Headlines – Week of November 4, 2012

November 18, 2012

Single-Family Rental Demand is Outstripping Supply

As reported in a Wall Street Journal article, according to a report by real-estate firm CoreLogic, demand for single-family rental housing is outstripping the available supply of homes.  Some housing markets that have been hit hardest by the foreclosure crisis have seen rental demand jump by more than 25% in the past year.

The article points to the fact that many families who have lost their homes to foreclosure or that can’t qualify for mortgages given tighter underwriting standards are now renting.

The magnitude of rental-demand gains are eye-opening as markets such as Port St. Lucie, Fla.; Riverside, Calif.; and Tucson, Ariz., have all seen rental demand jump by 25% over the past year .  22 of 30 markets tracked by CoreLogic have seen year-over-year leasing gains.

Slightly more than 50% all rental units in the U.S., or around 21 million units, are single-family homes. Around four in five of those unit owners are individual investors.

The CoreLogic reports shows that investor demand for rentals shows little signs of weakening.

Leasing activity was up 7% from one year ago in August and up 12% from the beginning of this year, even though the inventory of homes for rent is down by 11% from one year ago.

As a result of this increase, it would take just 2.6 months to rent the available stock of for-lease homes in August, down from 3.2 months of supply last year and over 5 months in 2007.

Single-family rents rose by 2% last year and have increased by 1% so far this year, after declining in 2009 and 2010.  CoreLogic expects rent growth to increase throughout 2013, though at a lower rate.

The largest rent increases were found in North Port, Fl; Cape Coral, Fl; and Honolulu, where rents increased by more than 6%.

 

Warren Buffett Makes a Huge Bet on the US Housing Market

Legendary investor Warren Buffett is buying up real-estate brokerages around the country and is betting on a housing turnaround.  Buffett is partnering with Brookfield Asset Management, a Canadian real-estate investor, to more than double the size of his brokerage business.

Berkshire’s HomeServices of America Inc. unit will be the majority owner of the venture to manage a U.S. residential real-estate affiliate network. The firms plan to offer a new franchise brand, Berkshire Hathaway Home Services, starting next year. Brookfield’s network has operated under the Prudential Real Estate and Real Living Real Estate brands.

Berkshire has also purchased a brick maker, won the loan portfolio of bankrupt mortgage lender Residential Capital LLC at auction and built its HomeServices unit by agreeing to acquire real-estate brokerages in states including Oregon and Connecticut.

4 Top Real Estate Markets for Foreign Buyers

A recent National Association of Realtors study estimated that foreigners and immigrants who’ve lived here less than two years spent $82.5 billion on U.S. homes in the 12 months ended March 31. That’s about 9% of the total paid for all U.S. housing purchases during the period.

The NAR study found that foreigners spent more on average — $400,000 per property vs. $252,000 for the overall market — and paid cash for homes 62% of the time instead of taking out mortgages.

Foreigners and recent immigrants are diving into U.S. real estate because buyers consider housing here a good investment and see America as a safe haven for assets.

Many also need a place here for business trips, vacations or retirement or expect their children to study at U.S. colleges and need housing.

Additionally, some foreigners buy property in conjunction with buying U.S. businesses. Under the EB-5 program anyone who invests $1 million in a U.S. company and creates 10 jobs can qualify for an “EB-5” visa and eventual citizenship. (The requirement drops to $500,000 if you invest in a depressed U.S. locale.)

NAR found that Mexicans accounted for 8% of all sales to foreigners and recent immigrants during the 12-month period studied.

Other top sources for foreign buyers included Canada (24% of all sales to non-U.S. nationals), China (11%), India (6%) and Britain (6%).

Buyers from different countries favor different parts of America.

For instance, the NAR found that lots of Germans have bought property in southwest Florida, while many Canadians gravitate toward Arizona.

 Canadian Home Buyers in Florida

In Florida, 2013 is shaping up to be the ‘Year of the Canadians’ according to many of the state’s real estate professionals and industry experts. On the tourism front, 3.6 million Canadians visited Florida in 2011, spending approximately $4 billion. The total number of Canadian tourists more than doubles Florida’s second-largest source of tourists: Brazil.

Once Canadians get a taste of Florida, they’re increasingly putting up more permanent roots. Canadian buyers represented 31 percent of Florida’s international real estate purchases in 2011, according to the National Association of Realtor’s August 2012 report, “Profile of International Home Buyers in Florida.”

The next four closest countries are: Brazil (9 percent); United Kingdom (5 percent); Venezuela (7 percent) and Argentina (5 percent).

Almost half of the Florida home purchases in 2011 by Canadians were condos or apartments (48 percent) and about 90 percent were cash deals.

Conservative by nature, more than half of the properties purchased by Canadians were priced below $199,999 (65.4 percent). Canada’s top three destinations for property include the Bradenton-Sarasota-Venice area on Florida’s west coast with 14.4 percent of all purchases in 2011. Fort Lauderdale was second with 12.9 percent and Naples-Marco Island was third at 11.9 percent. 

Posted by Scott R. Lodde

Headlines – Week of October 28, 2012

November 9, 2012

U.S. Home Values Jump the Most Since 2006

Two separate reports provide evidence that home values are rising.

According to a new study by CoreLogic, U.S. home prices jumped 5 percent in September compared with a year ago, the largest year-over-year increase since July 2006.

The data provided in the report also said that prices declined 0.3 percent in September from August, the first drop after six straight increases. The monthly figures are not seasonally adjusted and the company believes the monthly decline reflects the end of the summer home-buying season and not a softening in the housing recovery.

Steady price increases should give the housing market more momentum when home sales pick up in the spring. Rising prices encourage more homeowners to sell their homes and entice would-be buyers to purchase homes before prices rise further.

Other measures have also shown healthy gains in home prices over the past year. The Standard & Poor’s/Case Shiller 20-city index rose 2 percent in August compared with a year ago, a faster pace than the previous month.

The price gains in the past year reported by CoreLogic were widespread. Prices have risen in all but seven states. And they declined in only 18 out of 100 large cities that are tracked by the index.

Some of the biggest increases were in states that suffered the worst from the housing bust. Home prices in Arizona jumped 18.7 percent in the past year, the most of any state. Home prices in Idaho rose 13.1 percent, the second largest. Nevada’s home values rose 11 percent.

Home prices jumped 22.1 percent in Phoenix, the metro area with the biggest gain. Prices in Houston rose 6.6 percent, the second-highest increase. The states with the biggest drops were Rhode Island (3.5 percent) and Illinois (2.3 percent).

CoreLogic’s price index is based on repeat sales of the same homes and tracks their price changes over time.

Sales of both new and previously occupied homes are still below levels that are consistent with a healthy housing market. That’s partly because the supply of available homes for sale remains low. And many prospective homebuyers are struggling to qualify for a mortgage or scrape together the bigger down payments that many banks are requiring.

 

 

CoreLogic HPI monthly updates leverage the full authority of CoreLogic’s industry-leading real estate databases, covering 6,783 Zip codes, 623 Core Based Statistical Areas (CBSAs), and 1,188 counties in all 50 states and the District of Columbia.

 

 

In a separate report, Zillow also announced that U.S. home values jumped 1.3 percent in the third quarter, the biggest gain since 2006 as the recovery was uneven across the country.

The median value rose to $153,800 from $151,800 in the previous three months on a seasonally adjusted basis. It was the biggest increase in Zillow’s Home Value Index since the first quarter of 2006, when values rose 1.5 percent.

According to the report home prices are rising nationally as the U.S. unemployment rate declines and buyers compete for a tightening supply of homes listed for sale.

Values fell from the second quarter in 52 percent of markets covered by the index as the traditional home buying season ended.

Zillow also reported that in Phoenix, where investor demand is helping to boost prices, home values rose the most of the 30 largest U.S. metropolitan areas, with a 5.9 percent increase from the second quarter.  They climbed 3.9 percent in Las Vegas and 3.8 percent in Denver.

Atlanta had the biggest drop in values, falling 2.2 percent from the previous three months, the data show. New York, Philadelphia, St. Louis and Cleveland were among other large metro areas where values declined.

Zillow showed a drop in values for 17 of the 41 states it covers.

Values nationwide will increase 1.7 percent over the next year, according to Zillow’s projection. Of the 253 markets tracked by the forecast, 183 areas have hit bottom and another 41 will reach a floor in the next year, the company said.

Zillow measures the value of 100 million U.S. homes, regardless of whether they sold during the quarter, and calculates the median for its index. Other gauges, such as the S&P/Case-Shiller index, track purchase prices.

Posted by Scott R. Lodde

Rushmore: Lessons Learned from Past Recessions

November 6, 2012

According to a recent article written by Steve Rushmore at Hospitality Valuation Services (HVS), the U.S. hotel industry is going through a period of uncertainty as a result of the upcoming presidential election which could have a huge impact on taxes, small businesses, operating costs, disposable income and governmental regulations.

As a result, many hotel developers, investors and lenders have been on the sidelines waiting for a clear direction before they start making decisions on where to deploy their capital.

In the article, Rushmore provides an intriguing look back in time when there was a similar period of economic malaise for a look at what stimulants contributed to the recovery and growth of the hotel sector.

He points to the decade of the 1980s had many of the same economic elements that the industry experienced over the past five years – a massive recession followed by slow recovery.

The following table shows Daily Hotel Room Night Demand for the U.S. Hotel Industry each year from 1979 to 1990. The table also shows the year-to-year numerical change in room night demand as well as the percentage change. It identifies the years the U.S. experienced a recession.

Rushmore points to the recession of the 1980s which was one of the longest recessionary periods in U.S. history.  This recession was the result of very tight monetary policy that was necessary to control the rampant inflation during the late 1970s as well as the energy crisis of 1979.

The table shows hotel demand started to drop in 1980 and continued for four years to 1983. The 6.5% decline in hotel demand was the largest since the Great Depression. The high level of inflation caused interest rates to peak at 17%, making it virtually impossible for anyone to obtain a mortgage. This devastated the real estate industry with new construction and transfers coming to a virtual halt.

To help us out of that recession, Congress focused their attention on stimulating the recovery in this segment to move the U.S. economy out of recession and the hotel industry benefited by the recovery as hotel demand started to increase in 1984 and reached the 1979 level in four years.

Hotel demand continued to escalate until 1990 when the economy went into another recession.

The tax shelters of the 1980s and the deregulation of the savings and loan industry were the stimulus Congress used to get the real estate sector growing again and hotels were perfect candidates due to the large amount of personal property that could be written off quickly. Tax shelters allowed hotel developers and investors to rapidly depreciate their properties and obtain investment tax credits, which effectively eliminated the need to put equity capital in the property. In addition, hotels could be totally financed with a mortgage (including the personal property).

The deregulation of savings and loan banks allowed them to start making commercial mortgages. This change in rules produced huge amounts of mortgage capital eager to get the higher interest rates from commercial lending.

As Rushmore points out, S&Ls, who had no experience with commercial lending, were literally throwing money at hotel developers to finance their projects.

Although the facts and circumstances are different than those of 30 years ago, the solution is similar since the main roadblock to new hotel development and transactions is the availability of new financing.

The article points out that the huge increase in new government regulations following the collapse of the financial industry has crippled banks and other lenders’ ability to make real estate loans.  Since lenders fear government regulators will increase their reserve requirements, label their loans as non-conforming they have stopped lending.

As with the deregulation of the S&L industry, Rushmore is calling on Congress to loosen the Draconian banking regulations so we can get back to a normal lending environment.

 

Posted by Scott R. Lodde

Headlines – Week of October 21, 2012

November 2, 2012

Are Banks Holding onto REOs?

In September, the HousingPulse Distressed Property Index (DPI) from Campbell Surveys, which measures the proportion of purchase transactions involving distressed properties, hit a record low of 38.6 percent based on a three-month moving average.

The drop marks the fifth consecutive monthly decline and is more than 10 percentage points lower than the February’s near-record-high of 48.7 percent.

According to HousingPulse, the lack of foreclosures and REOs available for sale is the reason for the steep decline in distressed sales.

According to HousingPulse, major banks seem to be keeping many REO properties off the market this year, but suggested banks may look to release “significant amounts” of bank-owned properties next year which could lead to lower prices.

Foreclosures ‘boil over’ in Judicial Foreclosure States

In an article posted in the last Headlines, RealtyTrac reported that foreclosures are continuing to fall across the country, reaching five-year lows, but states where foreclosures don’t have to be approved by courts are posting some of the largest drops.

While foreclosure-related filings were down sharply from a year ago, there was an increase in foreclosure activity in 20 states, particularly in states where courts handle the foreclosure process, including New Jersey, New York, Maryland, Illinois and Pennsylvania.  

The increase in short sales and foreclosures was predicted in judicial foreclosure states after the nation’s five largest mortgage servicers reached a $25 billion settlement in March over “robo-signing” allegations.

While foreclosure-related filings were down 31 percent collectively from a year ago in the 24 nonjudicial states and District of Columbia, some judicial foreclosure states saw big annual increases in foreclosure activity, led by Kentucky (up 73 percent), New Jersey (up 65 percent), New York (up 56 percent), and Maryland (up 54 percent).

Foreclosure-related filings were up from a year ago in 20 states in August, including Illinois, which posted the highest rate of any state with 1 in every 298 housing units. A total of 17,781 Illinois properties were subjected to a foreclosure-related filing in August, a 42 percent increase from a year ago.

Florida climbed to second on RealtyTrac’s list of states with the highest rate of foreclosure-related filings, with 1 in 328 properties subjected to a filing.

Until August, the top two spots on the list have been held by one of four nonjudicial foreclosure states since December 2010: Arizona, California, Georgia and Nevada.

10 states with highest foreclosure rate

Rank

State

August 2012 Properties with Foreclosure Filings

1/every X Housing Units

Percent change from July 2012

Percent change from Aug. 2012

1

Illinois

17,781

298

29.09

42.33

2

Florida

27,422

328

7.39

16.35

3

California

40,200

340

-4.47

-32.30

4

Arizona

7,899

360

-3.87

-28.72

5

Nevada

2,921

402

3.33

-69.82

6

Georgia

9,478

431

-12.73

-19.29

7

Ohio

9,218

556

-5.15

-6.33

8

Michigan

7,648

593

-12.66

-41.24

9

Delaware

665

610

180.59

1.68

10

Colorado

3,584

617

24.66

-27.35

Source: RealtyTrac

A New Housing Boom by 2015?

According to a recent article by CNNMoney, the housing market has been showing several signs of recovery, including home prices and home sales on the rise, new construction up, foreclosures falling and mortgage rates near record lows. As a result, some economists are getting very bullish about the housing recovery and even predicting that the market will return to its “boom” level days in just three years.

In a recent report, Barclays Capital predicts that home prices could be back to peak levels by 2015. Barclays is predicting home prices to rise 5 percent to 7.5 percent a year.

In the article, an analyst at Barclays is quoted as saying that the housing market underwent a dramatic over-correction during the prior five years, resulting in pent-up demand for housing purchases that will spark a rapid rise in housing starts.

Home construction is also expected to soar, rising 20 percent or more a year for the next year, according to some economists’ forecasts. The new-home market could return to its pre-bubble average of about 1.5 million new homes a year by 2016 according to the CNNMoney report. That would double the construction level expected this year.

Full Article

Posted by Scott R. Lodde

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