Owning cheaper than renting in 76% of U.S. metros

IRVINE, Calif. – April 9, 2015 – RealtyTrac released its Residential Rental Property Analysis the first quarter of 2015 and found that the monthly house payment (median-priced three-bedroom home) is more affordable than the monthly fair market in 76 percent of U.S. counties included in the analysis.

The report also ranked the markets with the best – and worst – potential returns on residential rental properties from a real estate investor perspective, along with the most affordable – and least affordable – markets for renting from a renter perspective.

The analysis included 461 U.S. counties with a population of at least 100,000 and sufficient home price, income and rental data.

On average, fair market rents (set by the U.S. Department of Housing and Urban Development) were 28 percent of estimated median household income; monthly house payments on a median-priced home (10 percent downpayment with property taxes, home insurance and mortgage insurance included) were 24 percent of the estimated median income.

"From a purely affordability standpoint, renters who have saved enough to make a 10 percent downpayment are better off buying in the majority of markets across the country," says Daren Blomquist, vice president at RealtyTrac.

However, Blomquist says "factors other than affordability are keeping many renters from becoming buyers – a reality that means real estate investors buying residential properties as rentals still have the opportunity to make strong returns in many markets across the country." He also notes that the data RealtyTrac analyzed are not the only variables in a buy-versus-rent decision.

Florida

Only two metro areas and cities in Florida ranked in any of RealtyTrac's top 10 or bottom 10 lists for renting or investing. Miami-Dade (including Fort Lauderdale and Pompano Beach) ranked No. 4 nationwide in the "least affordable rental markets" list. The analysis finds it takes 45 percent of an owner's median income to rent, while it takes only 34 percent of median income to buy a home.

For real estate investors, only Pasco County made the top 10 list for annual investment return. According to RealtyTrac, the annual gross rental yield for a cash buyer in February 2015 at 19.20 percent compared to the nation's top investment city, Baltimore, Maryland, which saw 24.82 percent returns.

Nation

Among the 56 counties with most favorable conditions for buying, the most affordable for buying was Bay County, Michigan in the Bay City metro area, where it takes only 11 percent of the area's median income to make house payments on a median priced-home.

The top U.S. market for renting is Delaware County, Ohio, in the Columbus metro area, where it takes only 14 percent of the area's median income.

While the Miami-Dade area ranked fourth for high market rents, Bronx County, New York, led the list. In the Bronx, a median-income home pays 69 percent monthly in rent. However, the cost of ownership is so high that renting remains the preferred option there.

Investment returns

The average potential annual gross rental yield for homes purchased in February 2015 was 9.34 percent for all metro areas, calculated by annualizing the rental income and dividing that amount into the purchase price of the property.

Markets with the highest potential annual gross rental yields for homes purchased in February 2015 were:

Baltimore City, Maryland (24.82 percent),

Clayton County, Georgia (24.26 percent),

Wayne County, Michigan (21.08 percent)

Pasco County, Florida (19.20 percent)

Trumbull County, Ohio (18.36 percent)

Markets with lowest returns on residential rental properties:

New York County/Manhattan, New York (2.34 percent)

San Francisco County, California (3.20 percent)

Kings County/Brooklyn, New York (3.63 percent)

Marin County, California (3.84 percent)

Williamson County, Tennessee (3.89 percent)

Investment markets with rising rental returns

Douglas County, Oregon (potential returns up 119 basis points from a year ago)

 Linn County, Iowa (109 basis point increase)

Henderson County, North Carolina (109 basis point increase)

Kendall County, Illinois (89 basis point increase)

Sussex County, Delaware (80 basis point increase).

Cook County, Illinois (43 basis points increase)

King County, Washington (12 basis point increase)

Long Island, New York (49 basis point increase)

Nassau, New York (24 basis point increase)

Wake County, North Carolina (30 basis point increase)

Source: 2015 Florida Realtors®  

Tips for increasing a home’s property value

SAN FRANCISCO – April 2, 2015 – With the spring selling season in full swing, now is the time for clients to improve their home and make it more appealing to potential buyers, even if they don't plan to put it on the market right away.

Where to start? Peter Chovanes, a Realtor® with Van Guard Properties in San Francisco, advises clients to start with the four home improvement basics: foundation, roof, plumbing and electrical.

Of these, the roof is most important.

"I am almost always asked 'How old is the roof?'" he says. "And keeping the roof in good shape alleviates other problems. For example, water can run laterally, and once a leak starts it can follow plumbing and even electrical conduits. So what you think is a plumbing leak might really be a hole in the roof."

Fix-up steps with an eye toward selling one day

Repair: First take a good look at the state of the home, inside and out. Fix the obvious areas that need maintenance.

De-clutter: Find ways to store odds-and-ends in containers and cabinets, or donate belongings to charity. 

Lighten up: Brighter, light-filled rooms are more appealing and make a house feel more spacious. Consider replacing heavy drapes with shutters, shades or blinds.

Add eco value: Replace old windows with energy-efficient versions to reduce home energy costs and add value.

Update: Water heaters, furnaces and toilets are also good to update for energy and water conservation, though newer ones probably won't add significantly to the home's value. 

Refinish: If wood floors are looking tired, refinish them. Replace worn carpeting where possible.

Kitchen cleanup: The kitchen is an obvious focal point for buyers. Consider a light upgrade in the kitchen by replacing the sink or replacing cabinets. If you're planning to replace counters, try solid surface quartz-based materials, which have become the popular alternative to granite.

Better bathrooms: Bathrooms are typically less expensive to remodel than kitchens, so there is more potential for a return on the investment. Buyers frequently request double vanities and a walk-in shower, so consider upgrading accordingly.

Remodel: It's usually more cost-effective to remodel attics and basements than to add entirely new rooms.

Spruce up: Add curb appeal by weeding and sprucing up the garden with low maintenance, drought-tolerant plantings – also called xeriscaping. Giving the front door a new coat of paint is a low cost way to add curb appeal.

Source: Houseplans.com

Vacation home sales rose to record high in 2014

WASHINGTON – April 2, 2015 – Vacation home sales boomed in 2014 to above their most recent peak level in 2006, while investment purchases fell for the fourth straight year, according to an annual survey of residential homebuyers released by the National Association of Realtors® (NAR).

NAR's 2015 Investment and Vacation Home Buyers Survey, covering existing- and new-home transactions in 2014, shows vacation-home sales catapulted to an estimated 1.13 million last year, the highest amount since NAR began the survey in 2003. Vacation sales were up 57.4 percent from 717,000 in 2013.

Investment-home sales in 2014 decreased 7.4 percent to an estimated 1.02 million in 2014 from 1.10 million in 2013. Owner-occupied purchases fell 12.8 percent to 3.23 million last year from 3.70 million in 2013. The sales estimates are based on responses from nearly 2,000 U.S. adults who purchased a residential property in 2014, and exclude institutional investment activity.

NAR Chief Economist Lawrence Yun says vacation sales in 2014 showed astonishing growth, nearly doubling the combined total of the previous two years.

"Affluent households have greatly benefited from strong growth in the stock market in recent years, and the steady rise in home prices has likely given them reassurance that real estate remains an attractive long-term investment," he said. "Furthermore, last year's impressive increase also reflects long-term growth in the numbers of baby boomers moving closer to retirement and buying second homes to convert into their primary home in a few years."

Vacation-home sales accounted for 21 percent of all transactions in 2014, their highest market share since the survey was first conducted. The portion of investment sales fell to 19 percent (20 percent in 2013); owner-occupied purchases declined to 60 percent (67 percent in 2013).

"Despite strong rental demand in many markets, investment property sales have declined four consecutive years to their lowest share since 2010 as rising home prices and fewer distressed properties coming onto the market have further reduced the number of bargains available to turn into profitable rentals," says Yun.

The median sales price of both vacation and investment homes declined in 2014. The median vacation home price was $150,000, down 11.1 percent from $168,700 in 2013. The median investment-home sales price was $125,000, down 3.8 percent from $130,000 a year ago.

According to Yun, the decrease in vacation and investment sales prices is likely due to the increase in vacation and investment buyers purchasing condos and townhouses, which contributed to a decline in the median size of 200 square feet for both. Additionally, the rise in vacation buyers purchasing distressed properties and buying in the South, where home prices are often lower, contributed to the overall decline in the sales price of vacation homes.

The share of vacation buyers who paid in cash fell to 30 percent from 38 percent in 2013. Investment buyers who paid in cash decreased to 41 percent from 46 percent a year ago. Of buyers who financed their purchase with a mortgage, nearly half (48 percent) of vacation buyers and 41 percent of investment buyers financed less than 70 percent of the purchase price.

Forty-five percent of vacation homes and 44 percent of investment homes purchased in 2014 were distressed properties – either a home in foreclosure or a short sale. In 2013, 42 percent of vacation homes and 47 percent of investment home purchases were distressed.

Characteristics of Vacation-Home Purchases

The typical vacation-home buyer in 2014 had a higher median household income ($94,380) than those in 2013 ($85,600) and purchased a property that was further away (median distance of 200 miles) than a year ago (180 miles). Buyers plan to own their property for a median of 6 years, unchanged from 2013.

Although a majority (54 percent) of vacation buyers bought a single-family home, the share of those buying a condo (27 percent) or a townhouse or row house (18 percent) increased from a year ago. Forty-percent of vacation buyers purchased in a beach area, 19 percent purchased in the country and 17 percent purchased a vacation home in the mountains.

One-third of vacation buyers plan to use their property for vacations or as a family retreat, 19 percent plan to convert their vacation home into their primary residence in the future, and 13 percent bought for potential price appreciation; the same share purchased because of low real estate prices and because the buyer found a good deal.

Forty-six percent of vacation homes purchased last year were in the South (41 percent in 2013), 25 percent in the West (28 percent in 2013), 15 percent in the Northeast (18 percent in 2013) and 14 percent in the Midwest (unchanged from a year ago).

NAR released a study in late 2014 that identified the top housing markets likely to see a boost in home sales to leading-edge baby boomers. The findings revealed that metro areas – including many in the South and Southwest – with a lower cost of living and sunnier weather are poised to see an increased number of baby boomers moving in and buying a home in coming years.

Characteristics of Investment-Home Purchases

Investment-home buyers in 2014 had a median household income of $87,680 ($111,400 in 2013) and typically bought a detached single-family home (61 percent) that was a median distance of 24 miles from their primary residence (20 miles in 2013).

Thirty-seven percent of investment buyers last year purchased a property in the South, 26 percent in the West, 20 percent in the Midwest and 17 percent in the Northeast. Investors were most likely (32 percent) to buy in a suburban area, followed by an urban or central city (26 percent), rural area (21 percent) and small town (16 percent). Five percent of investment buyers bought in a resort area.

Investment buyers purchased property for a variety of reasons, including for rental income (37 percent), because of low prices and the buyer found a good deal (17 percent) and for potential price appreciation (15 percent). Overall, investment buyers plan to hold onto the property for a median of five years (unchanged from a year ago), and a majority (68 percent) are very or somewhat likely to buy another investment property in the next two years.

The bulk of investment buyers (86 percent) and vacation buyers (85 percent) reported that now is a good time to purchase real estate.

NAR's 2015 Investment and Vacation Home Buyers Survey, conducted in March 2015, surveyed a sample of adults that had purchased any type of residential real estate during 2014. The survey sample was drawn from a representative panel of U.S. adults monitored and maintained by an established survey research firm. A total of 1,971 qualified adults responded to the survey. Consumers were sampled to meet age and income quotas representative of all home buyers drawn from NAR's 2014 Profile of Home Buyers and Sellers.

Source: Florida Realtors®

7 Florida’s cities best in for real estate investment

SAN FRANCISCO, Calif. – The JWB Group, a real estate analysis company, created a list of top U.S. cities for investors who want to buy real estate for use as a passive investment. JWB says several sources of independent data were used to compile the list, but it did not include rental communities that can have fluctuating rent indexes.

Seven Florida cities made the top 25 for passive real estate investment, with Jacksonville landing in JWB's No. 1 spot, followed by Ocala and Palm Bay.

"People who have money to invest are not always experts in housing industry investments and can have many questions before investing an IRA or cash funds," JWB's report said.

Top 25 U.S. cities for passive real estate investment

1. Jacksonville, Fla.

2. Ocala, Fla.

3. Palm Bay, Fla.

4. Memphis, Tenn.

5. Las Vegas, Nev.

6. Toledo, Ohio

7. Detroit, Mich.

8. Orlando, Fla.

9. Syracuse, New York

10. Atlanta, Ga.

11. Richmond, Va.

12. Kissimmee, Fla.

13. Homosassa Springs, Fla.

14. Muskegon, Mich.

15. Tampa, Fla.

16. Mobile, Ala.

17. East Stroudsburg, Penna.

18. Marietta, Ga.

19. Baltimore, Md.

20. Clarksville, Tenn.

21. New Orleans, La.

22. Cincinnati, Ohio

23. Indianapolis, Ind.

24. Tacoma, Wash.

25. Milwaukee, Wis.

Source: Florida Realtors®

What’s Holding Potential Sellers Back?

Existing-home sales are up nearly 5 percent from last year, but sales would be much higher if it wasn't for the negative equity overhang, economists say.

The National Association of REALTORS® recently reported that existing-home sales increased 4.7 percent in February compared to a year ago.

But with an improving labor market, home sales should be even higher, Mark Fleming, chief economist at First American Financial Corp., told The New York Times. Home prices are higher too, which often correlates with rising home sales, according to Fleming's research.

"Rising prices only crimp affordability for the first-time buyer who doesn’t yet own the asset," Fleming told The New York Times. "But the vast majority of home sales are to existing home owners. And for existing home owners, what changes affordability is their own income and the price of money."

However, too many home owners still lack sufficient equity in their homes to sell, Fleming notes. Home owners who have equity below 20 percent are less likely to sell because they may not be able to cover the costs of the transaction.

About 35 percent of home owners nationwide are either in a negative equity position or have equity below 20 percent, according to some industry estimates.

The equity picture has shown much improvement recently. CoreLogic reported earlier this month that 89 percent – or about 44.5 million -- of all U.S. properties with a mortgage had equity by the end of the fourth quarter of 2014. 

What’s more, if home prices rise by an additional 5 percent, about 1 million more home owners in negative equity stand to inch back into the black. However, much of the equity is concentrated at the high-end of the housing market (94% of homes valued at more than $200,000 have equity compared to 84% of homes valued less than $200,000).

Also, many home owners remain "under-equitied" – having less than 20 percent of equity in their homes. Nearly 50 million properties – or 20 percent – are considered “under-equitied” in the U.S., and about 1.4 million of those properties have less than 5 percent equity, which his considered “near-negative equity.”

According to CoreLogic’s report, the states with the largest number of negative equity, as of the fourth quarter of 2014, are: Nevada (24%); Florida (23.3%); Arizona (18.7%); Illinois (16.2%), and Rhode Island (15.8%).

Source: "Negative Equity a Drag on Home Sales," The New York Times (March 27, 2015) and "89% of U.S. Homes Ended 2014 With Equity," REALTOR® Magazine Daily News (March 18, 2015)

Investors turn to crowdfunding for flips

NEW YORK – March 30, 2015 – As home prices rise, investors looking to cash in are back to flipping properties – but more are now using online crowdfunding sites to fund their flips.

Unlike the housing boom days, lenders are showing more caution in granting financing to buyers who want to quickly rehab a property and then sell it for a profit. As a result, investors are turning to other financing avenues to fund their flips.

In addition, a growing number of online crowdfunding sites offer some financial aid for housing flips.

Ben Walhood in Chicago, for example, says he turned to RealtyShares in San Francisco, an online crowdfunding platform. Walhood has gotten his property purchases funded by individual investors from across the country who lend him money for single-family flips. He pays interest on a loan, and the investors earn about a 9 percent return.

With crowdfunding, the interest charged is much higher than conventional financing, however – loans backed by Fannie Mae and Freddie Mac are in the 4 percent range, while Walhood pays about an 11 percent interest rate through crowdfunding. The higher interest rate might make sense, however, if the home won't be held for long before the resale. Walhood says he plans to flip the house in three months, so he only will pay the higher rate for a short time before he pays off the full loan.

"This gap has been left by banks that now crowdfunding platforms, like RealtyShares, are able to fill," Nav Athwal, CEO of RealtyShares told CNBC. "They are able to provide quicker, more efficient capital that helps meet the needs of these investors who are looking for speed of execution and the ability to be flexible with their terms, as well as with the underwriting standards. Banks just aren't meeting that need."

Athwal says RealtyShares funded about 70 projects last year and about 30 so far this year (90 percent of the projects which have been fully funded).

Other real estate crowdfunding sites are also popping up, such as RealtyMogul, Fundrise, Groundbreaker and PatchofLand. Many of those sites focus on commercial projects, though. RealtyShares is one of the few to focus on the single-family flip market, CNBC reports.

Source: "Crowdfunding House Flippers: Risks and Rewards," CNBC (March 26, 2015)

New home sales soared, so why are builders worried?

WASHINGTON – March 27, 2015 – Homebuilding continues to lag behind pre-recession levels, even as the economy shows gains and buyer demand is high. Why are builders still so cautious?

A new survey by the National Association of Home Builders finds that two-thirds of builders said their greatest concern for 2015 is the availability of labor. Building material prices ranked closely behind as a top concern at about 67 percent, followed by 57 percent of builders who said lot availability.

In 2011, only 13 percent of homebuilders surveyed said labor availability was a concern, and only 21 percent worried about lot acquisition.

With labor concerns, most builders are most concerned about the availability of rough and finish carpenters, framers and masons. More than 60 percent of the homebuilders surveyed reported "some" or "serious" carpenter shortages.

"The uptick in overall employment has put additional pressure on finding qualified construction workers," writes David Crowe, NAHB's chief economist. "Scarcities and rising wages have been worse in the energy production regions of the country. … Wages will have to rise to bring more of the experienced workers back from where they went during the housing collapse."

Builders continue to grapple with lot shortages, which began surfacing as a problem in 2012. By mid-2014, about three in five builders reported "some" or "serious" lot shortages.

Builders' concerns have changed as the overall housing market has improved. For example, about 67 percent of builders were concerned about buyers qualifying for a mortgage in 2013, but that percentage fell to 45 percent in 2015. Also, builders are less concerned about the competition from distressed sales – 40 percent in 2013 said it was a big problem compared to 19 percent in 2015.

Source: "Supply-Oriented Concerns Top Builders' Lists in 2015," BUILDER (March 2015)