Category Archives: Real estate market
Investors believe United States office market is best bet
Real estate investors believe the office market is a smart investment play, as they project high tenant retention and rent growth in 2012, according to a fourth-quarter survey of investors released today
by PricewaterhouseCoopers.
Investors like the capitalization rates offered by office properties, as they remain “favorably priced” in many markets, according to Mitch Roschelle, a partner of PwC’s U.S. real estate advisory practice. “The bullishness on the part of investors in the office sector comes as more office tenants are staying put and prospects for rent growth are improving,” he said.
Tenants tend not to move during periods of rent increases, the report notes, making office properties stable assets. Rent growth is projected to be most significant in cities with strong technology and energy sectors such as New York, San Francisco and the Pacific Northwest. At the same time, investors have turned bearish on government-dependent Washington, D.C., as the public sector is expected to shrink.
As cap rates begin to decrease, which they are expected to do in 22 of the 31 surveyed markets, investors will begin turning to secondary office markets to increase yields, the survey predicts.
Additionally, the surveyed investors expressed a belief that apartment development would boom in 2012, as vacancy rates and homeownership rates decrease and rents skyrocket. Financing for construction in the extremely hot rental sector is becoming easier to secure, according to Susan Smith, editor-in-chief of the survey. – Adam Fusfeld
South Florida residential inventory
Compiled by Condo Vultures Realty using the South Florida Shared Multiple Listing Service. Active listings are properties where no current sale contract exists; pending sales are properties in which a contract for sale has been executed, but not yet closed. Listing brokers control the status of a property listing. –Alexander Britell
Fed: House Flipping Led to Deeper Housing Collapse
There’s been much debate over the root causes of the housing meltdown that catapulted the nation into the worst financial crisis in 80 years – from lax lending and subprime loans to over-leveraging in the secondary market.
A new report from researchers at the Federal Reserve Bank of New York focuses on the sharp run-up and subsequent collapse in housing prices during the 2000s.
It concludes that real estate investors who used mortgage credit to purchase multiple residential properties with the intent of flipping, or reselling them within a short period of time, played a larger role in fueling the housing bubble than previously recognized.
These investors, the Fed researchers say, helped push prices up during 2004-2006, but when prices began to head south, they defaulted in large numbers, which served to intensify the housing cycle’s downward leg.
Fed officials point out in their report that investors are more likely than owner-occupants to walk away from an underwater property. As such, lenders typically factor in that higher default risk by requiring larger down payments from buyers who acknowledge that they won’t be living in the house.
The expansion of the nonprime mortgage market during the 2000s, however, provided the perfect opportunity for optimistic investors to get low-down-payment credit, according to the report. “Buy-and-flip” investors, in particular, were able to make higher bids on houses, even if they had relatively little cash.
At the peak of the boom in 2006, the New York Fed’s researchers found that over a third of all U.S. home purchase lending was made to people who already owned at least one house.
In the four states with the most pronounced boom-and-bust cycles – Arizona, California, Florida, and Nevada – the investor share was as high as 45 percent.
Overall, the investor share of mortgage-financed home purchases roughly doubled between 2000 and 2006, with the largest increases seen among those owning three or more properties, according to Fed data.
In 2006, Arizona, California, Florida, and Nevada investors owning three or more properties were responsible for nearly 20 percent of originations, almost triple their share in 2000, Fed officials report.
“Longstanding tradition in the mortgage lending business and the predictions of economic models hold that investors will quickly default if prices begin a persistent fall. This is what happened starting in 2006,” according to the Fed researchers.
From 2007 to 2009, they found that investors were responsible for more than a quarter of seriously delinquent mortgage balances nationwide, and more than a third in Arizona, California, Florida, and Nevada.
“We conclude that investors were much more important in the housing boom and bust during the 2000s than previously thought,” the researchers wrote in a blog post explaining their findings.
They stress that the availability of low- and no-down-payment mortgages in the nonprime sector enabled investors to make highly leveraged bets on house prices, which likely allowed the bubble to inflate further and caused millions of owner-occupants to pay more for their homes.
“In the end, even the value of the 20 percent down-payments made by responsible, prime borrowers was wiped out — leaving the housing market, and the economy, in the vulnerable state we find them in today,” according to the researchers at the New York Federal Reserve.
House Prices Are Finally Nearing A Bottom – But Don’t Look For A Rapid Recovery
Since the beginning of the house-price crash in 2007, analyst after analyst has predicted that “the bottom” in house prices is just around the corner – only to be wrong every time.
But now, finally, it looks as though house prices may actually be nearing a bottom.
Why?
Because, after falling nearly 35% from their 2007 peak, nationwide house prices are finally approaching “normal” levels on two key valuation measures: The “price-to-rent ratio,” which measures house prices relative to what the houses might rent for, and the “price-to-income ratio,” which measures house prices relative to average incomes.
Using the first ratio, economists at Goldman Sachs have concluded that national house prices will decline another 2.5% in 2012 and then bottom over the course of the following year.
(To see a recent chart of the national price-to-rent and other ratios, please click here.)
House prices differ markedly depending on where you live, of course, and Goldman’s analysts have considerably different predictions for different markets. Prices in New York, Portland and Atlanta, Goldman predicts, will still see significant declines. While prices in Detroit, Miami and Cleveland should rise.
Importantly, after a price bubble similar to the one the U.S. just experienced, prices often don’t stop at “average” levels on the way down. On the contrary, they often plunge straight through “fair value” and spend years below average levels. And that certainly could happen to house prices this time around.
But Goldman’s economists believe house prices will level out in a year or two. And unlike other analysts who have made similar predictions in prior years, Goldman’s economists actually have data on their side: The price-to-rent ratio really has fallen to normal levels.
Of course, even if house prices do bottom in 2013, that doesn’t mean that they’ll quickly shoot up again – or that housing will once again be the “great investment” that everyone thought it was back in the boom years.
One of the reasons house prices are expected to bottom soon is that houses are currently more affordable than they have been in the past. But housing “affordability” is judged, in large part, on mortgage rates, and mortgage rates are currently near an all-time low. If and when the economy begins to recover in earnest, mortgage rates will likely rise, and, as they do, houses will become less affordable.
So it is likely that, even after they bottom, U.S. house prices will face headwinds for a long time.
