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The Real Estate News Brief: Self-Employed Home Loans, Jumbo Loan Surge, Higher Closing Costs Oct 21, 2021

Show notes

In this Real Estate News Brief for the week ending October 16th, 2021… more home loans for the self-employed borrowers, a surge in jumbo loans, and a rise in closing costs.

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. Inflation ticked higher again. The government reports a .4% increase for September, mostly due to higher prices for food, gas, and rent. That raises the yearly rate of inflation from 5.3% to 5.4% which is more than double what the Federal Reserve considers "ideal." But the Fed pays more attention to the PCE or Personal Consumption Expenditures index which is lower but still more than double the Fed's target. Economists, along with the Fed, say that means prices will probably remain high into next year. (1)

Well-known stock investor Cathie Woods has her own theory on inflation. She's the owner of Ark Invest and a collection of stock funds that lean toward more innovative tech companies and start-ups. She told CNBC that the current migration from expensive cities will help keep inflation in check. She says: "The exodus, or the great migration, is from very high-rent areas of the world to much lower rents." She is moving her own company from New York to St. Petersburg, Florida, to take advantage of a lower cost of living. (2)

Consumers don't seem to be that concerned about high prices. U.S. retail sales rose .7% last month. That's after a big gain in August. Economists say Americans have plenty of money to spend from their pandemic savings, and a job market that is paying higher wages. One thing holding them back is a short supply of goods like cars and consumer electronics because of supply chain issues. (3)

Initial jobless claims dipped below 300,000 for the first time since the beginning of the pandemic. The government reports just 293,000 new state claims. Ongoing claims also dropped to a pandemic low of 2.59 million. The total number of people collecting benefits from eight state and federal programs is 3.65 million. That's after more than 11 million people dropped off the list last month due to the expiration of an emergency federal program. (4)

The "quit rate" jumped higher in August, to the highest it's ever been since the government started tracking the number of people leaving their jobs in 2000. This so-called quit rate was up almost 3% to 4.27 million private-sector employees. That's about double what it was during the early part of the pandemic. This recent spike coincides with a spike in coronavirus cases tied to the delta variant. (5)

Mortgage Rates

Let's check on mortgage rates. According to Freddie Mac, the 30-year fixed-rate mortgage rose 6 basis points to 3.05%. The 15-year was up 7 points to 2.3%. (6)

In other news making headlines...

Credit More Available for Self-Employed

The credit market is opening up a bit, making it easier to get a home loan. The Mortgage Bankers Association's Credit Availability Index rose 1.5% in September, with most of the growth going to self-employed borrowers. That's great for real estate professionals who are often self-employed. (7)

The index benchmark is 100, and the current reading is 125.6. It's the highest it's been since May. The MBA's Joel Kan says: "But, even with increases in seven out of nine months thus far in 2021, total credit availability is still around 30% less than it was in February 2020" which is right before the pandemic struck.

Jumbo Loans Surge Due to High Home Prices

Lenders are also handing out more jumbo loans because of high home prices. Researchers at Bank of America said in a weekly report that loan originations for jumbo loans are rising to levels we haven't seen since before the 2008 financial crisis. (8)

The current limit for a conforming loan is about $548,000. Anything above that is a jumbo loan, although high-priced areas like New York City and San Francisco have higher limits. Several lenders have already announced higher conforming loan limits up to $625,000 for next year.

Buyers Paying Higher Closing Costs

High home prices are also driving closing costs higher. Residential real estate data firm ClosingCorp said the national average for single-family properties was $6,837 during the first half of this year. That includes taxes, and represents a 12.3% year-over-year increase. Without taxes, the national average is up 10.5% to $3,836. For refinancing loans, closing costs are up about 5% to around $2,400. (8)

ClosingCorp's CEO, Bob Jennings, says that even though closing costs are higher, they are not going up as fast as home prices, because lenders are holding those costs down. He says: "Although the average home price increased by nearly $45,000, the closing cost, excluding taxes, on property only increased by $400."

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/consumer-prices-rise-at-5-4-yearly-pace-in-september-and-stay-at-30-year-high-11634129045?mod=inflation

2 -https://markets.businessinsider.com/news/stocks/cathie-wood-inflation-exodus-expensive-cities-ark-invest-2021-10

3 -https://www.marketwatch.com/story/u-s-retail-sales-rise-sharply-again-but-high-inflation-also-means-goods-cost-more-11634302108?mod=economy-politics

4 - https://www.marketwatch.com/story/jobless-claims-sink-to-new-pandemic-low-and-fall-below-300-000-for-first-time-in-a-year-and-a-half-11634215581?mod=economic-report

5 -https://www.marketwatch.com/story/i-quit-a-record-number-of-u-s-workers-are-telling-their-bosses-11634051980?mod=economic-report

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

7 -https://www.housingwire.com/articles/lenders-are-courting-self-employed-borrowers-again/

8 -https://magazine.realtor/daily-news/2021/10/13/rising-home-prices-lead-to-105-hike-in-closing-costs

Are You Ready for an Eco-Friendly 3D Printed Home? Oct 17, 2021

Show notes

Technology is taking big steps in the housing industry with 3D printed homes. Developers are pushing them as "cheaper, stronger, and more efficient" than traditional homes, and the idea is gaining ground. With affordable housing in short supply, energy efficiency becoming a mandate, and the threat of more severe weather-events, 3D printed homes could provide a desirable eco-friendly option.

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 husband and wife team are building a 3D printed home in Tallahassee, Florida, that they expect to put on the market next month. It will be a 3-bedroom, 2-bath 1,440 square foot home with an asking price between $175,000 and $225,000.

One of the big benefits for this kind of home in a state like Florida is the strength of the building material. Promoters say they will withstand hurricanes and flooding much better than traditional homes. And, they say these homes will also be more resistant to mold, which is a problem in areas with high humidity. Plus, they can be energy efficient, and built more quickly at a less expensive price point.

3D Printer Looks Like a Car Wash

The process involves a printer that looks more like a car wash but squirts out a cement-like mixture in a back-and-forth motion that's dictated by high-tech computer programs. They come in all sizes depending on the size of the building you want to create. According to the South Florida Sun Sentinel, the printers can range in size from about 10 x 10 feet to 100 x 100 feet and cost between a half million and $700,000. (1)

The owners of the company printing the home in Tallahassee, Kyndra and James Light, told the Sun Sentinel: "Make no mistake, these houses are not your average test models." They claim: "The finished product is far superior in strength, durability, and efficiency."

A 3D-printed home in Riverhead, New York was the first one on the U.S. market. It was listed during the summer for about $300,000. Four other 3D-printed homes in Austin, Texas, were also reportedly ready for occupants over the summer. And a community of 15 eco-friendly 3D-printed homes was supposed to break ground last month in Rancho Mirage, California, near Palm Springs, but developers are working through some regulatory delays.

World's First Net Zero 3D Printed Home Community

Development company, Palari, and construction technology company, Mighty Buildings, are working together on the Rancho Mirage project. Palari claims to be "reimagining" real estate with "innovative and sustainable building strategies." (2) MIghty Buildings says it will revolutionize home construction with 3D-printing technology. (3) They announced their plan for Rancho Mirage last spring, saying they had secured a 5-acre site and would break ground in September on the world's first 3D printed net zero energy community. (4)

According to the Desert Sun, Mighty Buildings had previously built smaller accessory dwelling units with state approval. Co-Founder, Sam Ruben, told the Sun that homes for the Rancho Mirage plan would be larger, with upgraded material that is not yet approved by state officials. He says: "The units we are going to be delivering for Rancho Mirage are utilizing our next-generation material which incorporates fiber reinforcement that adds strength and performance." Ruben says he isn't anticipating a problem with the approval, and the Palari website says that the Rancho Mirage homes will be ready for delivery in spring of next year.

In addition to 1,450 square feet of living space, each home will sit on a 10,000 square foot lot. They will each have a swimming pool, and customizable options such as cabanas, hot tubs, fire pits, and outdoor showers. They will also have solar power for a net-zero carbon footprint, and a mid-century modern design.

Other Communities Planned for California

Palari and Mighty Buildings already have several other projects in the works. The Palari website lists two more for the Palm Springs area including one community in Palm Springs and another in the nearby Desert Hot Springs. Their California project list also includes developments in the San Fernando Valley, the Central Coast, the East Bay, and Napa.

You can find out more about those two companies and their plans by following links in the show notes at newsforinvestors.com. The websites for Palari and Mighty Homes provide information on the printing of single-family homes and ADUs. That includes the sale of homes in their planned communities, along with pricing and options.

You can also find out more about real estate investing at our website by joining 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.sun-sentinel.com/business/fl-bz-3d-printed-homes-florida-outlook-20210917-w2l5ef7xgfhfvjuttqvtbqm46i-story.html

2 -https://www.palari.com/locations

3 -https://mightybuildings.com/projects/rancho-mirage

4 -https://www.prnewswire.com/news-releases/palari-group-and-mighty-buildings-announce-worlds-first-community-of-3d-printed-zero-net-energy-homes-in-rancho-mirage-california-301244886.html

The New Factory-Built Trend for Your Rental Portfolio! Oct 17, 2021

Show notes

Manufactured housing appears to be making a comeback. Boosting the supply of prefab homes is a major part of a new government initiative. Factory-built housing is also getting the attention of real estate investors looking for hard-to-get rental homes.

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 Biden Administration announced its Housing America initiative last month. One component of that initiative is to increase the supply of manufactured homes. Other components include things like down payment assistance, the rehabilitation of existing homes, new loan options for manufactured homes, and collaboration with local governments to reduce zoning limitations. (1)

Prefab Homes Gaining New Respect

The manufactured housing component could be a game changer for a market that has so few affordable options. And with improvements to the manufacturing process, prefab homes are losing the stigma they once had for being inferior to site-built homes.

In 2020, a HUD report says: "Factory-built housing has undergone many physical changes that have made it more similar to, and in many ways indistinguishable from, conventional site-built housing… Quality improvements in construction and installation practices have increased durability so that the life expectancy of factory-built housing increasingly is comparable to that of site-built or onsite housing." (2)

The Manufactured Housing Institute says essentially the same thing. In a 2021 industry overview, it says: "Today's manufactured homes can deliver outstanding quality and performance at prices that are up to 50 percent less per square foot than conventional site-built homes. These savings allow more and more Americans to own their own homes." (3) That also applies to investors who might want to buy more affordable rental homes.

Cost Savings for Prefab Homes

So what are the price points for manufactured homes compared to site-built homes? The Institute says the average price of a manufactured home is $81,900. If you break it down to price per square foot, that's about $57 compared to $119 for a site-built home. Average size for a prefab home is about 1,450 square feet. The average for a site-built home is 2,500 square feet, so the price of a prefab home is about ¼ the cost of a site-built home.

According to rebusinessonline, manufactured housing accounts for about 5.5% of U.S. homes. They also accounted for 9% of home starts last year. That's about 95,000 homes, which is double the number of prefab homes shipped in 2011.

Strong Investment Activity

According to Chad Hagwood at Lument, investors are paying attention. He said in an interview for rebusinessonline.com: "The market for investment sales is the strongest it's ever been." He says: "Having been an active participant in this industry for almost two decades. The sales volume, the interest, the activity is unlike anytime I've ever seen." Lumen provides loans for multifamily, affordable housing, and senior housing. (4)

Lument recently produced a white paper on the manufactured housing industry. It begins with comments about the need for affordable homes and the "growing popularity of lower density living" and how that's providing a new option for both homeowners and investors. (5)

It says: "The combination of robust cash flow growth, particularly in Sunbelt and Western markets, cap rate compression, and liquidity provided by the GSEs makes a compelling case for manufactured housing community acquisitions and refinances."

In the section about revenue trends, it says the inventory-weighted average rent of $840 for prefab homes in 31 markets compared favorably to other rentals in the same areas. That includes rents of about $1,100 for C+ to B- apartments, and $1,400 for overall average apartment rents.

Pros and Cons

Let's take a look at the pros and cons of manufactured housing.

According to that HUD report:

Modular housing construction is faster and takes place in a climate controlled environment which saves time and avoids unpredictable weather events and damage to materials.
Due to improvements in design and quality that make manufactured homes more similar to site-built homes, public perception has gotten better (although it still needs improvement).
The trend could build quickly as potential homebuyers, renters, and investors learn more about this type of housing.

Getting a loan for a prefab home is also getting easier. Last month, the Federal Housing Finance Agency announced that Fannie Mae and Freddie Mac would be allowed to purchase loans for single-section manufactured homes.

On the other hand:

Builders are concerned about switching to factory-built homes because they'd lose workers they may not be able to get back, if needed.
Transportation of modules can be expensive.
Pre-construction costs could be significantly higher - as much as 50%.
Public perception of manufactured homes needs further improvement to prevent NIMBY attitudes.

NIMBY Issue Somewhat Neutralized

The NIMBY issue has been somewhat neutralized by recent trends in minimalist living. Tiny homes have been popular for people who want to simplify their lives, and the lack of housing has encouraging many homeowners to add small rental units or ADU's to their properties. Legislation in California makes it perfectly legal to do so on any single-family lot that's big enough. There's also some extremely innovative ideas for manufactured housing that are getting the attention of the real estate world.

We just interviewed the co-founder of Boxabl on our other podcast, The Real Wealth Show. (6) The Nevada-based start-up has a very unique product that addresses the transportation problem by making the unit "fold-up" for delivery. Once it arrives at its destination, it takes just a few hours to set up. There are also plans to make the smaller "casita" units modular so they can be put together into larger homes. The concept has caught the attention of Tesla and SpaceX founder, Elon Musk, who reportedly lives in one. We'll have a link to that interview and the other reports in the show notes at newsforinvestors.com

You can also learn more about rental investing at our website by joining 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.housingwire.com/articles/manufactured-housing-is-key-to-affordable-homeownership/

2 -https://www.huduser.gov/portal/periodicals/em/WinterSpring20/highlight2.html

3 -https://www.manufacturedhousing.org/wp-content/uploads/2021/05/2021-MHI-Quick-Facts-updated-05-2021.pdf

4 -https://rebusinessonline.com/lument-manufactured-housing-communities-garner-investor-interest/

5 -https://www.lument.com/wp-content/uploads/2021/08/Lument-white-paper-manufactured-housing-2021.pdf

6 - https://www.realwealthnetwork.com/real-wealth-show-podcast/?utm_source=Podcast&utm_medium=Real%20Wealth%20Show&utm_campaign=2020wp-login.php%3Fredirect_to&reauth=1&wchannelid=nnhnv5t81j&wmediaid=gjwh7p0qfp

The Real Estate News Brief: Higher Conforming Loan Limits, Self-Tour Option for Home Buyers, Eco-Friendly House Hunting Oct 12, 2021

Show notes

In this Real Estate News Brief for the week ending October 9th, 2021... new conforming loan limits, self-touring option for home buyers, and a way to save gas when you're house hunting.

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 two economic reports, from this last week, on the job market. The one for unemployment shows that initial state claims were down 38,000 to 326,000. Economists say it's a sign of a strengthening labor market. The unemployment numbers keep dropping and are getting closer to pre-pandemic levels, but we're not quite there yet. Before the pandemic, initial state claims were in the low 200,000s. Ongoing benefits were also down 98,000 this last week, to a seasonally adjusted 2.71 million. (1)

The number of people collecting benefits from a total of eight state and federal programs dropped dramatically at the start of the month. They went from 11.3 million last month to just 4.17 million. That's mostly due to the expiration of a special federal program to help people hurt by the pandemic.

The other job market report shows that 194,000 jobs were created in September. That's far less than a Wall Street forecast for a half a million new jobs. MarketWatch says the numbers are falling short of expectations because of low employment at public schools. The official unemployment rate did drop almost a half a percentage point. It went from 5.2% in August to 4.8% last month. (2)

Mortgage Rates

Mortgage rates are teasing us again. After a brief rise above 3%, Freddie Mac says the 30-year fixed-rate mortgage dipped down two basis points, to 2.99%. The 15-year was down five basis points to 2.23%. (3)

In other news making headlines…

Average Mortgage Amount Creeps Higher

Low mortgage rates can help offset higher home prices, but they aren't totally preventing loan amounts from rising. The average amount that homeowners are borrowing has risen to $410,000. That's according to the Mortgage Bankers Association. (4)

The MBA's Joen Kan says: "Applications for larger loan amounts continue to outpace lower-balance loans." In July, they had risen at an annual rate of 19%. There are more homes coming into the market right now, but inventory is still much tighter than it was a year ago, and that's putting a lot of pressure on prices.

Higher Loan Limits for Pricier Homes

Two big lenders are responding to the need for larger loans by raising their conforming loan limit caps. PennyMac and United Wholesale Mortgage announced this last week, that they are raising their caps to $625,000. (5)

That's about $75,000 more than the 2021 conforming loan limit of about 550,000 set by the FHFA. The FHFA is also expected to increase that amount for 2022, with an announcement sometime next month.

Redfin's New Self-Tour Feature

Redfin is expanding it's "Direct Access" program to 22 U.S. markets. This feature allows buyers to unlock vacant homes with the Redfin app, and tour those homes without an agent. This will give buyers a faster way to look at homes they might want to buy. (6)

ADT security is supplying the smart locks and sensors that allow buyers to enter the homes. They also keep track of who's entering and exiting. Once the homes are sold, buyers can keep that equipment.

Redfin's Bridget Frey says: "In this hot market, more than a third of homes are finding a buyer within the first week, and buyers are hustling to see new homes as quickly as possible." Newly added markets for the self-touring feature include: Austin, Boston, Dallas, Denver, Las Vegas, Phoenix, San Francisco, and Orange County California.

Google Maps Intros New Eco-Friendly Tool

You might be able to save on gas as you tour all those homes by using Google Maps. The company has introduced a new eco-friendly tool that shows you which route is more fuel-efficient. (7)

When the fastest route and the most eco-friendly route have a similar ETA, Google Maps will default to the eco-friendly one. Fuel consumption is estimated according to the incline of the road, traffic congestion, and traffic patterns.

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/u-s-jobless-claims-sink-38-000-to-326-000-in-sign-of-improving-labor-market-11633610565?mod=economy-politics

2 -https://www.marketwatch.com/story/u-s-adds-just-194-000-jobs-in-september-as-delta-worsens-labor-shortage-11633697488?mod=mw_latestnews

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

4 -https://magazine.realtor/daily-news/2021/10/01/average-mortgage-amount-increases-to-410000

5 -https://www.housingwire.com/articles/pennymac-uwm-raise-conforming-loan-limit-ceiling/

6 -https://www.housingwire.com/articles/redfin-allows-buyers-to-tour-homes-without-an-agent/

7 -https://magazine.realtor/daily-news/2021/10/06/google-maps-can-help-you-use-less-fuel

Build-to-Rent Land In High Demand Oct 09, 2021

Show notes

The build-to-rent trend is creating intense competition for land. There are reports that land brokers are getting a growing number of calls from investor groups who want to build single-family rental communities. And there's a limited amount of suitable tracts of land, so competition is fierce.

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.

Forbes just published an article on this build-to-rent "land rush." It says that for every veteran buyer, land brokers are getting 50 calls from groups who are new to this residential construction niche.

BTR "Land Rush"

Because there just aren't enough existing homes on the market to meet investor demand, the build-to-rent trend is gaining traction. And that has off a stampede of sorts, for land. Forbes says that "a site that is well-suited for build-to-rent will typically get between 10 and 25 offers."

This is also a new situation for land brokers. They have traditionally sold to developers who build homes to sell to the public. But now they are catering to investors who want land for single-family rentals.

One land broker told Forbes that between 5% and 10% of his land sales today are for new single-family rental communities. And he says that percentage is growing month after month. In fact, he says he expects those numbers to "double or triple in the next couple of years."

And it isn't just the big institutional groups pouring money into this market. The majority of them are smaller lesser-known groups, although the deep pocket investor groups do snag headlines.

The Forbes article was written by housing economist, Brad Hunter, who helps investors and builders with site-specific market data and analysis. He says the BTR groups also have different preferences for the kinds of communities they want to build. They range from low-density communities with just 4 to 5 rental homes per acre to high-density strategies with 11 to 12 homes per acre. But he says, a density that's in the middle of that range is most popular.

BTR Investors vs. Homebuilders

This BTR "land rush" is creating a lot of competition with traditional homebuilders, because of skyrocketing rental returns. Rents are rising in large and small markets across the country, and that's providing a strong motive for BTR investors.

Because they are well-funded, Hunter says that BTR investors are often able to outbid homebuilders. And, they are gaining more traction in markets where rents are rising the fastest. He says demand for BFR land is rising the fastest in bigger metros like Augusta, Savannah, San Antonio, and St. Paul. He also says there's also growing demand in smaller cities St. Cloud, Pensacola, and Port Charlotte in Florida.

In addition to a limit on land, local ordinances are holding some investors back because there's just more demand than local zoning laws will allow. Some of that is due to a general bias against rentals and local officials who are worried about how voters will react. Because of a perception that renters won't make good neighbors, the NIMBY syndrome is strong in many areas. Hunter says that perception is changing however, because a lot of today's renters are highly paid professionals who don't want to be homeowners and prefer to rent.

Despite those headwinds, demand is there for single-family rental homes. According to Hunter and his company, Hunter Housing Economics, there are five things driving this demand.

Top Five Reasons for BTR Demand

1 - Household formation rates are pushing past 1.6 million per year

2 - Millennials want to raise their kids in the suburbs with good schools

3 - High rate of dog ownership and desire for yard space

4 - Remote work has created a demand for home office space

5 - Home prices are too high for young families to buy their own homes

Hunter says: "The potential for growth is enormous." His company sees production ramping up over the next five years, with an increase in BTR starts each year. By 2025, Hunter's company is predicting 180,000 starts, with demand still outpacing production.

You'll find links to the Forbes article in the show notes at newsforinvestors.com. You can also learn more about single-family rentals at our website by joining 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.

Link:

1 -https://www.forbes.com/sites/bradhunter/2021/09/09/the-built-for-rent-land-rush-is-intensifying-here-are-five-drivers/?sh=16cc3ae5560c

2 -https://magazine.realtor/daily-news/2021/09/13/the-race-is-on-for-built-for-rent-land

New Challenges, New Opportunities for Real Estate Investors Oct 09, 2021

Show notes

Real estate investors have experienced some big swings in the market over the past decade. We've gone from dirt cheap foreclosures after the housing meltdown, to more difficult investing opportunities today. According to a new survey, that's discouraging many small scale real estate investors, but difficult doesn't mean impossible. It means you need to be flexible, adaptable, and smart about your choices.

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.

Real-estate data company RealtyTrac conducted an investor sentiment survey among 300 real estate investors from across the country. (1) It shows that 48% of them feel that the investing environment is worse or even "much" worse than it was just one year ago. And it wasn't that much better a year ago. The same survey shows that 45% felt that way in 2020 during the first year of the pandemic.

RealtyTrac defines small scale mom-and-pop investors as those who buy one to 10 properties a year. That includes people who flip homes and those why buy and hold them as rentals. RealtyTrack says 90% of the 19 million single-family rental properties in the U.S. are owned by smaller investors. It also says there are thousands of people flipping homes at a rate of about one a month, although they are facing more competition from iBuyers like Opendoor, Offerpad, and Zillow.

Investor Sentiment Survey

This is the second year in a row for the RealtyTrac Investor Sentiment Survey. RealtyTrac says that last year's survey was evenly split between flippers and buy-and-hold investors. This year, there were more buy-and-hold rental property investors. Researchers say that could be the result of market conditions which are reducing home-flipping returns.

Previous research by RealtyTrac's parent company ATTOM Data Solutions shows that the typical gross-flipping profit was $67,000 in the second quarter of this year. That's a 33.5% return on investment compared to a 40.6% ROI for Q2 in 2020. It's also the lowest ROI for flippers since 2011. (2)

RealtyTrac's survey found that real estate investors are most concerned about high home prices. That concern replaced lack of inventory as the biggest worry in last year's survey. Lack of inventory is now second on the list of concerns. Investors are also worried about the cost of materials and labor along with competition from regular homebuyers.

RealtyTrac's Rick Sharga says: "Investors are more optimistic about the future than they are about current market conditions. But they do worry about inflation -- about 81% of the investors surveyed were concerned about inflation causing material and labor costs to rise, making affordability an issue for prospective homebuyers and renters, and increasing the costs of financing."

The survey also asked investors about their foreclosure expectations once government protections expire. About 30% of them expect foreclosures to return to a historical level of about 1% while 33% expect them to increase, but remain below the levels we saw during the Great Recession.

Real Estate Investors Need to Shift Focus

The survey title suggests that "Real Estate Investors Have Soured on the Current Market." I think a better title might be: "Real Estate Investors Need to Shift their Focus." At least that's what we are doing at RealWealth.

The market is changing, again. It's something that the market will always do, so investors need to be flexible and adapt to new conditions. The last ten or so years have been easy for real estate investors. We had a housing crash and dirt cheap prices. But those prices have been rising for a decade. So what now?

Yes, it's harder to get inventory. One of our property providers says that foreclosure auctions have completely stopped so she's trying to build new homes for buy-and-hold rental investors, although that has its own challenges.

We are in a new market cycle, so investors need to be more creative. In California, new laws have neutralized the idea of single-family zoning. You can now subdivide a single-family property into a duplex, or even a four-plex if the lot is big enough. Investors could live in one, and rent the rest. Short-term rentals could also work, if local laws allow them.California also allows in-law units or ADUs on single-family properties which is another way for property owners to create rentals.

Creative Investing for Today's Market

More creative investors might want to look at ways to help aging baby boomers who need assisted living, or younger professional who need a place to decompress. One of my friends is now turning high-end homes into rehab centers for individuals who need a get-away place to recuperate. Empty hotels could provide an interesting opportunity for apartment conversions.

What should you look for? As you know, homes are selling quickly, but that's not 100%. You can look for higher-priced homes that have been sitting on the market for too long and negotiate the price tag. At RealWealth, our teams are helping builders buy land for the development of single-family rentals. By contributing to these projects at the beginning, we are also able to help builders understand the difference between a rental home and a primary residence in terms of design and materials.

You can also learn more about single-family rentals by joining 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 links to information about RealtyTrac's survey in the show notes. And please remember to hit the subscribe button, and leave a review!

Thanks for listening. I'm Kathy Fettke.

Links:

1 - https://www.businesswire.com/news/home/20210929005109/en/Real-Estate-Investors-Have-Soured-on-the-Current-Market-According-to-the-Fall-2021-RealtyTrac%C2%AE-Investor-Sentiment-Survey%E2%84%A2

2 - https://www.attomdata.com/news/market-trends/flipping/attom-q2-2021-u-s-home-flipping-report/

The Real Estate News Brief: Inflation Frustration, Mortgage Rate Surprise, New Checklist for Homebuyers Oct 05, 2021

Show notes

In this Real Estate News Brief for the week ending October 2nd, 2021... we'll look at inflation frustration for the Fed, a mortgage rate surprise, and a new checklist for today's homebuyers.

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 new predictions about inflation. Fed Chief Jerome Powell says that inflation has been worse than expected because of supply-chain bottlenecks, but he still expects prices to settle back down next year, once those supply-chain issues are resolved. He said during a forum with central bank leaders: "It's frustrating to see the supply chain problems not getting better, in fact they are probably getting worse." (1)

The annual rate of inflation is about 4.2% right now, according to the Fed's preferred PCE index. The more popular CPI is about the same. It is currently at 4.3%. When you remove energy and food, the CPI is about 3%. The Fed likes to see the inflation rate at around 2%. (2)

New jobless claims hit a two-month high this last week thanks to a surge in California and Michigan. The government says new state claims were up 11,000 to 362,000. The California numbers are due to the processing of a claims backlog while the Michigan case load is likely due to a surge in delta infections. (3)

Housing is one segment of the economy that hasn't slowed down. The National Association of Realtors reports that pending sales surged unexpectedly in August. NAR says pending home sales were up 8.1% compared with July. Economists had expected an increase of less than half a percent. NAR'S chief economist, Lawrence Yun, says: "Rising inventory and moderating price conditions are bringing buyers back to the market." (4)

Builders continue to run into headwinds because of expensive building materials, and a shortage of labor and land. The Commerce Department says that overall construction spending was flat in August. It says that an increase in public spending was offset by a decline in residential spending. It was down .7% for single-family construction and .8% for multi-families. (5)

Meanwhile, home prices continue their march skyward. The S&P CoreLogic Case-Shiller Home Price Index shows a year-over-year increase of 19.7% in July. That represents the fourth month in a row for record home price growth. The 20-city index is even higher with a 19.9% year-over-year reading. (6)

There are mixed reports from consumers on the state of the economy. The consumer confidence index dropped several points, to a seven-month low while the University of Michigan Consumer Sentiment Survey rose slightly. (7) (8)

Mortgage Rates

Mortgage rates for all kinds of loans have risen due to a jump in the 10-year Treasury yield. Freddie Mac says the average 30-year fixed-rate loan rose 13 basis points to 3.1%. The 15-year was also up 13 basis points to 2.28%. (9)

In other news making headlines…

New Homes Are Bigger with More Bedrooms

Homes are getting larger with more bedrooms, thanks to a demand for more space. The National Association of Homebuilders says the share of single-family homes with four or more bedrooms rose from 42% in 2018 to 45% in 2020. (10)

A desire for multigenerational homes is also driving the increase. The NAHB says about 16% of buyers expressed a desire for that kind of home last year, compared to just 11% the year before.

Homebuyers Consider Disaster Risk

Another important consideration for homebuyers is the risk of a natural disaster. According to a survey conducted by realtor.com, three in four homebuyers say they assess the risk of a disaster when choosing a location. (11)

Tornadoes have created the most concern, with severe cold or winter storms close behind. Floods come next, followed by hurricanes, earthquakes, wildfires, droughts, and sinkholes. While 39% said they are worried about tornadoes, only 8% said they are worried about sinkholes.

Home With More Light Are Healthier

Homebuyers may want to consider how much natural light they get in a home, and the benefit of "smart windows." A new study shows that people who live in a home with smart windows experience less stress and anxiety, and sleep better at night. (12)

Smart windows have technology that allows them to automatically adjust the tint, to allow for a maximum amount of light throughout the day. The study was done by the International Journal of Environmental Research and Public Health which tracked people with smart windows, and compared the result to people with standard windows.

The result shows a delay in the production of melatonin for people with standard windows. That kept them from falling asleep as quickly, and from getting as much sleep overall. Researchers say the people with smart windows not only slept better, but experienced less stress and anxiety.

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/feds-powell-says-high-u-s-inflation-could-last-into-early-next-year-due-to-shortages-11632938138?mod=federal-reserve

2 -https://www.marketwatch.com/story/u-s-inflation-rises-sharply-again-in-august-and-remains-at-30-year-high-pce-shows-11633092039?mod=bnbh

3 -https://www.marketwatch.com/story/u-s-jobless-claims-jump-to-two-month-high-amid-surge-in-california-11633005982?mod=economic-report

4 -https://www.marketwatch.com/story/pending-home-sales-unexpectedly-surge-higher-as-the-housing-market-paves-the-way-for-a-rebound-11632924670?mod=economy-politics

5 -https://www.reuters.com/world/us/us-construction-spending-flat-august-2021-10-01/

6 -https://www.marketwatch.com/story/home-prices-rise-at-record-pace-for-fourth-consecutive-month-but-economists-arent-worried-about-the-housing-market-just-yet-11632835548?mod=economic-report

7 -https://www.marketwatch.com/story/u-s-consumer-confidence-slumps-to-7-month-low-on-delta-and-inflation-worries-11632838499?mod=economy-politics

8 -https://www.marketwatch.com/story/u-s-consumer-sentiment-rises-in-late-september-depressed-optimism-continues-university-of-michigan-271633098314

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

10 -https://magazine.realtor/daily-news/2021/09/30/more-new-homes-are-being-built-with-4-plus-bedrooms

11 -https://magazine.realtor/daily-news/2021/09/28/buyers-consider-disaster-risk-in-purchase-decisions

12 -https://magazine.realtor/daily-news/2021/09/24/homes-with-more-daylight-may-improve-moods

Renters Are Overtaking the Suburbs! Oct 02, 2021

Show notes

If you've been wondering just how many renters are moving to the suburbs, there's a new report that will give you a really good idea. RentCafe says that, over the past decade, dozens of suburbs have transitioned from a majority of homeowners to a majority of renters. And it's projecting that dozens more will follow in the next five years.

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.

RentCafe looked at data for 1,105 suburbs in the nation's 50 largest metros, and found that in 242 of those suburbs, renters outnumber homeowners. (1) But of those 242 renter-dominated suburbs, 103 suburbs transitioned to a renter majority in just the last ten years. It also says that 57 more are likely to do so over the next five years.

Renters Migrating Toward the Suburbs

RentCafe says that: "During the past decade, the migration toward the suburbs developed fast." It says: "The number of suburban areas where renters are the majority grew by a staggering 69%." While 103 suburbs transitioned to a renter majority in the last ten years, only four suburbs went in the opposite direction, where homeowners became the majority over renters.

Millikin University associate sociology professor, Dr. Kenneth Laundra, told RentCafe that the modern day suburb is much different that the "Baby Boomer fantasyland" it was years ago. He says: "We have reimagined the American dream for a modern, more diverse society where people are having fewer children and getting married much later in life (if at all), and where most good job/career opportunities require one to be flexible."

The Commercial Observer captured the spirit of that idea in a blog about the RentCafe report. The subtitle says: "The American Dream may no longer be about buying a home, but renting one." (2)

That blog pointed out that the largest 50 suburbs gained 4.7 million people in the last ten years, and 79% of them were renters. That brought the approximate total number of suburban renters up to 21 million people, which is an increase of 3.7 million. During that same time frame, homeownership in those same suburbs only went up 3%.

Census data also provides an interesting snapshot of the suburban renter demographic. It shows that almost two out of every five suburban residents are renters. That's an average of 39% of the people who live in the suburbs of our largest cities. Most of those renters are Millennials or Gen Zs who are interested in more affordable housing and a flexible lifestyle. The Commercial Observer reports that 55% of suburban renters are younger than 45 years old with a median income of about $50,000.

Top Three Metros for Suburban Renter Growth

The RentCafe report shows that 38% of the transitioning suburbs are found in three of the largest metros -- Miami, Washington, D.C., and Los Angeles. One of the most famous L.A. suburbs is on that list. Due to a steady increase in renters over the last ten years, the data shows that 51% of the people who now live in Beverly Hills are renting their homes. According to RentCafe, the median income in Beverly Hills is about $81,000.

The suburb attracting the most renters to the D.C. area is Merrifield, Virginia. RentCafe says the renter population there is 87% higher than it was a decade ago. Of the 103 suburbs that transitioned, Merrifield now has the largest share of renters at 64%. It also has the highest median income at $98,000.

In the Miami area, the suburb that has become heavily dominated by renters is Doral, near the airport. The renter population grew 83% there, making it the third-largest area for renters in the nation. RentCafe says that some of its popularity may be due to its rank by Go.Verizon as the third-best small city to start a small business.

Rent Growth In Other States

While suburbs in California, Washington, D.C., and Florida captured many of these renters, there are many in other states that experienced rapid growth of their suburban renter population. The share of renters in Maple Heights, Ohio, Southeast of Cleveland, grew by 87%. Eastpoint, Michigan outside of Detroit, is close behind Maple Heights for renter growth at 83%.

Among those expected to flip in the coming years, RentCafe says there will be more in California and Florida, but also "quite a few in Georgia, Maryland, Missouri, and Ohio."

If you'd like to see a list of the suburbs that have flipped or will likely flip in the next five years, check for links in the show notes at newsforinvestors.com

You can also join RealWealth for free at our website. 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.

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/picket-fences-for-rent-100-suburbs-turned-renter-majority-this-decade/

2 -https://commercialobserver.com/2021/09/renters-now-rule-the-suburbs-in-dc-miami-and-los-angeles/

Calling All Landlords! Rentals Needed in Tampa Sep 29, 2021

Show notes

Demand is going through the roof for rentals in the Tampa Bay region, and so are the rents. According to one data firm, the hot housing market and a steady stream of new residents have pushed apartment rents up 22% since the beginning of this year.

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.

Real estate data firm CoStar says that rents are moving higher because of an influx of new residents, and without enough rentals to meet that demand, there are no signs of a rent-growth slowdown. USF Financial Professor Lei Wedge explained the situation to local News Channel 8. (1) He listed four basic reasons that rents are moving higher so quickly. He says:

1 - There are lots of people moving to Tampa every day, and when people can't afford to buy, they are "rushing into the rental market."

2 - There are more renters in the market than the supply of rentals.

3 - Because "home values are going up like crazy," investors are buying more expensive properties and charging higher rents for a certain rate of return.

4 - Long-time landlords are following suit, and raising their rents to match the higher rents offered by investors.

Tampa Bay Home Prices

About a month ago, Axios wrote about Tampa Bay's hot real estate market. It says home values in this area are "rising faster than any other metro in the country" because inventory is too low to meet demand.

Tampa real estate agent, Justin Ricke, told Axios that some homes are getting as many as 30 offers, and that homes are selling almost as quickly as they are listed. He says: "You can put a house on the market Thursday, and if you market it correctly, get multiple offers by Sunday, have a decision by Monday."

Axios says that closed and pending sales were down in July across a five-county Tampa Bay area, including Hillsborough, Manatee, Pinellas, Pasco, and Sarasota Counties. That's according to MLS data. It says if the trend were to continue it could be a sign that the market is cooling off, but the article also points out that "slowdowns are typical for this time of year."

Inventory is also a major factor. Because it is too low to meet demand, there would only be "so much cooling off of the market" as too many people go after too few homes.

Tampa Bay's Median Home Price

So what's the median price for the area? Data from Florida Realtors show the median for that five-county area is $373,000. That's up from around $308,000 in July of last year. The months supply of homes in July was only about "one month" for each of those five counties. That represents a 65% drop in inventory for Manatee and Sarasota Counties, and a 30 to 40% drop for the others.

Stats show that homes went under contract in six days or less, on average, and that most single-family homes get the asking price or higher.

This climb in home prices and rents is also making it difficult for many people to afford a home or a rental. Ricke says he's getting calls constantly from people looking for an affordable place to live.

If you are an investor, wondering how this could play out for you, RealWealth has its own data on the market. Recent posts on the Southwest Florida market include a podcast called: "Demographics & Hot Markets with Our Florida Expert." That's available under the Learn Tab at newsforinvestors.com.

You'll also find a webinar replay on the Tampa area that you can access here as a RealWealth member through the Investor Portal. It's free to join and will also give you access to experienced investment counselors, property teams, lenders, 1031 exchange facilitators, attorneys, CPAs and sample pro-formas for rental properties in markets across the U.S.

That's it for this episode. Please remember to hit the subscribe button, and leave a review! Thanks for listening. I'm Kathy Fettke.

Links:

1 -https://www.wfla.com/news/hillsborough-county/tampa-rent-prices-up-22-percent-in-2021-data-shows/

2 -https://www.axios.com/tampa-bay-real-estate-market-outlook-home-sales-93f33ec1-30a9-4115-a502-f1728302ecc3.html

The Real Estate News Brief: Fed Talks Rate Hikes, Tax Change Impact on SDIRAs, Ultra-White Paint as Your AC Sep 27, 2021

Show notes

In this Real Estate News Brief for the week ending September 25th, 2021... what the Fed is saying about rate hikes, tax changes that could deflate your self-directed IRA, and ultra-white paint that could replace your AC.

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 meeting on monetary policy. The Fed's senior policymakers are now saying they could raise interest rates sooner than they expected. They had previously anticipated higher rates in 2023, but are now saying they could raise the short-term rate by a quarter point, sometime next year. Higher interest rates will help control inflation which is currently running around 4%, or "double" what the Fed would like to see. (1)

New claims for unemployment benefits jumped to a one-month high of 351,000. The surge is due to a backlog of claims in California. They apparently piled up as California worked on new technology to improve efficiency and prevent fraud. Weekly claims had hit a pandemic low in early September of 312,000. (2)

Housing starts and new permits were both up in August as builders ramped up their residential construction activity. The Census Bureau reports that housing starts were up 3.9% compared to July, and 17.4% compared to August of last year. Permits were up 6% month-over-month, and 13.5% for the year. But this surge in activity was mostly for the construction of multi-families. (3) Realtor.com reports that multi-family demand is being driven by renters and remote workers who are moving back to the cities. (4)

Confidence among builders is also moving higher. NAR says its September confidence index increased one point to 76. That's after a three-month decline. NAR's chief economist Robert Dietz says: "The single-family building market has moved off the unsustainably hot pace of construction of last fall and has reached a still hot but more stable level of activity." (5)

All that construction activity has resulted in an increase in new home sales. The government says new home sales rose 1.5% to an annual rate of 740,000. There's currently a 6.1 months supply of new homes on the market, with a median price of $391,000. (6)

Existing home sales were down in August as buyers scoff at high prices and a lack of affordable inventory. According to the National Association of Realtors, sales were down 2% to a seasonally-adjusted 5.88 million. Compared to August of last year, they were down 1.5%. NAR's chief economist, Lawrence Yun, says: "Although there was a decline in home purchases, potential buyers are out and about searching, but much more measured about their financial limits and simply waiting for more inventory." (7) The good news: inventory is rising. MarketWatch reports that it's up about 16% since a low point last winter.

Mortgage Rates

Mortgage rates are still idling below the 3% level. Freddie Mac says the average 30-year fixed-rate mortgage rose just 2 basis points last week, to 2.88%. The 15-year was up 3 points to 2.15%. (8)

In other news making headlines…

Tax Law Changes Threaten SDIRA Investments

Congress is considering some tax law changes that could ban real estate deals from self-directed IRAs. The proposals are aimed at the super wealthy who realize enormous gains with this kind of investment, but the changes could potentially impact everyone who uses a self-directed IRA for their real estate deals. (9)

Supporters of this legislation say that current rules allow for private-placement deals. SEC rules state that only "accredited investors" can participate in those deals which means those investors must have a net worth of a million dollars or more, or earn more than $200,000 a year. Legislation supporters say that retirement accounts should be used for investments that are available to everyone, like publicly-traded stocks, not just accredited investors.

Bill critics say there are many mom and pop investors who are also trying to increase their wealth with these kinds of deals and the legislation would devastate many retirement portfolios for people who are not super wealthy. Michael Hadley of the firm Davis & Harman told MarketWatch: "These accounts belong to retirement savers. They understand the investments they are most comfortable with. We don't believe the government should be picking and choosing."

If this legislation is approved, self-directed IRA holders would have two years to remove those kinds of investments from their portfolios. If you don't like the sound of this proposal, you should contact your representatives in Congress and let them know.

Could Ultra-White Paint Replace Your AC?

Scientists at Perdue University are working on a way to cool your home with white paint. They say this ultra-white paint can reflect more than 98% of sunlight, and that surfaces coated with this paint are "cooled below the surrounding temperature without consuming power." (10)

Their research shows that the white paint on a 1,000 square foot roof can provide cooling that's equal to the use of 10 kilowatts of power, and that's "more powerful than the air conditioners used by most houses."

The paint has already been listed by Guinness as the whitest paint ever, but it's not yet available to the public.

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/fed-dot-plot-signals-higher-u-s-interest-rates-in-2022-but-powell-warns-its-not-set-in-stone-11632337181?mod=home-page

2 -https://www.marketwatch.com/story/u-s-jobless-claims-jump-to-one-month-high-of-351-000-largely-due-to-big-increase-in-california-11632401406?mod=economic-report

3 -https://www.marketwatch.com/story/new-home-construction-activity-improves-as-builders-focus-on-high-margin-projects-11632229206?mod=economy-politics

4 -https://magazine.realtor/daily-news/2021/09/22/multifamily-construction-booms-single-family-starts-slow

5 -https://www.marketwatch.com/story/home-builder-confidence-improves-as-housing-demand-remains-strong-11632146831?mod=u.s.-economic-calendar

6 -https://www.marketwatch.com/story/new-home-sales-turn-higher-despite-record-prices-11632493064?mod=economy-politics

7 -https://www.marketwatch.com/story/existing-home-sales-decline-as-buyers-hold-out-for-better-prices-more-options-11632320151?mod=economy-politics

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