The FortuneBuilders Market Insider Monthly Newsletter March 2015
This month, fast-rising rents are presenting a challenge to aspiring homeowners, and aren t likely to go away very soon. Even though it s winter, there are some markets that you can concentrate on. Investors are still showing preference to flipping despite the increasing demand for rentals. Also, the Zillow-Trulia merger could cause some listing data to disappear from their sites. All this and more in this month s Market Insider! Rental Affordability Presents Challenge to Homebuyers Americans are struggling to save up for a first home down payment, and fast-rising rents are only contributing to the growing problem. A recent report by Zillow showed that renters living in the United States paid a cumulative $441 billion in rent throughout 2014, which is nearly a 5 percent increase from 2013. A more recent survey conducted by Zillow and Pulsenomics suggests that the rent price problem will not being going away anytime soon. 51 percent of experts said they expect rental affordability won t improve for at least another two years, Zillow reported Friday. Another 33 percent were a little more optimistic, calling for a deceleration in rental price increases sometime in the next one to two years. Only five percent said they expect affordability conditions to improve for renters within the next year. The survey also asked respondents about last month s reduction in annual mortgage insurance premiums for loans backed by the Federal Housing Administration (FHA). The Obama administration has projected that the cuts will help as many as 250,000 new homeowners make their first purchase. The panelists were unenthusiastic about the change: While two-thirds of those with an opinion said they think the changes could be somewhat effective in making homeownership more accessible and affordable, just less than half said the new initiatives are unwise and potentially risky to taxpayers. What This Means For You I do believe over the next year rents will continue to increase as new commercial apartments are being built. Once those are completed there will be a slight saturation of apartments leveling off rent rates. Coupled with the reduction in PMI this is excellent for the median price point renovation qualifying more buyers. -Professor Moore Barringer, Tony, DS News, Increasing Rent Costs Present a Challenge to Aspiring Homeowners 13, February 2015, 23, February 2015 2
Warmer Markets With Hotter Buying Activity In the northeast where states are being pummeled with storm after storm, home buying isn t necessarily booming. There are markets out there that will emerge from the typical winter hibernation, however. Realtor.com and their economic team found that the top searched markets were Orlando, Miami, and Tampa in Florida and Raleigh, North Carolina. With Spring (hopefully) on its way, these same places have also proven that they stay busy earlier than others. Realtor.com ranked cities that are prone to early springtime booms. On top of what they called the Hotness Index is Miami, Las Vegas, Phoenix, Raleigh, and San Diego. The correlation between warmer metropolitan areas and more January searches makes sense, as it s easier to get out and go house hunting in these cities, said Jonathan Smoke, Realtor.com chief economist. In these markets, looking for a home in November or January makes as much sense as August. Fortunately, there are some cities that stay hot in colder climates. Chicago is one of these cities, where many real estate agents believe that the spring buying season begins in February. So while March is the hottest month in real estate buying, don t give up on the winter months too soon. Investors Continue to Prefer Flipping Over Renting With the growing demand for rentals in the marketplace, a nationwide survey conducted by Auction. com showed that investors still prefer to flip houses rather than rent them out in the fourth quarter of 2014. About 50.2 percent of investors surveyed in January said they preferred to flip the homes they purchased, while 47.5 percent said they prefer a hold-to-rent strategy (2.2 percent surveyed said they were undecided). Why the preference? A recent combination of price appreciation and decreased inventory seems to be giving investors a very good reason to flip, according to Auciton.com. Considering recent reports that have suggested a shortage of rental units in some metropolitan areas, we d expect to see more investors starting to move toward a buyand-hold strategy to address this market opportunity, Auction.com EVP Rick Sharga said. We know anecdotally that some flippers purchase homes specifically to sell them to other investors who repurpose the properties as rental units. But, it will be interesting to see if more investors move away from flipping and towards rental strategies over the next few months if demand for rental housing continues to rise. What This Means For You There s a large opportunity to look at multiple exit strategies with your acquisition. You may be able to buy and hold, do a full rehab and sell to a retail client, and now do a light rehab and sell to a buy and hold landlord investor. It s the perfect storm to be a selling investor and your only task is to determine the risk/reward/time involved of each scenario prior to marching forward. -Professor Moore Wedgeworth, Cecily, Realtor.com, What Do Winter Buyers Seek? Our Hotness Index Knows. 19 February, 2015. 24, February 2015 Honea, Brian, DS News, Survey: Investors Prefer Flipping Over Renting. 12, February 2015. 24, February 2015 3
Freddie to Auction Off Second Round of Delinquent Mortgage Loans The steady decline in foreclosures has continued in December, according to CoreLogic s December 2014 National Foreclosure Report. Total Homes Lost to Foreclosure Completed foreclosures, which are a true indicator of the total number of homes lost to foreclosure, totaled 39,000 in December, which was a 4.9 percent drop from November (41,000) and a 13.7 percent decline from the previous December (45,000). Nationwide foreclosure inventory dropped to hys December 2013. This 34.2 percent drop leave the nation with the lowest foreclosure rate since March of 2008. The steady decline in the number of foreclosures is a good sign of healing in the U.S. housing market, said Anand Nallathambi, president and CEO of CoreLogic. Nonetheless, there remain many pockets of the country with very high foreclosure inventories, underscoring the unevenness of the nation s housing recovery. Job Growth Doesn t Always Mean Higher Homeownership A recent Freddie Mac student is stirring up some questions as to whether or not expert anticipation for homeownership growth is valid. The study shows that the job fields expected to grow the most in the coming years also come with some of the lowest homeownership rates. What we find is that many of America s fastest growing careers (in terms of numbers of workers) have average or below average homeownership rates, said Freddie Mac s deputy chief economist, Len Kiefer. At the same time, the professions with higher homeownership rates are generally headed for average or subpar growth. Among the top occupations for job openings are retail and food preparation, which have homeownership rates of 55.6 percent and 27.2 percent, respectively. On the other hand, jobs in professions with higher homeownership rates (70 percent or more) are generally likely to see growth of 10 percent or less. That category includes engineers, lawyers, doctors, and computer and math professionals. On the bright side, there are a few exceptions. Registered nurses, general and operations managers, accountants, first-line supervisors, and elementary school teachers (excluding special education) all have homeownership rates topping 70 percent, and all are expected to grow rapidly. Honea, Brian, DS News, Foreclosures Continue Steady Nationwide Decline in December. 10, February 2015. 23, February 2015 Barringer, Tony, DS News, Analysts Forecasts Low Homeownership Rates Among Job Fields With Most Growth 18, February 2015. 24, February 2015 4
Zillow Group Begins Legal Battle Over ListHub Listings Not too long after the Zillow-Trulia stock-for-stock transaction closed, ListHub announced that it is immediately terminating its listing agreement with Trulia. This termination would mean that any ListHub-provided listings on Tulia.com would disappear at the end of February. The newly formed Zillow Group and CEO Spencer Rascoff are preparing for a fight. According to Trulia s new president, Paul Levine, Zillow Group is taking the necessary steps to obtain a temporary restraining order to ensure News Corp honors their contract with Trulia. The original agreement between Trulia and ListHub ends in June 2016. In a statement to HousingWire, ListHub s general manager, Celeste Starchild, said that the cancellation is a direct result of Zillow s $2.5 billion acquisition of Trulia. While the Trulia side is fighting to keep the listings, the Zillow side seems to be sending mixed signals. ListHub s long-standing syndication relationship with Zillow will expire in the beginning of April and Zillow has chosen not to renew its contract, meaning they will stop receiving feeds of hundreds of thousands of listings from ListHub. The situation caused a bit of a stir as the irony unfolded. Who is ListHub? ListHub is owned by Move, which is owned by NewsCorp and operates Realtor.com for the National Association of Realtors What a difference two days make! On Wednesday, Spencer Rascoff was celebrating the liberating moment when we announced we were parting ways with News Corp, and how they were really freed from the constraint of being reliant on a competitor for listings, listings he (inaccurately) described as inferior, Move said in a statement. Today, they say that the sudden loss of those listings is an incredible hardship for agents and consumers, Move continued. Zillow plans to transition to its own listing syndication tool where it will receive more listings directly from MLSs and brokers through its new service, Data Dashboard. What This Means For You There s a large opportunity to look at multiple exit strategies with your acquisition. You may be able to buy and hold, do a full rehab and sell to a retail client, and now do a light rehab and sell to a buy and hold landlord investor. It s the perfect storm to be a selling investor and your only task is to determine the risk/reward/time involved of each scenario prior to marching forward. -Professor Moore Lane, Ben, Housingwire, Zillow Group Launches Legal Fight To Keep ListHub Listings on Trulia. 20, February 2015. 23, February 2015 5
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