digits. According to Yun, the less properties sold at deep discounts It also means that those practitioners who specialize in foreclosures or short sales need to start thinking about a change in business models to normal home buyers and normal positive-equity home sellers, Yun wrote on the blog. Shadow inventory is not equal across the board, however. It remains high in some places such as New York and New Jersey, where Yum said home prices will rise slowly. Many fear that the lack of visible inventory is going to hurt the housing supply problems more and more in the future. Investor-owned properties through a flip could show up on the market, Yun said. However, most institutional investors who bought a few years ago are indicating a long-term hold to get rent gains which have been nice and profitable. The only true source of more supply is from homebuilders. Unfortunately, they are still not ramping up production to meet the market needs. Consequently, home price gains this year could be too fast for the country, easily rising double or triple the rate of income growth. What This Means For You Everyone is asking, Why aren t they releasing this shadow inventory? There are a lot of reasons. Values are increasing across the board because of lack of inventory so wouldn t it make sense to hold on to the inventory for a longer period of time and once the appreciation has reached the top then release the inventory. In all my research of what has happened in the past I only see the shadow inventory being dispersed rapidly when the market is unstable and rates increase. Once rates increase you will see the inventory trickle out more but it will never be as vast as it was in Professor Moore Honea, Brian. DS News, Economist: Declining Shadow Inventory Will Not Help Country s Short Housing Supply. 27, April 2015, 29, April

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