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This new breed of small-scale investors likes to buy and hold properties, as opposed to the high-dollar large investment firms that once dominated the real estate market that flipped properties quickly.
For “mom and pop investors,” the strategy is to buy homes at rock-bottom prices, rent the properties out to cover all of the costs of homeownership for several years, and then one day sell the homes when prices recover.
“An unprecedented number of investors are looking into this,” John Burns, CEO of John Burns Real Estate Consulting, told USA Today. Investors purchased more than 26 percent of single-family and condos in 167 U.S. markets in the first nine months of last year, according to data supplied by Burns.
For investors in the rental market, an 8 percent annual return is fairly normal, according to Burns. “That means that someone who buys a $100,000 property – and pays cash for it – makes $8,000 a year after expenses, including maintenance and taxes,” the USA Today article notes.
Of course, the threats of tenant and maintenance issues always has the potential to derail that potential profit, so investors need to be careful before jumping in, some experts warn.
Source: “Mom and Pop Investors Propping Up Home-Buying Market,” USA Today (Feb. 14, 2012)
Homebuilders – and their investors – see signs of a turnaround
WASHINGTON – Feb. 10, 2012 – Barb Jandric, the head of Minnesota’s biggest real estate broker, hasn’t seen the Minneapolis market boost sales without government aid in six years – until a narrow gain in 2011. Ryland Chief Executive Larry Nicholson hasn’t seen a yearly profit since before the recession, but the home builder expects one this year, buoyed by a 31 percent increase in homes on order at year’s end.
Enthusiasm about a housing rebound may be getting out of hand on Wall Street, where stock prices for home builders have jumped 20 percent to 134 percent since August even though housing starts are expected to rise just 15 percent to 20 percent this year.
But as Federal Reserve Chairman Ben Bernanke prepares for a major speech on housing, talk is turning from when housing will hit bottom to whether it’s time to buy housing stocks and count on the sector to propel the economy again.
The housing market still has big problems, from tight credit for all but government-backed loans to a glut of foreclosures expected to hit the market now that the nation’s biggest mortgage servicers have reached a $25 billion settlement with state attorneys general and the federal government. On the other hand, prices are now below historical norms relative to incomes and rents in most of the nation, inventories of homes for sale are down and sales volumes began to pick up late in the year.
“It’s beating on its own heartbeat now,” said Jandric, president of Edina Realty in Edina, Minn. “Our big campaign for this year is to make sure home sellers understand things are different than a year ago. They don’t know the market has been changing for the last six months.”
The stock market was first to pick up the idea that the housing market is turning. Shares of Hovnanian Enterprises, a Red Bank, N.J.-based builder, have led the charge since summer. The caveat, though, is that the stock market has pushed builders’ stocks higher in the fall and early winter for the last eight years in a row, leading to seven disappointments so far once the spring selling seasons failed to show hoped-for improvement, said Buck Horne, an analyst at Raymond James in St. Petersburg, Fla.
“We still see long-term issues that have to be solved before we get back to what we’ve always thought of as normal levels of housing construction,” Horne said.
This year’s gains will still leave construction at less than half its pre-recession pace, he said.
Better profits are beginning to turn around at big real estate companies. Berkshire Hathaway, which owns Edina Realty, said its Home Services of America unit, which owns 22 regional real estate brokerages around the country, saw revenue rise 12 percent in the third quarter as profit doubled to $22 million. Realogy, the franchiser that owns Coldwell Banker and Century 21, also reported that third-quarter sales rose. Both said sales in the first half of the year were below 2010, and neither has released fourth-quarter results yet.
Even builders, who lost up to 90 percent of their stock market value from 2005 through last year, are feeling better. CEOs such as PulteGroup’s Richard Dugas said they expect to return to profitability this year. Attendance at the National Association of Home Builders’ annual trade show in Orlando, which Bernanke will address today, is up 10 percent this year, NAHB Chief Executive Officer Jerry Howard said.
Still, there are warning flags in both the short and the long term. As many as a fifth of contracts to buy new homes are being canceled, usually because of credit concerns, Pulte disclosed in its year-end earnings report. And prices of existing homes were down 5 percent nationwide in December from a year earlier, Trulia.com chief economist Jed Kolko said.
Builders hope Bernanke comes to Orlando and urges Congress to take more steps to help stem foreclosures and refinance mortgages for owners who are current on their payments but can’t snag today’s lower rates because they have no equity in their homes, and prods banks to loosen credit to both builders and home buyers, Howard said.
One sign that smart investors are not counting on the rally to persist: BlackRock, the $3.5 trillion mutual-fund house, is reducing its positions in home-building stocks to take profits, said Robert Doll Jr., its chief equity strategist.
© Copyright 2012 USA TODAY, a division of Gannett Co. Inc., Tim Mullaney, USA TODAY
In fact, Florida homes today may be undervalued, Tuccillo added. “That may seem like a drastic statement,” he said. “But a buyer who plans to own the home for five to seven years can get some great bargains today.” Mark Vitner, senior economist at Wells Fargo in Charlotte, N.C., said the U.S. economy will continue to face significant challenges, particularly financial concerns related to the European debt crisis. But he expects the U.S. economic recovery will continue next year, making it easier for Midwesterners, for example, to buy Florida homes.
“Florida’s economy is recovering, with tourism and healthcare leading the way,” Vitner said. “International tourism has been particularly strong in Miami and Orlando.”
South Florida’s economy is growing thanks to trade relationships with Latin America and the Caribbean, while in the Panhandle, Fort Walton Beach is outperforming Panama City and Pensacola, according to Vitner.
Dr. Lawrence Yun, chief economist for the National Association of Realtors®, said many Florida markets are showing sharp drops in inventories of homes for sale – a sign that demand is picking up and prices are stabilizing. “That’s a major change from just a year ago,” he said. “Buyers have stepped back into the Florida market.”
Noting the state’s powerful appeal to international buyers, Yun said he was particularly optimistic about the outlook for South Florida. “Don’t be
surprised to see a gain in home prices in the Miami and Naples markets in the next 18 months,” he said. “From there, the recovery is likely to roll northward to Central Florida and then North Florida.”
ORLANDO, Fla. – Dec. 8, 2011 – An improving state economy, population growth and stronger demand are creating opportunities in the state’s residential, commercial and land markets, according to experienced Realtors in Florida.
“To succeed in 2012, you need to think about how trends in the national economy tie into your local market,” said Clark Toole, president and chief operations officer (COO) of Coldwell Banker Residential Real Estate Inc. in Florida. Speaking on the state’s residential market, Toole said, “Florida is such a diverse state, both geographically and culturally, that you really need to do your homework.”
Toole was one of three expert practitioners who spoke at Florida Realtors® 2012 Real Estate and Economic Forecast Conference in Orlando earlier this week.
Toole said that key trends affecting the Florida residential market include strong demand from international buyers, a growing population – 348 people a day net growth in 2010-11 – and an upswing in employment.
Reviewing Florida’s housing market, Toole said that inventories of for-sale homes have fallen to 7.4 months on a statewide average, and just 5.4 months for listings priced under $250,000. He added that lender-owned properties (REOs or “real estate owned”) now constitute about 6 percent of inventory, but 40 percent of sales. Short sales, where the market value of the home is below the mortgage loan value, make up about 31 percent of current inventory and 18 percent of sales.
Toole added that property management and leasing will be an increasingly important segment of the market in 2012, reaching $11 billion or more, due to the large numbers of investor buyers and “dark” multifamily buildings with few owners.
ORLANDO, Fla. – Nov. 21, 2011 – Florida’s existing home and existing condo sales continued to show gains in October, according to the latest housing data released by Florida Realtors®. Existing home sales increased 13 percent last month with a total of 13,755 homes sold statewide compared to 12,145 homes sold in October 2010, according to Florida Realtors.
“Statewide, both sales and prices are above where they were this time last year,” noted Florida Realtors Chief Economist Dr. John Tuccillo. “The monthly median prices have ticked down slightly for the past few months, but the overall trend continues to show gains year-over-year.
“These numbers, combined with reports from Realtors throughout the state, indicate that we’re seeing strong interest in purchasing Florida real estate from smart investors who are taking advantage of the current favorable market conditions,” Tuccillo said. “These folks tend to have a long-term outlook and plan to hold onto their property purchases for a while.”
“This is a positive trend for Florida,” says John Tuccillo, Florida Realtors chief economist. “While Trulia and Realtor.comaren’t completely accurate in home prices and sales – mainly because they base
their numbers on only homes listed on their website – it’s useful to look at
isitor behavior and note the trends. If Trulia says more visitors are doing ahome search in the Miami market, for example, it probably follows that Miami isexperiencing an upswing in demand.”
Realtor.com’s Top Ten Turnaround Report
In Realtor.com’s “Top Ten Turnaround Report,” six Florida cities were considered good bets for an upswing in sales. Realtor.com, which is owned by The National Association of Realtors®, says it created a formula to rank a city’s turnaround potential based on recent pricea appreciation, changes in inventory, median age of inventory, number of Realtor.com searches by visitors and area unemployment.
Realtor.com attributes the Florida cities’ success to year-over-year home price increases, reductions in inventory, lower unemployment rates and, in some cases, an upswing in international buyers.
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