A Possible Reason Why US Home Prices Have Not Been Heading South
A Possible Reason Why US Home Prices Have Not Been Heading South
One Answer: Individual investors are keeping the housing market right-side up.......so far....
Investors have always played an important role in housing markets. Real estate analyst Keith Jurow has written extensively about the crazy bubble years of 2004-06. Rampant speculation was one of the primary causes of the buying mania and subsequent collapse. A May 2005 Fortune magazine article described how speculators were descending on city after city in search of making a killing in real estate.
The chart below, from a 2011 study put out by the Federal Reserve Bank of New York, shows the percentage of homes purchased with a mortgage by investors in states where the bubble was most excessive. This chart breaks down investor mortgage borrowing by the number of first liens appearing on the credit report of these investors. Notice the substantial number of investors with three or more first liens:
The chart shows that in the bubble states, more than 40% of all new mortgage originations for purchases went to investors/speculators during the wildest years of 2006 and 2007. Another chart in this same study showed that nationwide, roughly 30% of all originations were for investors. If we include all-cash investor purchases, the percentage of homes purchased by speculators was even higher.
When home prices leveled off in the second half of 2006, nervous speculators in the hottest major metros began to sell in large numbers. This precipitated the price collapse which soon followed. By 2009, the foreclosure debacle was in full swing. For the next four years, investors focused on buying inexpensive repossessed properties. Most of these foreclosure sales were all-cash deals.
Contrary to a widely-held assumption, many of these investor-purchased homes were not bought by flippers. They were turned into rental units for a new type of renter — former homeowners whose house had been foreclosed.
The surge in single-family rentals
According to the U.S. Census Bureau, the number of single-family rental units has soared since the housing bust began. The Bureau estimated that about 3.6 million single-family homes for rent have been added, bringing the total number nationwide to more than 15 million. An April 2018 report released by the website rentcafe.com revealed that 22 of the 30 largest U.S. cities had larger percentage gains of single-family rentals than multi-family units over the past decade.
Unlike the speculative housing bubble of 2004-07, the investment surge over the past six years has been largely driven by a purchase-and-rent strategy. This made a lot of sense. Rents have risen steadily as most home prices continued to climb. A report from CoreLogic stated that rents grew nationwide by an average of 3.2% in January 2019 from a year earlier. Another benefit was that the tenant retention rate of 70% was much higher than the 50%-53% retention rate for multi-family apartments, according to a recent Freddie Mac report.
The surge in single-family rental properties has been mirrored by the growth of the nation's largest real-estate investing community, the online resource BiggerPockets. Membership has doubled in the past two years to more than 1.4 million.
For the last two years, BiggerPockets has run a small survey of members. The first survey revealed that 73% had purchased at least one property in 2017. The results of the latest survey showed that last year, the figure had grown to 79%. While the survey response was too small to be considered representative of the entire community, it does indicate that its members are extremely active in single-family investing.
Who are the owners of these 15 million single-family rental units? For several years, media attention focused on large institutional investors who accumulated single-family portfolios. But they have slowed their purchases and now own slightly more than 200,000 homes; their influence in nearly all major U.S. markets is negligible.
Instead, the single-family rental market is dominated by small investors. About 45% of all single-family rentals belong to investors who own only one unit. Almost 90% are owned by investors whose total portfolio consists of fewer than 10 houses.
Evidence of increasing investor activity
Is there credible evidence that investor purchases of single-family homes have increased in recent years? Absolutely. Attom Data has provided previously unpublished data breaking down home purchases by owner-occupants and absentee owners, i.e., investors:
You can see in the table above that the percentage of homes purchased by absentee owners rises consistently from 2016 through the first half of 2019. According to these numbers, more than one-third of all home purchases in 2019 have been made by investors. Yet even with this increase in investor purchasing, the volume of home purchases in most major metros has been declining. That is a major red flag.
Indeed, had it not been for the aggressive buying by investors in the past two-and-a-half years, home prices would have already slumped in these metros. If you do not find this suggestion plausible, remember that it was the pullback by speculators/investors in 2006 and their dumping properties onto the market that started the housing collapse.
The important question going forward is whether purchasing by investors can remain active enough to support current home prices. The volume of home sales over the next three- to six months and the level of home prices in the major metros should tell us where the U.S. housing market is headed.
Author:Jim Sfarnas Phone: 513-657-9272 Dated: August 14th 2019 Views: 178 About Jim: My goal as a Realtor is helping people find their perfect place to call home and helping sell their ...
View our latest blog posts in your RSS reader. Click here to access.
A word from Chris Russell, CEO of Plum Tree Realty:
"One of my greatest passions is to use our real estate business to help alleviate suffering in this world. So we take proceeds from Plum Tree to help orphans, feed the hungry, heal the sick and hurting, and to aid the homeless ... both in the States and abroad. We are not about "getting rich." We are about making a difference. So when you do business with Plum Tree Realty, you can know that a portion of your money is going toward helping those on this planet who are in need of help. Together we can make a difference!"
To help people realize their dreams in home ownership and real estate investing through the highest levels of broker services at the most affordable prices available.
Our Core Values:
Integrity in every relationship, decision, and transaction.
Truth in word and deed.
Hard work that keeps us ahead of the competition.
Sacrifice of our own interests for the gain of our clients.
Commitment to excellence in every task we perform.
Respect for all people.
Giving to those with whom we work.
Areas of Expertise:
Residential Real Estate Sales and Purchase
Commercial Real Estate Sales, Purchase and Leasing
Real Estate Investing (buying, selling, holding, rehabbing)
Property Management and Leasing
Putting it Together
Plum Tree Realty is a premier real estate marketing company focused on helping buyers and sellers get the highest level of real estate services. We help home owners, for instance, who have homes for sale in Mason, Ohio to price their homes in a competitive way since the market is growing in such a fast rate in that area. When a buyer is looking for West Chester, Ohio real estate for sale, we can guide them to the very best deals that are available, and we can give them expert advice as they make such a huge purchase. We cover all of the major real estate markets of the Greater Cincinnati including the following hot markets:
Cincinnati, OH Real Estate (homes for sale)
West Chester, OH Real Estate (homes for sale)
Madeira, OH Real Estate (homes for sale)
Monroe, OH Real Estate (homes for sale)
Indian Hill, OH Real Estate (homes for sale)
Hyde Park, OH Real Estate (homes for sale)
Blue Ash, OH Real Estate (homes for sale)
Lebanon, OH Real Estate (homes for sale)
Loveland, OH Real Estate (homes for sale)
Fairfield, OH Real Estate (homes for sale)
Hamilton, OH Real Estate (homes for sale)
Liberty Township, OH Real Estate (homes for sale)
Kenwood, OH Real Estate (homes for sale)
Mount Adams, OH Real Estate (homes for sale)
While some people search for homes according to the suburb names, others are very interested in the top school districts in the area such as homes for sale in Mason School District, homes for sale in the Lakota School District, homes for sale in the Wyoming school district, homes for sale in the Sycamore school district, homes for sale in the Monroe School District, and more. Our agents are highly-skilled in placing families in the best school districts in Cincinnati according to the desires of each family involved.
Of course, we also have great skill in helping buyers and investors find foreclosures, short sales, bank owned homes, and other great investment properties in the Greater Cincinnati Metro Area as well. Many of our agents are investors themselves, so they are great at helping other investors be the first one to the "golden egg."
We also have agents who specialize in helping families who are relocating to Cincinnati, Mason, West Chester, Blue Ash, Madeira, and any of the other regions in Southwest Ohio. It's great to have "feet on the ground" when you are looking to make such a move.
Plum Tree Realty has also become quite a favorite company for those who like to try to sell their home as a For Sale By Owner in Cincinnati as well. The reason for this is that we offer a $500 flat-fee listing to home owners who would like to sell as a FSBO, but they would also like to have a presence on the Cincinnati MLS search for homes for sale. Most FSBOs miss that exposure, but for just $500, we can help them get listed on the Cincinnati MLS and find buyers at the speed of ... the internet!
While most brokerages feel they have the best agents in Cincinnati, we truly believe that we are at the top. Many larger companies like Sibcy Cline, Remax (RE/MAX), Coldwell Banker West Shell, Comey & Shepherd, and others are at a size that makes it difficult for them to react to the markets and changing times at a great speed. Since Plum Tree is smaller, we are able to respond to market conditions rapidly and efficiently which gives us a disting market advantage. Remember: "It's not the big who eat the small; it's the FAST who eat the SLOW!"
Five Reasons Vero Beach Is Your New Favorite Florida DestinationWhile
"After spending a year with two listing agents and brokerages, I listed my home with limited representation to save the traditional listing commission (2-3%), use those savings to lower my list price and be more competitive in a slow market. If you're thinking of selling your own home and are comfortable with handling most aspects of the sale, you owe it to yourself to contact Chris Russell at Plum Tree Realty. They offer a flat fee MLS listing service, coaching and full service representation. You determine the level of service you need and the price paid. Their service is very professional, they do exactly what they say they will and both buyer and seller benefit from the reduced cost of selling your home."