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The Real Estate News Brief: Year-End Optimism, Surge in Home Sales, SFR Investor Pay Raise Dec 31, 2021

Show notes

In this Real Estate News Brief for the week ending December 25th, 2021... why consumers are feeling optimistic about the economy, the latest surge in home sales, and which investors are getting a nice pay raise.

Hi, I'm Kathy Fettke and this is Real Estate News for Investors. If you like our podcast, please subscribe and leave us a review.

Economic News

We begin with economic news from this past week and a busy Christmas holiday. There's now just one week left to the year, and economists say the economy is showing signs of strength despite the current COVID-19 surge.

Last week, the number of Americans filing for unemployment benefits held steady at just over 200,000 applications. That's below pre-pandemic levels, which were averaging about 220,000 per week. The number of people already collecting checks shrank a bit, to 1.86 million, which is slightly higher than the pre-pandemic level of 1.7 million.

Although the holidays could be skewing those numbers somewhat, Rubella Farooqi of High Frequency Economics feels they are heading in a good direction. She said in a MarketWatch report: "The data can be noisy during the holidays, but filings continue to trend down on strong demand for workers amid a labor shortage. The risk now is from new virus variants which are forcing businesses to voluntarily close in response to rising infections." (1)

November ended with an inflation rate of 5.7%, as the nation deals with the Covid-19 Omicron variant. That's up from 5% in October and the highest level we've seen since last summer when the Delta variant was surging. (2) But inflation doesn't appear to be impacting consumer confidence this time around. Consumer spending rose .6% in November (3) and the Conference Board's index was up several points for December.

Conference Board President, Steve Odland, says consumers may feel less concern at this point, because it appears the Omicron variant is not as dangerous as Delta. He said on CNBC's Power Lunch last week: "Part of that may be simple Covid fatigue… but also Omicron is less lethal than prior versions and I think that's giving people more confidence all the way around." (4)

Real estate continues to be one of the strongest parts of the economy. New home sales hit a seven-month high in November. They were up 12.4% to a seasonally adjusted annual rate of 744,000. That's up from 662,000 in October, although that was heavily revised from about the same number we're currently getting for November. So the November number could change. But economists say the housing sector is strong with a median sales price of $417,000. That's a new record high. They are also expecting price growth to slow when the Fed starts raising interest rates next year, to control inflation. (5)

Existing home sales were also strong in November. The National Association of Realtors says they were up 1.9% to a seasonally adjusted annual rate of 6.46 million. That's a 10-month high, and the third month in a row that they've increased, despite the inventory issue. NAR says inventory levels were down 13% compared to November of last year, but surveys done by Redfin.com show a rise in the number of homeowners planning to sell in the early part of next year. (6)

Mortgage Rates

And homebuyers can still get a screamingly good mortgage rate. Freddie Mac says the 30-year fixed-rate mortgage was down 7 basis points last week to 3.05%. The 15-year was down 4 basis points to 2.3%. (7)

In other news making headlines…

Single-Family Rental Rates

Rent growth for single-family homes is turning into a generous pay raise for investors. The latest report from CoreLogic shows that rent levels were up 10.9% year-over-year in October and that vacancy rates are at 25-year lows. (8)

CoreLogic economist, Molly Boesel, says it's the sixth month in a row that rent growth has hit a new high for single-family homes. She says it's rising in lock-step with higher home prices, and that: "Rent growth this October was more than three times that of a year earlier." And last year was a good year because of the Covid migration to the suburbs and single-family homes.

The metros showing the highest growth rates are Miami with a 29.7% year-over-year increase, Phoenix with a 19.3% increase, and Las Vegas with a 16.5% increase. The best rent growth has also been for higher-priced rentals.

2022 Homebuyer Strategies

High home prices have left many wannabee homebuyers in the rental market, but realtor.com says they are optimistic about their ability to buy a home in the coming year. The survey shows that more than a quarter of those shoppers were unable to buy a home and that many are planning new strategies for 2022. (9)

Among those strategies are plans to make all-cash offers or larger down payments if possible, making offers above the asking price, and writing home seller love letters which are currently frowned upon and illegal in the state of Oregon. 22% of those surveyed say they plan on going over their budget for a home, and 13% plan to make an offer on a home they haven't seen in person.

That's it for today. Check the show notes for links. And please remember to hit the subscribe button, and leave a review!

You can also join RealWealth for free at newsforinvestors.com. As a member, you have access to the Investor Portal where you can view sample property pro-formas and connect with our network of resources, including experienced investment counselors, property teams, lenders, 1031 exchange facilitators, attorneys, CPAs and more.

Thanks for listening. I'm Kathy Fettke.

Links:

1 -https://www.marketwatch.com/story/first-time-jobless-claims-unchanged-at-205-000-in-week-ended-dec-18-11640266598?mod=economic-report

2 -https://www.marketwatch.com/story/coming-up-latest-read-on-the-feds-favorite-inflation-gauge-11640265116?mod=economic-report

3 -https://www.marketwatch.com/story/coming-up-latest-read-on-the-feds-favorite-inflation-gauge-11640265116?mod=economic-report

4 -https://www.cnbc.com/video/2021/12/22/the-conference-board-survey-shows-inflation-concerns-down-from-13-year-high.html

5 -https://www.marketwatch.com/story/new-home-sales-surge-in-november-11640272086?mod=mw_latestnews

6 -https://www.marketwatch.com/story/existing-home-sales-rise-for-third-straight-month-in-november-11640185309?mod=bnbh_mwarticle

7 -http://www.freddiemac.com/pmms/

8 -https://magazine.realtor/daily-news/2021/12/21/rental-rates-for-single-family-homes-triple-from-2020

9 -https://magazine.realtor/daily-news/2021/12/20/first-timers-reevaluate-devise-plan-to-compete-in-2022

Is Solar Power Getting More Expensive in California? Dec 27, 2021

Show notes

Solar advocates are sounding the alarm on proposed changes to California's rooftop solar program. The changes would reduce the savings that solar customers enjoy, and potentially add a new monthly fee to connect to the grid. Regulators say reforms are necessary because non-solar customers are paying too much to maintain the grid, but solar supporters say the changes will discourage people from installing solar and make it difficult to meet California's green energy goals.

Hi, I'm Kathy Fettke and this is Real Estate News for Investors. If you like our podcast, please subscribe and leave us a review.

The California Public Utilities Commission released the proposal on Monday, December 13th. (1) There's a long list of changes that include a reduction in the discount consumers would get for installing a solar system. That would increase the amount of time it takes to recoup the cost of the system. The break even window would expand to about double what it is now or about ten years.

New Fees, Reduced Sell-Back Amounts

The proposal also includes a monthly Grid Participation Charge of $8 per kilowatt of installed solar. If you have an 8 kW system, for example, you'd be paying an extra $64 a month to hook up to the grid. The fee would be imposed on solar customers so they could pay their "fair share of the cost of maintaining the grid."

New solar customers would also get paid a lower amount for any excess electricity they produce and sell back to the utilities. That wouldn't impact existing customers right away. They'd be able to continue with their existing rate structure for the first 15 years of their system. After that, they would transition from net metering to net billing which pays less for any excess energy produced.

Net billing has been highly criticized as a disincentive for solar adoption because many consumers have relied on the money they get from producing excess electricity to help pay for their systems. Solar costs have come down but for many people, solar is still too expensive.

Incentives for Residential Storage Batteries

Regulators are hoping the new rules will encourage the installation of residential storage batteries so that solar customers can keep the excess energy they produce, and use it during peak hours in the evening. Peak hours are between 6 and 9pm.

If solar homes are getting a wholesale price for the excess energy they produce during the day, and are charged full price for energy they need during the evening, they end up paying the difference. If they install a storage battery, there's no extra cost. Regulators say much of this proposal is to address the strain on the grid during those peak hours, after the sun goes down.

Long List of Changes

There are several other items that the CPUC is proposing that include an Equity Fund to help provide community solar in low-income and disadvantaged communities, new rules that would allow oversized residential solar systems to accommodate future needs for vehicle and appliance charging and electrification, and a change in the way that solar customers are billed from yearly to monthly, possibly because of that proposed monthly grid participation fee.

The state's three main utilities support the proposed changes. Pacific Gas & Electric, San Diego Gas & Electric, and Southern California Edison, along with the CPUC, say the savings that solar customers are currently getting are so big that they are not paying their fair share of the grid's operating costs. The solar industry and advocates say the changes will make it difficult for California to reach a goal for zero-carbon emissions by 2045.

Will This Hamper Clean Energy Goals?

Susannah Churchill for Vote Solar told the Associated Press that the proposal will "move us backward on clean energy and block many Californians' ability to help make our grid more resilient to climate change." (2) The rooftop solar program was launched in 1995 to encourage more people to "go solar." According to the solar industry, 1.3 million California homes now have solar. That's more than any other state in the U.S. Plus, a California law enacted last year, requires that all new homes have solar.

The CPUC changes would be phased in over four years for new customers, but if they take advantage of a $3,200 discount on a residential storage system, they'd transition into the new rate structure right away, which pays less for the excess energy that's produced. But they'd get that big discount on an energy storage system.

CPUC Commissioner Guzman Aceves says this proposal is all about distributing the cost of maintaining the grid in a way that doesn't unfairly impact non-solar customers, and transitioning to a solar system that uses the sun to produce electricity during the day, to one that can also produce electricity after the sun goes down. That can be done if more people install storage batteries.

The CPUC is taking public comment on this proposal and could vote on it by the end next month. If it's approved, the new policy would take effect four months after a final decision.

If you'd like to read more about this topic and how you can submit comments to the CPUC, you'll find links in the show notes at newsforinvestors.com.

You can also join RealWealth, for free. As a member, you have access to the Investor Portal where you can view sample property pro-formas and connect with our network of resources. That includes experienced investment counselors, property teams, lenders, 1031 exchange facilitators, attorneys, CPAs and more.

And please remember to hit the subscribe button, and leave a review!

Thanks for listening. I'm Kathy Fettke.

Links:

1 -https://www.cpuc.ca.gov/news-and-updates/all-news/cpuc-proposal-aims-to-modernize-state-decarbonization-incentive-efforts

2 -https://apnews.com/article/science-business-environment-and-nature-california-utilities-1bc5070157e0fb4f0c216f8b1dd1daee

The Real Estate News Brief: New Conforming Loan Limits, Surge in Tappable Equity, Building Inspections with Drones Dec 18, 2021

Show notes

In this Real Estate News Brief for the week ending December 11th, 2021... new FHFA conforming loans limits, tappable equity at a record high, and where drones may be used to inspect buildings.

Hi, I'm Kathy Fettke and this is Real Estate News for Investors. If you like our podcast, please subscribe and leave us a review.

Economic News

We begin with economic news from this past week, including a report that shows inflation has hit a 39-year-high. The government reported a .8% increase in consumer prices last month. That puts the yearly rate at 6.8% which is more than 3 times the Federal Reserve's 2% target. Higher prices for gas, motor vehicles, housing, and food account for most of the increase. The Fed expects inflation to fall below the 3% level by the end of next year. Some economists expect it to take longer. (1)

The latest unemployment report shows that initial claims dropped to just 184,000. That's the lowest level since 1969. The government adjusts the numbers for seasonal employment so they may be skewed somewhat, but as MarketWatch reports, they are extremely low and economists expect them to go even lower as the economy continues to strengthen. There's also a worker shortage so many employers are hesitant to let people go. (2)

Even if they aren't firing workers, there's been a surge in the number of people leaving or switching jobs. As MarketWatch reports, almost 39 million people have quit their jobs this year. That includes a record 4.4 million in September. Economists expect the year to end with a record-high quits rate. Some are calling this trend "The Great Resignation." (3)

Consumer sentiment turned positive in December, although many Americans are still worried about inflation. The University of Michigan index rose to 70.4. That's up three points from the November reading, but down about 10 points from a year ago. (4)

Mortgage Rates

Mortgage rates are still close to the 3% level. Freddie Mac says the average 30-year fixed-rate mortgage was down one basis point to 3.1% last week. The 15-year was also down one point, to 2.38%. (5)

In other news making headlines…

Conforming Loan Limits Move Higher

The Federal Housing Finance Agency released final figures on conforming loan limits for 2022. For most of the nation, the maximum amount will be $647,200.

The maximum moves above the baseline amount for more expensive areas like the San Francisco Bay Area, Los Angeles, New York City, and others. The highest amount rises to almost a million dollars in those pricier locations, to $970,800. That's 150% above the baseline amount. (6)

New Record High for Housing Prices

Home prices are a moving target and continue to move higher although price growth has slowed down a bit. Redfin says the median home sale price rose to a new high during the four-week period that ended on December 5th. It says the median price is now $360,250. That's 14% higher than it was a year earlier, and 30% higher from December of 2019. (7)

The average sale-to-list price ratio was 100.5%. That means the average home sold at .5% over it's listing price. That's only the average. In 43% of the transactions, homes sold for more than the listing price. In 31% of the sales, sellers accepted an offer within one week of the homes hitting the market.

Tappable Equity Surges

Skyrocketing prices are giving property owners a lot of equity. Black Knight says total U.S. home equity was up $250 billion in the third quarter to a total of $9.4 trillion. That's 32% higher than the same time last year. AND it's almost 90% higher than it was right before the housing market collapsed into the Great Recession. (8)

Black Knight's data and analytics president Ben Graboske says: "That works out to nearly $178,000 available in tappable equity to the average homeowner with a mortgage before hitting a maximum combined loan-to-value ratio of 80%."

Average mortgage debt is now down to 45.2% thanks to higher prices. That's giving consumers and investors more tappable equity that can be used for other purposes such as home improvements or the purchase of investment properties.

Building Inspections with Drones?

Drones could be the next great tool for New York building inspectors. They usually perform their inspections using binoculars and cameras from the street, and sometimes from the roofs of other buildings. Construction Dive reports that the city may soon authorize the use of drones for those inspections. (9)

Officials say they could "yield more detailed results and greater safety, as well as greater efficiency and documentation."

That's it for today. Check the show notes for links. And please remember to hit the subscribe button, and leave a review!

Thanks for listening. I'm Kathy Fettke.

Links:

1 -https://www.marketwatch.com/story/coming-up-u-s-consumer-price-index-for-november-11639142278?mod=home-page

2 -https://www.marketwatch.com/story/jobless-claims-sink-43-000-to-184-000-lowest-since-1969-11639057122?mod=mw_latestnews

3 -https://www.marketwatch.com/story/people-quit-jobs-at-slightly-slower-rate-in-october-11638976546?mod=econo

4 -https://www.marketwatch.com/story/coming-up-december-umich-consumer-sentiment-11639147437?mod=economic-report

5 -http://www.freddiemac.com/pmms/

6 -https://www.fhfa.gov/DataTools/Downloads/Pages/Conforming-Loan-Limits.aspx

7 -https://www.redfin.com/news/housing-market-update-record-high-price-record-low-inventory/

8 -https://www.blackknightinc.com/black-knights-october-2021-mortgage-monitor/?

9 - https://www.constructiondive.com/news/new-york-city-inches-toward-drones-for-building-inspections/611185/

Federal Crackdown on All-Cash Real Estate Deals? Dec 14, 2021

Show notes

Real estate investors who pay cash could face more scrutiny from the federal government. The Treasury Department is proposing new regulations on shell companies, like LLC's, as a way to crack down on money laundering through real estate deals.

Hi, I'm Kathy Fettke and this is Real Estate News for Investors. If you like our podcast, please subscribe and leave us a review.

Government's Plan to Stop Money Laundering

Deputy Secretary of the Treasury, Wally Adeyemo, discussed the government's plan to fight corruption at the Brookings Institution. He addressed the issue by saying: "Corruption thrives in the financial shadows--in shell corporations that disguise owners' true identities, in offshore jurisdictions with lax anti-money laundering regulations, and in complex structures that allow the wealthy to hide their income from government authorities." (1)

Adeyemo is proposing that countries around the world join this effort to separate the bad actors from the good ones, because many shell companies are perfectly legitimate. It's a recognized strategy to put your residential rental properties, and other kinds of properties, inside something like an LLC as a way to limit any legal liabilities or potential lawsuits to just one property, and not your whole portfolio.

But it's also possible to set up a shell company, and to use that company to purchase expensive properties with dirty money. That's what the Treasury Department is targeting.

Three-Pronged Approach

Adeyemo wants to tackle this problem in three different ways:

1 - He wants to improve transparency by forcing certain types of U.S. and foreign companies that are registered in the U.S. to disclose their beneficial owners, which are the people who actually run the companies. He's implementing this effort under the Corporate Transparency Act which allows the Financial Crimes Enforcement Network to build a central registry for this information. One particular area of concern is the real estate market and all-cash deals that don't require the disclosure of the buyers who may be hiding behind a shell company. Adeyemo is soliciting public comment on the best way to address this problem.

2 - He also wants to use the new information to improve the investigation and prosecution of any illegal activity, including money laundering, bribery, embezzlement, and extortion, and tax evasion. He says: "Today, the top 1 percent of earners in the United States underpay their taxes by more than $160 billion each year, depriving every other American of the money we need to invest in things that benefit the whole country, like roads, childcare, and education." Enforcement might include sanctions, as well as criminal law enforcement.

3 - The third leg of his strategy is "partnership." He wants to expand the effort to allies and partners around the world as well as the private sector, and civil society groups. He says the U.S. can't address corruption without an international effort. As an example, he says "more than 40% of global payments are conducted in euros or pounds."

Impact on Real Estate Investors

So what does all this mean for investors who buy and sell residential rental properties inside an LLC? It could mean that the title companies will be required to file reports that identify the beneficial owners of those properties. This is already the law in 12 U.S. cities for transactions over $300,000. That includes Boston; Chicago; Dallas-Fort Worth, Texas; Honolulu; Las Vegas; Los Angeles; Miami; New York City; San Antonio; San Diego; San Francisco; and Seattle.

According to realtor.com, the new regulations would expand the disclosure requirement from coast-to-coast. They may also include the purchase of commercial property as well as residential. (2)

Some people say the new rules are long overdue. Attorney and anti-money laundering expert, Ross Delston, told Bloomberg: "I'm not sure where the U.S. Treasury has been for the last decade or two, but give them credit for attempting to address a gap that has festered for years and has resulted in the U.S.A. being the money laundering haven of choice for the world's corrupt politicians." (3)

If you'd like to read more about this topic, you'll find links in the show notes at newsforinvestors.com.

And please remember to hit the subscribe button, and leave a review!

Thanks for listening. I'm Kathy Fettke.

Links:

1 -https://home.treasury.gov/news/press-releases/jy0516

2 -https://magazine.realtor/daily-news/2021/12/07/white-house-seeks-increased-oversight-on-all-cash-deals

3 -https://www.bloomberg.com/news/articles/2021-12-06/biden-eyes-shell-company-real-estate-purchases-for-tighter-rules

The Real Estate News Brief: $2 Trillion Milestone, Suburban Appeal, Retail Rebirth Dec 10, 2021

Show notes

In this Real Estate News Brief for the week ending December 4th, 2021... the $2 trillion real estate milestone, the homebuyer's search for suburban homes, and the brick-and-mortar store comeback.

Hi, I'm Kathy Fettke and this is Real Estate News for Investors. If you like our podcast, please subscribe and leave us a review.

Economic News

We begin with economic news from this past week. Pending home sales surged higher in October. The National Association of Realtors says they were up 7.5%. That's substantially higher than the .7% predicted by MarketWatch economists. Contract signings were higher in all four U.S. regions, but the Midwest had the biggest gain of 11.8%. (1)

Home price growth has cooled off a bit. The S&P CoreLogic Case-Shiller 20-city price index shows a 19.1% year-over-year gain in September. That's a half a percent lower than it was in August, which is not much of a decline. Craig Lazzara of the S&P DJI says that housing prices continue to show remarkable strength. He describes the change of pace as "deceleration." (2)

The weekly unemployment report shows that initial claims jumped back above the 200,000 mark. Just two weeks ago, the number of applications hit a 52-year low of 194,000. It could be that some people decided to wait until after Thanksgiving to file for their benefits. (3)

The U.S. jobless rate has fallen again, from 4.6% to 4.2%. MarketWatch reports that almost 600,000 people rejoined the workforce in November, and the participation rate of 61.8% is now the highest it's been since the beginning of the pandemic. (4)

If we look at job growth for the construction industry, builders added 31,000 positions last month. Specialty contractors created the most with 13,000 new positions. Civil and heavy engineering accounted for the rest. First American economist Odeta Kushi says: "It was a strong month for construction." (5)

Mortgage Rates

Mortgage rates didn't move much this last week. Freddie Mac says the 30-year fixed-rate mortgage was up just 1 basis point, to 3.11%. The 15-year was down 3 basis points, to 2.39%. (6)

In other news making headlines…

$2 Trillion in Real Estate Deals for 2021?

Real estate transactions could hit a huge milestone this year. CoreLogic says they topped $600 billion in the second quarter. That's after $750 billion in transactions for the first quarter. Researchers say if the trend continues, we'll hit the $2 trillion mark by the end of the year. (7)

CoreLogic economist, Thomas Malone, says it's a combination of high home prices and the migration to bigger homes in more expensive areas. He says: "The value of transactions has skyrocketed despite sales volumes continuing a relatively normal growth trend."

The report also shows that if you look at the last four quarters from the second half of 2020 to the first half of 2021, real estate transactions have already hit the $2 trillion mark. CoreLogic says the total value for that time period was $2.25 trillion.

Suburbs Are Not Losing Their Appeal

The desire for a home in the suburbs is still going strong, even as many people return to the cities. Realtor.com says that 62% of the online home views in September were for suburban homes while the other 38% were for urban areas. (8)

Realtor.com's chief economist, Danielle Hale, says the pre-pandemic suburban vs. city dynamic is changing because of remote work options and high rents in the city. She says: "The price premium is shrinking between notoriously expensive urban housing and suburban for-sale homes, typically known for more bargains."

Inventory levels also reveal the difference. They were down 13% annually in September for suburban areas and only 8% for cities.

More Stores Opening Than Closing

E-commerce may have disrupted the retail environment and put a lot of brick-and-mortar stores out of business. But now, the opposite appears to be happening. According to a new analysis by the IHL Group, there are more store openings than closures for the first time in four years. And many of those new openings are due to e-commerce websites wanting a brick-and-mortar presence. (9)

As reported by the Wall Street Journal, Levi Strauss is one example. The clothing company plans to open 100 U.S. stores over the next five years. Dick's Sporting Goods is another example, with plans to open more than 800 stores under several brand names. And of course, there's e-commerce giant Amazon which is planning to open its own department stores.

For 2021, IHL expects that 4,361 more stores will have opened than were shut down.

That's it for today. Check the show notes for links. And please remember to hit the subscribe button, and leave a review!

Thanks for listening. I'm Kathy Fettke.

Links:

1 -https://www.marketwatch.com/story/pending-home-sales-surge-higher-in-october-will-the-new-covid-variant-trip-up-the-real-estate-market-11638198301?mod=economy-politics

2 -https://www.marketwatch.com/story/home-price-growth-slows-even-as-the-cost-to-buy-continues-to-hit-records-11638281060?mod=economy-politics

3 -https://www.marketwatch.com/story/jobless-claims-climb-28-000-to-222-000-in-thanksgiving-week-11638452207?mod=economy-politics

4 -https://www.marketwatch.com/story/coming-up-u-s-jobs-report-for-november-11638537320?mod=economy-politics

5 -https://www.housingwire.com/articles/residential-construction-jobs-slowly-return/

6 -http://www.freddiemac.com/pmms/

7 -https://www.corelogic.com/intelligence/2021-is-on-pace-to-be-the-first-multi-trillion-dollar-real-estate-market/

8 -https://magazine.realtor/daily-news/2021/11/29/suburbs-remain-popular-even-as-cities-stage-comeback

9 -https://magazine.realtor/daily-news/2021/11/29/first-time-in-4-years-more-store-openings-than-closures

Today's Factory-Built Homes and Why You Should Check Them Out! Dec 08, 2021

Show notes

Demand for manufactured housing is growing as a way to close the affordability gap. Factory-built homes were once viewed as a low-quality alternative to site-built homes, but that's no longer the case. Factory-built homes are now built to similar standards but they cost less because it's less expensive to build any kind of product in a factory.

Hi, I'm Kathy Fettke and this is Real Estate News for Investors. If you like our podcast, please subscribe and leave us a review.

Manufacturing housing is enjoying a rebirth of sorts. Factory-built homes were known as "mobile homes" in the 1970s, and there are plenty of them still in existence today. But the newly designed and produced manufactured homes are quite different, according to industry experts.

Site-Built vs. Factory-Built

Jim Ayotte is the executive director of the Florida Manufactured Housing Association based in Tallahassee. He recently spoke with the Tampa Times about today's manufactured homes and how they compare to site-built homes. (1)

He told the Times that many people have an outdated perception of manufactured homes. He says people will say things like: "Oh, mobile homes, those old things? We don't want those in our neighborhoods. They're not really safe."

But he says the new factory-built homes are built to the similar standards as site-built homes when it comes to "energy efficiency, wind safety and everything else." Those building codes were upgraded after Hurricane Andrew in 1992, for both kinds of homes. He says: "Today, manufactured homes are built to wind standards that are as high or higher than homes built to the Florida building codes."

Today's manufactured homes also come in "all shapes and sizes." Depending on the size, some may have porches and/or garages. He says the higher-end manufactured homes are pretty much indistinguishable from a home that was built on location.

Manufactured Homes in the Tampa Area

Ayotte suggests that anyone interested in affordable homes should check out what you can buy today. And, he says there's plenty of places to find them in the Tampa Bay area. He says that from 2020 to 2021, manufactured home shipments have increased by 18% in Hillsborough County, which is home to the city of Tampa. To the north, in Pasco County, shipments are up 10% and farther north in Citrus County, they are up 26%. To the east, in Pinellas County and the St. Petersburg area, they are up 9%.

And the manufactured housing trend is growing. He says there are nine home-building plants in Florida that have increased production by 30% over the last two years. And, he says, every one of them is backlogged.

Like all home builders, they are running into supply chain issues right now, but Ayotte says that manufactured home builders buy their materials more efficiently and more cost-effectively. He says that prices are coming back down, but they never come down quite as fast as they go up.

He says, currently, the average price for a manufactured home in Florida is about $101 to $102,000. That's up from about $84,500 in 2019. Those prices are without the cost of the land, but they still represent a big savings.

When you do a cost comparison between site-built and factory-built homes, Ayotte says there's typically a 20% price difference. But he also emphasizes that the price difference isn't due to a difference in quality. He says it's because factory-built homes are built more efficiently.

Improved Loan Access for Manufactured Housing

The Federal Housing Authority is also trying to make it easier for homebuyers to get loans for manufactured homes. The agency recently issued new guidelines for its Title I loan program which provides loans for home improvements along with loans for manufactured homes.

HousingWire reports that the FHA consolidated 120 separate policy documents so lenders won't have to sort through them all. It also updated some policies associated with the purchase of manufactured homes. One of the updates will permit a sales comparison approach to appraisals, for example. Another will expand allowable income sources for borrowers. (2)

Manufactured homes could also make good rental homes, at a lower price point. In California, where state laws allow for Accessory Dwelling Units on single-family properties, homeowners can buy pre-made cottages to put in their backyards. And then of course, rent them out. The potential is there for not just affordable housing, but affordable rental housing.

If you'd like to read more about this topic, you'll find links in the show notes at newsforinvestors.com.

And please remember to hit the subscribe button, and leave a review!

Thanks for listening. I'm Kathy Fettke.

Links:

1 -https://www.tampabay.com/news/real-estate/2021/12/01/as-florida-house-prices-climb-demand-increases-for-manufactured-homes/

2 -https://www.housingwire.com/articles/fhas-manufactured-housing-loan-program-gets-a-facelift/

"Adaptive Reuse" and Why It's an Investment Opportunity Dec 06, 2021

Show notes

A lot of the nation's empty commercial space is being put to good use. A recent report by RentCafe shows a huge surge in the conversion of vacant commercial buildings into apartment complexes. This so-called "adaptive reuse" trend began more than a decade ago, but accelerated substantially this past year, especially for the conversion of unused office space.

Hi, I'm Kathy Fettke and this is Real Estate News for Investors. If you like our podcast, please subscribe and leave us a review.

A recent report by RentCafe says that, by the end of this year, developers will have created 20,100 residential units within old commercial buildings. Add that number to the 12,000 units created last year, and the decade kicks off with a total of 32,000 apartments created by converting commercial buildings into apartment homes.

Decade-Long Trend

According to RentCafe, it's a trend that began in 2010 with 5,200 conversions. Back then, hotels were the most popular kind of building to convert into apartments. Old factories and office buildings were also popular, but not as much as hotels.

There was a steady increase of conversions each year through 2017, which logged about 15,500 conversions. The numbers fell in 2018 through 2020, and blasted off again this year, especially for the conversion of old office buildings. RentCafe says that 41% of the units created during that last two years were formerly used for office space.

It's been a good opportunity for developers and investors, because adaptive reuse is less costly than ground-up construction, especially with supply chain issues that are holding up new projects. It's also a more earth-friendly option.

Lower Environmental Impact

North Carolina city planner, Emil Malizia, told RentCafe: "Perhaps the most compelling reason to choose adaptive reuse for apartments versus new apartment construction is the lower environmental impact, especially if demolition is involved." He says: "Adaptive reuse mitigates climate change; demolitions and new construction do not."

Cost Savings

The cost savings are also impressive. Malizia says that adaptive reuse can lower construction costs by as much as 30-40%, so long as the cost of the site and the building is not a lot more than a piece of undeveloped land. And right now, it might even be easier to secure an old building than a plot of land, especially if the current remote work trend continues. Companies are changing the way they do business, thanks to the pandemic, and reducing the number of private offices they maintain.

Unused Office Space

As CNBC reports, office vacancy rates remain high in many U.S. cities, so building owners have been scrambling to put them to use. And we're likely to see even more office space becoming available. A PwC survey says that about a third of the executives are expecting their office space needs to decrease over the next three years, because of remote workers. (2)

Although many renters fled from their city apartments during the pandemic, city life is bringing them back. And these commercial space conversions are providing a convenient option for returnees who want to live downtown, in or near the business district.

Because there is typically less housing in areas with a lot of office buildings, these conversions also offer a prime "location." And when you have that, the opportunity for developers and investors can be lucrative.

Top Cities for Conversions

While this trend is surging in the U.S., it's also happening more in some cities than others. For 2020 and 2021, the city with the most conversions was Philadelphia. Developers created almost 2,000 new apartments through adaptive reuse. Washington, D.C.; Cleveland; Chicago; and Los Angeles were next on that list. They all had more than 1,000 conversions over that last two years. Other cities with a lot of conversions were Alexandria, Virginia; Detroit, Pittsburgh, Kansas City, and New York City.

You can see the RentCafe report by following a link in the show notes at newsforinvestors.com. You can also join RealWealth, for free. As a member, you have access to the Investor Portal where you can view sample property pro-formas and connect with our network of resources. That includes experienced investment counselors, property teams, lenders, 1031 exchange facilitators, attorneys, CPAs and more.

And please remember to hit the subscribe button, and leave a review!

Thanks for listening. I'm Kathy Fettke.

Links:

1 -https://www.rentcafe.com/blog/rental-market/market-snapshots/adaptive-reuse-apartments-2021/

2 -https://www.cnbc.com/2021/11/24/a-record-number-of-office-buildings-turned-into-apartments-this-year.html

The Real Estate News Brief: Atypical Winter for Home Sales, Investor Buying Spree, Love Letter Lawsuit Dec 01, 2021

Show notes

In this Real Estate News Brief for the week ending November 27th, 2021... the winter forecast for home sales, what investors are doing with their money, and who's suing lawmakers over real real estate "love letters."

Hi, I'm Kathy Fettke and this is Real Estate News for Investors. If you like our podcast, please subscribe and leave us a review.

Economic News

We begin with economic news from this past week, and a Fed that's growing more concerned about inflation. Central bank officials still believe that prices will rise more slowly next year, but they are acknowledging that inflation pressures could last longer than they anticipated because of labor and supply chain shortages. These issues have pushed the yearly inflation rate to a 32-year-high of 6.2%. If you recall, inflation was close to "zero" about a year ago. The situation could prompt the Fed to begin the tapering of its bond-buying program "before" the end of this year. It has been buying $120 billion in Treasurys and mortgage-backed securities as an economic stimulus. (1)

High prices are not preventing consumers from spending money. They have extra cash to spend from pandemic savings along with higher wages and bigger paychecks. That pushed consumer spending up 1.3% in October. According to MarketWatch, about half of the increase is due to inflation, so spending is up about .7%. (2)

The latest unemployment report shows the number of people applying for state benefits is now "below" pre-pandemic levels. The Labor Department says initial applications dropped to 199,000 the week before Thanksgiving. That's the lowest level since November of 1969. The number of continuing claims also dropped to a pandemic low of about 2.05 million. (3)

New home sales continue to rise. They were up .4% in October, according to the Commerce Department. The median price of a home is now $407,700. That's a new record high. The report also shows that builders are pumping new homes into the market. The supply was up 3.3% to a 6.3-month supply. (4)

The sale of existing homes also rose in October, because of high demand, but buyers are still dealing with a lack of supply and higher prices. According to the National Association of Realtors, sales were up .8% between September and October, to a seasonally-adjusted annual rate of 6.34 million. That's also 5.8% lower than the year-ago numbers. (5)

Despite the low unemployment figures and the amount of consumer spending, consumer sentiment has now dipped to a 10-year low. The University of MIchigan index dropped from 71.7 in October to 67.4 in November. Consumers are mostly concerned about inflation, and a lower standard of living because of those higher prices. (6)

Mortgage Rates

Mortgage rates held steady last week. Freddie Mac says the average 30-year fixed-rate mortgage is 3.1%. The 15-year is up 3 basis points to 2.52%. (7)

In other news making headlines…

Cold Winter, Hot Housing Market

The typical winter slowdown for home sales is probably not going to happen this year. Economists from realtor.com and the National Association of Realtors expect strong demand to continue right through the holidays into next year. (8)

Realtor.com's Danielle Hale says the demand continues and that "sellers can expect to see plenty of buyers" while NAR's Lawrence Yun expects "more sales compared to pre-pandemic winters going back all the way to 2006."

In addition to this persistent demand for housing, supply chain issues have delayed some buyers who will continue to search for their dream homes this winter. The limited inventory will also give seller's an incentive to put their homes on the market.

Investor Buying Spree

Investors are also very busy. Redfin reports that investor purchase activity for residential property is up 80% in the third quarter compared to a year ago. It says that investors bought 18% of all the homes sold in Q3, and spent a record $64 billion. If you translate that into the number of homes purchased by investors, the total was a record 90,215 homes. Almost 75% of them were single-family homes. That's also an all-time high. (9)

Redfin Senior Economist Sheharyar Bokhari says: "Increasing home prices fueled by an intense housing shortage have created opportunities for investors to reap big profits." Average monthly rents were up almost 11% year-over-year in September. That's the fastest rent growth in at least two years.

Which cities are attracting most of the investor activity? Atlanta; Phoenix; Charlotte, North Carolina; Jacksonville, Florida; and Miami. You can see the full list in the Redfin report. We'll have that link in the show notes.

Love Letter Lawsuit

An Oregon real estate firm is suing state lawmakers over a ban on homebuyer "love letters." Those love letters typically offer details about the buyers that could lead to a biased decision by the seller. And that could violate fair housing laws. (10)

The plaintiffs at Total Real Estate Group are calling the ban "censorship." They say the ban is based on mere speculation that sellers might sometimes rely on information in these letters to discriminate based on a protected class."

The Oregon law is the first of its kind, and is set to take effect in January.

That's it for today. Check the show notes for links. And please remember to hit the subscribe button, and leave a review!

Thanks for listening. I'm Kathy Fettke.

Links:

1 -https://www.marketwatch.com/story/some-on-fed-thought-faster-pace-of-tapering-bond-buys-was-warranted-meeting-minutes-show-11637781873?mod=the-fed

2 -https://www.marketwatch.com/story/u-s-consumer-spending-sizzles-in-october-and-its-not-just-all-high-inflation-11637766739?mod=economic-report

3 -https://www.marketwatch.com/story/coming-up-u-s-weekly-jobless-claims-11637759464?mod=economic-report

4 -https://www.marketwatch.com/story/new-home-sales-inch-higher-in-october-11637767351

5 -https://www.marketwatch.com/story/existing-home-sales-rise-slightly-as-demand-remains-strong-for-housing-11637593477?mod=economic-report

6 -https://www.marketwatch.com/story/coming-up-umich-consumer-sentiment-survey-11637765079?mod=economic-report

7 -http://www.freddiemac.com/pmms/

8 -https://magazine.realtor/daily-news/2021/11/24/yun-expect-an-unseasonably-hot-winter-for-home-sales

9 -https://www.redfin.com/news/investor-home-purchases-q3-2021/

10 -https://magazine.realtor/daily-news/2021/11/22/brokerage-sues-oregon-over-ban-on-buyer-love-letters

The Real Estate News Brief: 2022 Home Price Forecasts, Single-Family Rent Growth, Record Starts for BTR Nov 23, 2021

Show notes

In this Real Estate News Brief for the week ending November 20th, 2021... home price forecasts for next year, single-family rent growth, and a new record for build-to-rent home starts.

Hi, I'm Kathy Fettke and this is Real Estate News for Investors. If you like our podcast, please subscribe and leave us a review.

Economic News

We begin with economic news from this past week. The number of people applying for unemployment keeps dropping. Last week, just 268,000 people applied for state benefits. That's getting close to pre-pandemic levels which were in the low 200,000's. The number of people already getting state unemployment benefits is also lower. That number dropped to a total of 2.08 million. (1)

Home starts were down slightly in October as builders struggled with supply chain issues and a labor shortage. They were down .7% from the previous month, but compared with October of last year, they were up slightly. Single-family starts were down the most, with a 3.9% decline. But there's a strong demand for housing, and builders are preparing for a much faster pace of construction. Permits rose for all types of buildings, with a 2.7% increase for single-families, an 8.2% increase for buildings with two to four units, and a 6.5% increase for larger multi-families. (2)

Although builders are dealing with a lot of challenges, they are feeling confident about the market because there's such a huge demand. According to the National Association of Homebuilders, the level of confidence among builders is the highest it's been since last May. It's up three points for November to a reading of 83. (3)

Mortgage Rates

Mortgage rates rose back above the 3% mark. Freddie Mac says the average 30-year fixed-rate mortgage is up 12 points to 3.1%. The 15-year is also up 12 points to 2.39%. (4) Economists are blaming the increase on inflation, and are forecasting higher rates over the next few months. The National Association of Realtors senior economist, Nadia Evangelou, expects the housing market to slow down next year as more homes hit the market at higher prices with higher mortgage rates. (5)

In other news making headlines…

Where Are Home Prices Going?

Zillow just published a new forecast for 2022 home prices. It is predicting that prices will rise 13.6% between October of this year and October of next year. In September, Zillow had predicted a 11.7% increase. Both those figures are lower than the rate of price growth for this year. They were up a record 19.9% between August of 2020 and August of this year. (6)

Zillow researchers say: "The strong long-term outlook is driven by our expectations for tight market conditions to persist, with demand for housing exceeding the supply of available homes."

As Fortune reports, not everyone agrees with Zillow's forecast. Goldman Sachs expects 2022 prices to rise another 16%, while Fannie Mae is expecting a lower 7.9% growth rate. CoreLogic is only expecting a 1.9% overall increase in prices, and the Mortgage Banks Association says it'll be more like 2.5%.

Single-Family Rents Move Higher

As you can see, home price forecasts are all over the map, but they all expect strong demand for housing to continue. And that's pushing rents higher for single-family homes.

CoreLogic's single-family rental index for September shows that national rents are 10.2% higher year-over-year. Miami rents have gone up the most. Those rents are up 25.7% with rents for high-end homes rising the most. Phoenix is second on that list, followed by Las Vegas, Austin, San Diego, and Dallas. (7)

John Burns Real Estate Consulting also tracks single-family rent growth. It shows that new lease effective rents were up 6% year-over-year in September. Phoenix was at the top of that list, at 14%. (8)

Single-Family Build-to-Rent Starts

The housing shortage is motivating a lot of developers and investors to bring more build-to-rent homes to the market. According to the National Association of Homebuilders, housing starts for those homes hit the highest level ever in the third quarter. Construction has been ramping up, with 47,000 build-to-rent starts over the last year. (9)

Builder.com says that's a 17.5% increase over the previous four quarters. It says: "With the onset of the Great Recession and declines in the homeownership rate, the share of build-to-rent homes increased in the years after the recession. And while the market share… is small, it has been trending higher."

That's it for today. Check the show notes for links and more info on these topics. And please remember to hit the subscribe button, and leave a review!

Thanks for listening. I'm Kathy Fettke.

Links:

1 -https://www.marketwatch.com/story/jobless-claims-drop-to-pandemic-low-of-268-000-as-labor-shortage-forces-businesses-to-avert-layoffs-11637242500?mod=economic-report

2 -https://www.marketwatch.com/story/new-home-construction-slows-as-builders-grapple-with-supply-chain-headaches-11637157193?mod=economic-report

3 -https://www.marketwatch.com/story/home-builders-are-growing-more-confident-as-americans-demand-more-housing-11637075714?mod=economic-report

4 -http://www.freddiemac.com/pmms/

5 -https://magazine.realtor/daily-news/2021/11/19/inflation-drives-mortgage-rates-over-3

6 -https://fortune.com/2021/11/18/zillow-changes-2022-real-estate-outlook-what-to-expect-from-home-prices-next-year/

7 -https://magazine.realtor/daily-news/2021/11/17/property-owners-see-big-opportunities-in-single-family-rentals

8 -https://www.realestateconsulting.com/the-light-bsfri-new-lease-effective-rents-up/

9 -https://www.builderonline.com/data-analysis/single-family-build-to-rent-starts-reach-highest-quarterly-volume_c

Is the 4% Rule Outdated? Nov 23, 2021

Show notes

The 4% rule is a well-known withdrawal rate for retirees, but a new Morningstar report challenges the current standard, saying it is now "outdated." The formula for determining how much you should withdraw from your retirement is complicated however, because every person's financial needs, tolerances for risk, and resources are so different.

Hi, I'm Kathy Fettke and this is Real Estate News for Investors. If you like our podcast, please subscribe and leave us a review.

Morningstar researchers analyzed the 4% withdrawal rate in a report called: "The State of Retirement Income: Safe Withdrawal Rates." (1) Their analysis includes forward-looking estimates on portfolio performance and inflation, and determined that the current rate of 4% should be reduced to 3.3%.

"The State of Retirement Income"

They used a 30-year window of time for their calculations, a 90% probability for success which means there's a 90% chance you will "not" run out of money during your lifetime, and a portfolio that is split between stocks and bonds.

Morningstar's Christine Benz says that market conditions have boosted retirement portfolios in recent years, and that retirees may be lulled into thinking they'll get similar results in the future. But she doesn't expect that to happen, which would reduce the amount of anticipated gains, and retirement income.

Currently, we have high stock prices, and low bond yields. Inflation is high at the moment but it has been low for a long time, and Morningstar expects inflation rates will settle back down over the long term. Benz told CNBC that, going forward, she expects to see a different set of economic circumstances. (2)

According to Benz and the Morningstar analysis, stocks will likely fall to more average valuation levels, while bond yields rise. Based on this possible scenario, she says the withdrawal rate should be reduced to about 3.3%, as a general rule.

Safe Withdrawal Rate for Retirees

The "safe withdrawal rate" has changed over the years depending on market conditions, and can be viewed as more of a "range" that is influenced by personal circumstances. Over the last 90 years, withdrawal rates have gone from about 2.4% for someone with all bonds in their portfolio to 6.5% for someone with all stocks. The figures vary a lot depending on your time horizon, and what success rate you choose depending on your risk tolerance. So, a 6.5% withdrawal rate for an all-stock portfolio with a 90% success rate was common from 1975 through 1999. More recently, that withdrawal rate was more like 5.3% for the same stock portfolio and a 90% success rate.

Morningstar also points out how you can withdraw more or less depending on the success rate that you choose. For example, if you have a 50% stock portfolio, and want a 100% success rate, you could start with a withdrawal rate of just 1.9%. That's over a 30-year time horizon. If you are not worried about running out of money, and you are okay with a 50% success rate, then you could withdraw 4.7%.

Conservative Approach to Withdrawals

The bottom line: Like the 4% figure, the 3.3% figure is considered "conservative." It's based on what Morningstar expects to be lower returns in the future, but also follows a conservative approach to withdrawals.

But remember, this is supposed to be the "starting rate." Like social security, you can give yourself a cost-of-living increase each year that raises the amount. There are also other factors and strategies that play into the amount a retiree should withdraw, such as your anticipated life span, your lifestyle and how much money you need to support it, when you plan to start taking social security, other income sources such as pensions or real estate gains and income, and how much you have in your accounts.

Some people take a flexible approach to withdrawals, depending on how the market is doing and how their investments are doing. During a down year, you might reduce your percentage and forgo the COLA, for example.

As CNBC recommends, a conservative strategy could be your best bet during the early years of retirement because of something called "sequence of returns risk." That happens when you take too much out of your retirement account at the beginning, and reduce the amount that you are depending on for future gains.

Even if you aren't close to retirement age right now, it's always good to think ahead. Going from a 4% withdrawal rate to 3.3% can be a big cut in pay if you don't have a lot of resources. With one million in the bank, a 3.3% withdrawal rate is about $2750 a month. That's about $550 less than a 4% withdrawal rate.

This is why so many people look to supplement their retirement income with cash flowing real estate. With rental property, you never have to touch your principle. You can live off the cash flow generated from the rents. Additionally, inflation, based on history, the property would increase in value over time and rents would increase as well, while the mortgage debt decreases every year.

If you buy a $200,000 rental property today, with a 20% down payment, you would invest $40,000 plus closing costs. If the property increased in value by a mere 3% each year, you would have made back your $40,000 investment in 7 years. If rents increased 3% every year, you'd be earning an extra $400 per month in cash flow by year 7 -- which is technically "free money" because you've earned your original investment back. Now imagine what the value of the property would be in 15 or 20 years?

What if you were able to maximize the amount of investor loans you are able to get, and own 10 of these cash cows by the time you retire? If you start young, you could own all 10 homes free and clear in retirement, while earning cash flow along the way. You don't have to worry about withdrawing money from this retirement account because you aren't tapping into the principle, you are just living off the cash flow. But if you did need more money, you could sell a property or better yet, take out a loan on one of the properties, which would be tax free until you sell. And even when you sell, you can postpone the tax if you do a 1031 exchange. Current law allows your heirs to inherit the property when you die, and the value steps up to current market value -- effectively wiping out the capital gains tax.

You can find out why so many people choose real estate to supplement their retirement plan at newsforinvestors.com. You can also join RealWealth, for free. As a member, you have access to the Investor Portal where you can view sample property pro-formas and connect with our network of resources. That includes experienced investment counselors, property teams, lenders, 1031 exchange facilitators, attorneys, CPAs and more.

You'll also find a link to the Morningstar report in the show notes for this episode. And please remember to hit the subscribe button, and leave a review!

Thanks for listening. I'm Kathy Fettke.

Links:

1 -https://www.morningstar.com/articles/1066569/whats-a-safe-retirement-spending-rate-for-the-decades-ahead

2 - https://www.cnbc.com/2021/11/11/the-4percent-rule-a-popular-retirement-income-strategy-may-be-outdated.html?recirc=taboolainternal

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