2013: A Perfect Storm for Real Estate Investors

2013_perfect_storm2013 has become the perfect storm for real estate investors. Interest rates are at all time lows. Real estate prices are at 10 year lows. Inventory has decreased. Home prices are on the rise. It’s a perfect storm! But you may want to move now, because nobody knows how long these conditions will last.

Let’s take a look at some of the conditions that have created this perfect storm.

State of the National Real Estate Market

 

Home affordability is a valid indicator as to whether investing in real estate is a good idea. Opinions are mixed on this one. Housing affordability has remained high over the past four years, according to the National Association of Home Builders chairman Rick Judson. “The HOI [Housing Affordability Index] has not slipped below 70 since the end of 2008,” he claims.

All well and good, but what does the future hold? “That said, from a builder’s perspective, it should be noted that rising costs for building materials, lots and labor are making it somewhat more expensive to construct new homes in today’s market,” Judson cautions.

Seattle Bubble’s Tim Ellis, on the other hand, sees affordability “tanking” in 2013, at least in his corner of the Washington state housing market.

“We’re definitely on an unsustainable trajectory right now, and the affordability index is only good thanks to still-crazy-low interest rates,” he writes on his blog. “Hopefully prices will level off before things get really out of hand.”

Finally, Lawrence Yun, chief economist for the National Association of Realtors® warns that “Inventory conditions are expected to remain fairly constrained this year, so overall price increases should be well above the historic gain of 1 to 2 percentage points above the rate of inflation.”

The takeaway? Watch interest rates. If they remain low, house payments as a percentage of income will remain low. If you’re a flipper, you’ll have customers.

Shadow Inventory

 

Hey, how about that shadow inventory that never showed up? It’s still out there, according to many experts, but none of them expect it to hurt the housing market. In fact, listing agents nationwide would be thrilled to have the extra inventory.

As of January 2013 the shadow inventory contained 2.2 million units, according to CoreLogic. That number represents an 18 percent drop over the previous year’s figure.

Las Vegas, once the poster child of foreclosures, has seen a 30 percent rise in home prices over the past year, and the foreclosure rate is now at 14.1 percent. Fewer homeowners are underwater, and banks are more willing to work with those who are “living in shadow inventory homes,” says Luis Lopez with the Lied Institute for Real Estate Studies at the University of Nevada at Las Vegas.

In March of this year, California was home to 69,000 bank-owned homes. While that may seem high to some, it represents 28 percent fewer REOs than seen in March of last year, according to Daren Blomquist, vice president of RealtyTrac. To put it in even more perspective, Blomquist claims that in November of 2008, there were 245,000 bank-owned properties in California.

In the Sacramento area, there were 5,816 bank-owned homes at the end of March. Banks are selling an average of 2,381 such homes a quarter – or roughly every three months.

Florida, another area to watch, has a 19-month inventory of bank-owned homes, but they’re being sold off to investors – especially the international variety – at a rapid pace.

Just as experts foretold when the term “shadow inventory” was being heavily bandied about a few years ago, banks are releasing the homes in drips – about 25,000 homes per quarter, according to Blomquist.

 

For the Buy-and-Hold Investor

 

The best news for the buy-and-hold investor is a hot rental market that shows no sign of cooling off. At the end of last year, nationwide vacancies were at 4.5 percent.

In some cities, such as San Francisco, rentals are at a premium and folks line up hours in advance of a showing. Development-crazy Miami saw a rent increase of 10.8 percent year-over-year and a 4 percent vacancy rate.

Finally, according to a study by Demand Institute, a consumer research organization, 50 percent of people planning to move within the next two years report that they won’t be buying a home, but will rent instead.

 

Why the Economy/Real Estate Market is Good for Investors:

 

  • As long as interest rates remain low, investors can buy and sell to consumers who are still able to afford homes.
  • The average number of days it takes to sell a home has dropped dramatically. In April of this year homes remained on the market 46 days, on average, down from 62 days in March and 20 percent since last year.
  • Sellers are receiving offers closer to (if not greater than) the list price.
  • Conditions are ideal for purchasing homes with multiple financing options available, including FHA and VA loans.
  • Mortgage insurance regulations imposed in 2003 to prevent the practice of flipping properties that will be financed with FHA-insured mortgages have been waived through the end of 2014.

 

It’s every investor’s hope that steadily rising home prices at the national level means that all types of real estate investors – from flippers to the buy- and-hold variety – will see their properties appreciate in value in the coming years. Although it’s too early to know for sure, it appears their hopes will be the reality for the 2013 real estate investor.

“I’ve been doing this a long time, and I’ve never seen a market like this,” said Tom Pool, spokesman for the California Department of Real Estate.

 

AOL’s Hot Markets for Investors:

 

  • Atlanta: Home prices are 20 percent below historic norm and 50 percent get multiple offers.
  • Chicago: Prices are 17 percent below historic norm, with 51 percent receiving multiple offers.
  • Las Vegas: Sin City homes are priced 14 percent below historic norm, multiple offers are not yet common but homes are selling for 101 percent of list price.

MarketWatch claims that those cities that have demonstrated sustained economic growth typically offer a lucrative housing market. Some of their favorites include:

 

  • Austin, Texas
  • Boston, Mass.
  • Houston, Texas
  • San Jose, Calif.
  • Portland, Ore.
  • Washington, D.C.
  • San Francisco, Calif.
  • Bridgeport, Conn.
  • Salt Lake City, Utah
  • Raleigh, N.C.

 

This guest post was written by Shannon O’Brien, a staff writer for Market Leader. Her first love was real estate and she has over a decade of residential listing and sales experience.

Comments

  1. Anthony says:

    Great videos I live in NYC. I would to know a good online real estate school for my license and about you investment company if you have anyone in this area.
    Thanks Anthony

    • Phil Pustejovsky says:

      Online real estate licensing courses are a dime a dozen. My advice is usually to go with the cheapest, because all licensing courses are missing something but so long as you get a 70%, in most situations, that is passing.

  2. Denise Bond says:

    Hey Phil,
    I’ve been watching your videos and reading your books now for a little while and comparing to what I have heard from a few other investors it really does look like you know your stuff.
    Denise

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