Radar Logic: Best Markets for Single-Family Rental Investors

As the rise in single-family rents slows and operating costs increase, Radar Logic stressed the need for institutional investors to focus on properties sold at steep discounts in order to yield a profit from rentals.

In a recent research report, Radar Logic noted data fromTrulia shows single-family rentals rose by just 0.1 year-over-year in March, while the National Association of Home Builders found builders are feeling the impact of rising costs, which suggests the cost for refurbishing and maintaining rental properties is also going up.

While institutional investors tend to pay less for single-family homes compared to individual homebuyers since they buy in bulk, the discounts offered for properties vary widely, depending on the market, Radar Logic explained.

In order to pinpoint markets where investors are bringing in the biggest discounts, Radar Logic tracked prices paid by large-scale investors in some 300 metro areas. The research firm then compared the median price per square foot paid by investors to all housing transactions. The analysis was limited to markets where investors have purchased at least 1,000 properties during a one-year period ending in January 2013.

Furthermore, RadarLogic says the ability to make a profit ultimately depends on appreciation in property values. Thus, the markets recommended for institutional investors are areas the firm believes are more likely to benefit from home price appreciation.

Concerning its list, however, the firm warned discounts vary within metro areas, depending on neighborhoods, and discounts also need to be weighed in with renovation costs when deciding where to invest.

Top metro areas for institutional investors

1. Pittsburgh, Pennsylvania (-64%)
2. Cleveland, Ohio (-55%)
3. Detroit, Michigan (-54%)
4. St. Louis, Missouri (-50%)
5. Cincinnati-Middletown, Ohio-Kentucky-Indiana (-49%)
6. Baltimore-Towson, Maryland (-46%)
7. Richmond, Virginia (-42%)
8. San Francisco (-38%)
9. Virginia Beach-Norfolk-Newport News, Virginia-North Carolina (-36%)
10. Cape Coral-Fort Myers, Florida (-34%)

Fitch: Recent Price Gains May Not Be Here to Stay

While some might be rejoicing at the recent rising home prices and rising home sales seen across the nation, Fitch Ratings “still views these gains cautiously.” In fact, the agency predicts price gains will slow and perhaps even reverse over the next year.

Fitch expects a price “trough in the middle of 2014” but suggests inflation will keep prices from falling more than 3.5 percent.

“While rising prices and sales volumes suggest a recovery, they are not moving in sync with key economic indicators that would otherwise support a sustainable price level,” Fitch stated in its most recent quarterly report.

Fitch points to unemployment as one of these “key economic indicators.” Unemployment has declined from its high of 9.9 percent in 2010 to 7.7 percent.

However, the bulk of this decline is the result of fallout in labor force participation, not an improving employment situation, according to Fitch.

With a true picture of national unemployment in hand and an undeniable trend of rising home prices across the nation, analysts must look elsewhere for the cause of the upward price trend.

Fitch chalks it up to pent-up demand. Persistent low interest rates, little new construction, and formerly-reluctant buyers are bringing action to the market, but Fitch warns this burst in demand will not last.

The agency maintains real prices are currently overvalued by 10 percent.

Nationally, prices are about 4 percent above their fourth-quarter 2011 trough, and a majority of the top metropolitan statistical areas (MSAs) have experienced rising prices over the past year—19 of the top 25, according to Fitch.

However, 264 of the 379 MSAs Fitch observes are within 2 percent of their troughs.

Some regions are experiencing more price movement than others, and some of the cities hardest hit by the housing crisis are now experiencing the greatest price increases. For example, Miami, Phoenix, and Detroit have all experienced price gains of more than 10 percent from their troughs during the housing crisis.

Other hard-hit cities experiencing notable rises in prices include Las Vegas, where prices are up 6 percent from their trough; Stockton, California, also up 6 percent from its trough; Atlanta, where prices are up 9 percent from their trough; and Minneapolis, where prices have risen 7 percent from their trough.

Gallup Poll: 81% of Americans Either Own or Plan to Within 10 Years

The American Dream is still alive, and a recent survey from Gallup provided data to support this conclusion.

In the survey of over 2,000 Americans, 62 percent say they own their primary residence, while 34 percent are renting; the remainder have other arrangements.

More than half of Americans (56 percent) own and plan to continue owning, while 25 percent say they don’t own but plan to in the next 10 years, which means 81 percent of Americans either own or have the intention to.

Just 3 percent of owners plan on selling their home and renting it in the next 10 years, and 11 percent of non-homeowners have no intentions of owning in the foreseeable future.

While the younger population of adults (18-29) were much less likely to own, with just 21 percent currently owning, they’re also the age group that is much more likely to buy in the future.

According to the survey, nearly 7 in 10 Americans aged 18-29 do not own, but plan to become a homeowner within 10 years.

On the other hand, 71 percent of Americans aged 50 to 64 own, but only 5 percent say they plan to buy in the next 10 years.

For adults aged 30 to 49, the majority (58 percent) own, while 29 percent don’t but plan to buy within 10 years.

The survey also found a strong relationship between income and homeownership.

Three-quarters of Americans who earn at least $75,000 a year own their residence and plan to continue owning. For the income bracket below this category ($50,000-$74,999), 65 percent are homeowners and plan to continue owning. Nearly half (49 percent) of Americans who earn $30,000-$49,999 are homeowners and plan to remain as owners.

For those who earn less than $20,000 a year, just 21 percent are owners and plan to continue as owners. However, Americans in this income bracket were also the most hopeful, with 40 percent stating they are non-homeowners but plan to buy in the next 10 years, the highest among any other income category. More than a third (35-36 percent) of those who earn at least $20,000 a year but less than $50,000 aren’t homeowners but plan to own within 10 years.

The research company, however, noted that the current share of overall homeownership (62 percent) found is actually the lowest since the question was first posed in 2001. This fact may be reflected in the greater desire to buy.

OCC Announces Send Off for 2nd Batch of Foreclosure Review Checks

The Office of the Comptroller of the Currency (OCC) announced the second wave of payments resulting from the foreclosure settlement with federal regulators and 13 servicers was sent Friday.

The most recent batch of relief payments includes 1.4 million checks totaling $1.2 billion. So far, 2.8 million checks amounting to $2.4 billion have been sent.

The OCC also stated that as of April 18, 434,484 checks valuing $419 million have been cashed or deposited.

In January of this year, 13 servicers agreed to provide $3.6 billion in cash payments to borrowers and another $5.7 billion in mortgage assistance. The agreement replaces the Independent foreclosure Review, which was required after 14 servicers were handed consent orders for deficient servicing and foreclosure practices.

Borrowers who do have questions regarding payments should contact Rust Consulting, the paying agent, at 1-888-952-9105. The Fed revealed some early recipients had issues with cashing checks from the first batch sent April 12, but the Fed stated the problems had been corrected.

About 4.2 million borrowers should expect to receive a check, and 90 percent of the payments are scheduled for delivery by the end of this month.

Hearing Acknowledges FHFA’s Progress, Points to Shortcomings

As the GSEs approach their fifth year in government conservatorship, Congress held a hearing Thursday to evaluate the Federal Housing Finance Agency’s role as regulator and conservator.

Acting Director Edward DeMarco offered testimonydetailing the agency’s achievements, and Steve A. Linick, inspector general at the FHFA Office of the Inspector General, highlighted some areas in need of improvement at FHFA.

DeMarco outlined three phases of conservatorship. The first consisted of stabilizing the GSEs to support the mortgage market during the crisis. “This phase has been successful,” DeMarco said.

The second phase was focused on foreclosure prevention, which continues to be a focus at Fannie Mae and Freddie Mac.

The third phase, which the agency is now entering, consists of three main goals to reduce the government’s role in the mortgage market and set up a viable secondary market for the future.

This phase is outlined in DeMarco’s 2012 Strategic Plan for the Operation of the Enterprise Conservatorships.

DeMarco also touched on FHFA’s recently announcedStreamlined Modification Initiative, which allows seriously delinquent borrowers to obtain loan modifications without full documentation.

“All borrowers have to do to take advantage of the modification offer is make three on-time trial payments, after which their loan will be permanently modified,” DeMarco said.

Linick praised the FHFA as it has “accepted and begun to implement the vast majority of our audit and evaluation recommendations.”

However, Linick also addressed areas that could use improvement.

In particular, he suggested “FHFA needs to be more involved in enterprise decision-making,” adding that in some instances FHFA has “displayed undue deference to Enterprise decision-making.”

He also pointed to shortcomings in FHFA’s identification of potential risks at the GSEs and its management of those risks.

Another area of concern for Linick is the shortage of examiners at FHFA.

However, among all his concerns, Linick stated, “There’s no doubt uncertainty is the single-most important challenge.” The uncertainty surrounding the GSEs and the future of the secondary mortgage market provides intense challenges for the GSEs, its conservators, and the broader market, according to Linick.

Investors, Inventory Shortage Catalysts to Housing Rebound: Report

Demand for distressed properties from investors is contributing to the recovery, not creating an artificial one, according to Pro Teck Valuation Services’ Home Value Forecast (HVF) for April.

According to the report, one of the catalysts driving the housing market rebound has been large investment funds, which are buying distressed single-family homes to be used as rentals.

“These funds have also been renovating homes, which has helped to improve the overall conditions of the surrounding neighborhoods and provided a positive injection of capital,” said Tom O’Grady, CEO of Pro Teck.

Furthermore, the reduction in the supply of homes available for sale is also fueling positive home price reports. A year ago, Pro Teck boldly projected “the market was likely to turn much faster than anyone could imagine.”

“[N]ot only been realized, but also exceeded,” Pro Teck stated.

The real estate valuations company came to the conclusion after noting the number of new homes being built remained at historically low rates for more than five years, which would eventually lead to a shortage once demand returned. In addition, the declines in home values prevented many homeowners from selling, further reducing supply.

After observing a number of real estate cycles, Pro Teck also said that while each one may appear to be different, they all have one thing in common: a catalyst to propel movement.

“Once the cycle starts, a virtuous process of higher sales leads to higher prices which leads to more buyers coming into the market out of fear that they will miss out. At the same time, higher sales typically leads to a shortage of inventory available for sale except in those markets where new homes can easily be built,” Pro Teck explained.

However, the current real estate market also has two unique traits—very low mortgage rates and historically high levels of home affordability, according to the report.

The forecast report included a listing of the 10 best and 10 worst performing metros out of the top 200.

The ranking considers factors such as sales/listing activity and prices, months of remaining inventory (MRI), days on market (DOM), sold-to-list price ratio and foreclosure andREO activity.

Michael Sklarz, principal of Collateral Analytics and contributor to the HVF, noted five of the top markets are in California, while two are in Texas.

Meanwhile, Sklarz said the bottom metros are an “interesting mix, with two continuing to be in the upstate New York area and three in the Southeast.”

“All have double-digit Months of Remaining Inventory, however, many of the indicators are showing positive trends even for the bottom metros area this month,” he added.

Top Metros

  1. Santa Ana-Anaheim-Irvine, California
  2. Indianapolis-Carmel, Indiana
  3. Oakland-Fremont-Hayward, California
  4. Sacramento-Arden-Arcade-Rossville, California
  5. Los Angeles-Long Beach-Glendale, California
  6. Fort Lauderdale-Pompano Beach-Deerfield Beach, Florida
  7. Stockton, California
  8. Warren-Troy-Farmington Hill, Michigan
  9. Dallas-Plano-Irving, Texas
  10. Austin-Red Rock-San Marcos, Texas

Bottom Metros

  1. Cape Coral-Fort Myers, Florida
  2. Rochester, New York
  3. Baton Rouge, Louisiana
  4. Albany-Schnectady-Troy, New York
  5. Greenville-Maudlin-Easley, South Carolina
  6. Tampa-St. Petersburg-Clearwater, Florida
  7. Mobile, Alabama
  8. Little Rock-North Little Rock-Conway, Arkansas
  9. Shreveport-Bossier City, Louisiana
  10. Spokane, Washington

Survey Reveals Top Regrets Among Buyers, Renters

Slightly more than half of Americans harbor at least one regret about their current home, according to Trulia’s Real Estate Regrets survey. In today’s seller’s market,Trulia says buyers are especially vulnerable to making decisions they may regret in the future.

“Faced with limited inventory, many buyers will feel pressure to act fast—but snap decisions often end in regrets,” said Jed Kolko, chief economist at Trulia.

One of the common missteps of new homeowners, according to Kolko, is buying before reaching financial stability. “Many buyers would have fewer regrets if they waited until they were in strong enough financial shape to afford a house that really meets their needs,” he said.

The top regret listed among homeowners is not choosing a larger home. Thirty-four percent of homeowners cited this regret in Trulia’s survey.

The second most common regret among homeowners is not remodeling more when they purchased their current homes.

Among renters, the top regret—listed by 42 percent of respondents—is the decision to rent rather than purchase their current homes.

Overall, renters are more likely to harbor regrets of any kind toward their current living situation than are homebuyers. Fifty-six percent of renters shared regrets, while 50 percent of homeowners admitted to regrets about their current homes.

Trulia also found older homeowners are less likely to regret their home choices. About 75 percent of homeowners ages 18 to 34 have regrets about their homes, while 36 percent of homeowners at least 55 years of age have regrets about their homes.

Homeowner regret has declined in recent years compared to about a decade ago. Those who purchased homes between 2003 and 2009 have a 63 percent regret rate, while those who have purchased homes since 2010 have a 55 percent regret rate.

With three-fourths of Americans believing now is a better time to buy a home than next year and less than one-third of Americans believing now is a better time to sell a home than next year, the current market is set for a disconnect, which may lead to more buyer regret, according to Trulia.

Foreclosures are no longer flooding the market. New construction is still meager, and hopeful sellers are willing to wait for favorable prices.

“This year’s housing season will likely cause aggressive buyers to scramble in order to try to win bidding wars and overcome stiff competition—putting them at risk of making real estate mistakes they will regret,” Trulia stated.