Archive for the 'Economy' Category
As you have probably heard, China seems to be on the edge of a significant crash. This has prompted questions of how to predict and prepare for the next real estate market crash in the US. We’ve had a couple of suggestions that tracking NODs (Notice of Default – the first step in the foreclosure process) would be a good indication. We have no crystal balls but here are our thoughts.
There is probably no single, reliable technique for predicting the next real estate market crash because each crash has a different cause. More than once we’ve been asked if tracking NODs would be a good predictor of a coming crash. I believe tracking NODs will tell you what has already happened as opposed to what is going to happen.
There are more renters now than in the history of the United States. Unfortunately, we’re also in “the worst rental affordability crisis that this country has ever known,” per the U.S. Secretary of Housing and Urban Development. That’s a bad combination.
Let’s take a look at what happened…
Every time a property is sold, the surrounding economy gets a boost. Local businesses and industries benefit at every stage of the process from the sale to post-sale purchases. These include aspects like home construction costs, real estate brokerage, mortgage lending and title insurance.
Hawaii leads the way with a $177,000 boost to their local economy. The national average is $57,500.
Take a drive through the urban portion of any major city and you will likely see cranes and construction crews dotting the landscape, building what appears to be an endless supply of apartment units. Your eyes are not deceiving you. Construction in 24 of the top 27 apartment markets in the country has eclipsed 24-year historical averages.
Many investors frequently make the often damaging (or fatal) mistake of buying property with little to no consideration of the neighborhood and market the property is in. This can be one of the greatest mistakes an investor can make because if you buy in the wrong neighborhood or market, you’ll be stuck with the problems that come with it because of its location. Your only option may be to sell the property at a loss.
I’m currently reading Dr. Peter Linneman’s “Real Estate Finance and Investments” and it includes some great information on how to predict population growth — the number one indicator of real estate price appreciation and rent growth.
Here are some of my notes:
Over the past decade, almost all of the growth in America’s households has been driven by renters, especially renters of single-family residences (SFRs).
Owning the stereotypical modest home with a white picket fence was long a hallmark of the suburban society that characterized the second half of the twentieth century (at least in the popular imagination). But the foreclosure crisis triggered by the Great Recession made renters out of millions of former homeowners.
Three powerhouse metropolitan areas — New York, Los Angeles, and Houston — together accounted for one of every seven new jobs created in the country over the last three years. These top three markets added 300,000+ new jobs from 2012 through 2014.
A total of 17 metro areas added at least 100,000 new jobs during that three-year period.
The percentage of U.S. households that own a home has dropped significantly since 2008, and experts say this downward trend may well continue for at least several more years.
Over the last ten years the nation has lost 1 million net homeowner households and has gained a whopping 10 million rental households.
The transformation of the American Dream, most broadly manifested in popular folklore as the aspiration of the US middle-class to own a home (even if it means agreeing to a 30-year loan with one’s friendly neighborhood too-big-to-fail bank), into the American Nightmare, in which an entire generation (the Millennials) is locked out of purchasing a home due to over $1 trillion in student loans hanging over every financial decision, an abysmal jobs market (for everyone but college educated “waiters and bartenders” whose hiring is on a tear), and banks’ unwillingness to lend money to anyone that can fog a mirror, and forcing millions of Americans to rent instead of buy, has been duly documented here before.
An unexpected side effect of the mortgage crisis has been the replacement in many neighborhoods of single-family homeowners with renters. An article from the Urban Institute, took a closer look at the 14.2 million single-family rental units in the US and found that renters are living in smaller, older and slightly less suburban homes than homeowners, and are poorer, more racially and ethnically diverse and younger than homeowners.
US home rental prices continued to climb at a modest pace in December, but rapidly escalating costs in cities such as San Francisco and Denver suggest that renters are facing more financial pressure.
Prices rose 3.3% in December compared with 1 year ago, according to real estate data from Zillow.
Although the rise is less than recent appreciation in home values, the surge in rental rates in several of the hottest markets indicates renters who aspire to buy homes face mounting financial challenges.
A recently released study revealed that a whopping $441 Billion was spent on rents in the U.S. in 2014. This represents an increase of over $20 Billion from the year before.
As shown on the chart below, rents have increased consistently over the last 20+ years. However, the recent increases have been astounding.
All good investors are visionaries. That is, before making an investment they make predictions about the future – which may or may not come true.
That said, and working with the humility appropriate for any investor with a healthy appreciation for risk and instinct for survival, here are eight trends we believe will make their mark on rental real estate going into 2015 and beyond.
As we enter the final quarter of 2014, we can look back at almost two years of a real estate turnaround having bottomed around early 2013. Investors were poised to capitalize on one of the best real estate investment opportunities ever seen.
There was significant upward pressure building on single-family home prices created by historically low interest rates, falling unemployment rates, and an improving economy. Those factors have resulted in increased demand for housing from both home-buyers and investors alike, which has pushed housing prices higher in most markets nationwide.