Month: April 2015

Dr. HousingBubble: Return of the broke homeowner

9.3M saw foreclosure, DIL or short sell 2006-2014 – ready to go now

Homebuyers burned in the housing crash are itching to buy again and the pressure is on from the industry to get them in there. It’s been seven years – so what housing crash, Dr. HousingBubble asks sarcastically.

He walks you through it.

(The National Association of Realtors) analysis found that between 2006 and 2014 some 9.3 million homeowners were foreclosed on, received a deed-in-lieu of foreclosure or short sold.  Bottom line, there were a boatload of people losing their homes when it was once thought to be the safest investment.  We are a forward looking species and the NAR realizes that many of these foreclosure veterans are ready to get back on the home buying bandwagon once again.  The problem of course is that most are buying inflated properties with massive mortgage leverage.  Debt with low interest rates is the elixir of choice.  So how big is this potential pipeline?

What is interesting about this housing recovery is that the NAR is actually lagging because of paltry sales volume.  The NAR would like to see high levels of sales versus this low volume churn at higher prices.  So I can understand when they run the numbers on the 9.3 million people that have scarred credit scores that somehow, they see an unlimited pool of potential “return buyers” as if this was as simple as someone getting divorced and re-married.

This is an interesting proposition.  I actually agree and feel many previous home buyers are itching to buy again.  The question is, do they have the income to back up current home prices without toxic mortgages?  So far, the answer is no.  You have investors, wealthy foreigners, and high income households making up the bulk of purchases.  Your typical family in high priced areas is being pushed out of the market.  The numbers appear to show something like 1.6 million potential future buyers.  That might seem like a big number but this is spread out over many years.

For a Fannie and Freddie backed mortgage, the waiting period is 7 years.  For a FHA insured loan it is 3 years.  For VA loans which make up a small portion of the pool, it is 2 years.  The big pool is with Fannie Freddie, and FHA insured loans.  7 years ago was go time for the mortgage crisis.  With all the home buying cheerleading and stock market joy ride, people have completely forgotten about the previous correction.  The clock has now reset.

Read the whole thing here.

Investors still bullish on single-family rental market

Highlights from IMN Single-Family Rental Investment Forum

While attending and participating on one of the many panels at the Information Management Network’s 3rdAnnual Single Family Rental Investment Forum held April 20 – 22 in Miami, it became clear that there is still enthusiasm by investors of many types and sizes toward the single-family rental market.

Several hundred attendees descended on the Loews Miami Beach Hotel to network, exchange ideas, seek new business opportunities, and listen to numerous industry experts discuss topics such as macroeconomics, market conditions and trends, mergers and acquisitions, growth potential in this space, investor financing, flipping vs. holding, securitization, the critical importance of effective, accurate due diligence, and much more.

Although there was an abundance of enthusiasm expressed by many of the smaller and mid-sized investors and various vendors who attended this year’s forum, it did seem to this observer that the recent downward pressure on yields experienced by the much larger institutional investors has been somewhat tempered. This is to be expected following the phenomenally rapid interest and growth found within this asset class over the past three years.

Since the housing crash of 2006, several Wall Street-backed firms, such as Blackstone Group, institutionalized the so-called “mom and pop” business of buying and then renting single-family homes. Additionally, real estate investment trusts, hedge funds and private-equity firms have spent well over $20 billion purchasing as many as 150,000 houses since 2012.

But, as home prices have gone up in many markets, especially those markets where the institutional investors focused their efforts, invariably investment returns have come down. This has created an environment where the larger investment firms are pulling back, while the smaller investors who aren’t concerned about shareholders’ returns are increasing their participation.

I was honored to serve on a panel that focused on acquisition due diligence, which is critical in this space, as accurate, timely up-front valuation, property and market conditions of individual and pools of properties can make or break profitability in this asset class.

Also serving on this panel were moderator Randy Hagedorn, director of acquisitions forBroadtree Home Rentals, Meghan Jones-Rolla, senior vice president-assistant general counsel for Servicelink, Larry Leon, president of L2 Real Estate Services, Carlos Gonzales, owner of Real Estate Life Network, and Shane Sauer, chief operating officer and co-founder of RentFax.

With shrinking yields becoming an issue of concern to institutional and other larger investors, technology companies attending the IMN forum were among the most visited firms with company booths in the expo hall, as one might expect. The more accurate and robust data investors accumulates for use in due diligence efforts, the more successful they will be in analyzing which properties will yield the highest net return on their investments. With respect to larger pools of properties, bidding is so competitive today that “getting it right” relative to property valuations is critical to being not only the successful bidder, but a profitable one.

However, in addition to possessing state-of-the-art technology, the panelists were unanimous in agreement that having local “boots on the ground” adds significantly to the overall due diligence process. For example, having relationships with local real estate professionals who are experts on market conditions, pricing, rents, and issues that can impact profitability, whether properties are purchased to rent or flip, pay dividends in deciding which properties to purchase and which to avoid.

With interest still quite high regarding the single-family rental market, which continues to make up more than 10% of all rental properties in America, just as it has for several decades following World War II, we can expect IMN to continue to offer educational opportunities for investors and the plethora of vendors serving this market that will increase their chances for success.

Black Knight: Home prices tick up slightly in February

Modest monthly gain the best since June 2014

U.S. home prices were up 0.7% for the month in February, and rose 4.6% from last year, according to the latest home price index report from Black Knight Financial Services.

This was the largest monthly gain in national home prices since June 2014.

At $242,000, the national level HPI is now just 9.5% off its June 2006 peak of $268,000.

The report also found that home prices in three of the nation’s 20 largest states – Colorado, New York and Texas – hit new highs in February.

Of the nation’s 40 largest metros, nine hit new peaks – Austin, TX; Columbus, OH; Dallas, TX; Denver, CO; Honolulu, HI; Houston, TX; Nashville, TN; San Antonio, TX; and San Jose, CA.

Colorado leads the 20 largest states tracked by the Black Knight HPI at 9.4% Y/Y growth.

Of the 20 largest states, Connecticut, Massachusetts, New Jersey and Pennsylvania all saw prices decline in February; only Connecticut saw a yearly decline.

Las Vegas continues to lead the 40 largest metro areas in distance from its pre-crisis peak; home prices there remain almost 41% off their May 2006 highs.