America becomes “Landlord Land.”
“A housing recovery that is highly dependent on real estate investors is a bit of a double-edged sword,” explained Daren Blomquist, senior VP at ATTOM Data Solutions. “Rapidly rising home values have been good for homeowner equity, but also have caused an affordability crunch for the first-time homebuyers the housing market typically relies on for sustained, long-term growth.”
So the housing market is “starkly different than a decade ago,” said Alex Villacorta, VP of research and analytics at Clear Capital. “As such, it’s imperative for all market participants to understand the nuances of the New Normal Real Estate Market.”
They were both commenting on a joint white paper by ATTOM and Clear Capital, titled “Landlord Land,” that analyzes who is behind the US housing boom that drove home prices to new all-time highs, and in many markets far beyond the prior crazy bubble highs – even as homeownership has plunged and remains near its 50-year low.
First-time buyers are the crux to a healthy housing market, but they aren’t buying with enough enthusiasm. In 2012, buyers with FHA-insured mortgages – “who are typically first-time homebuyers with a low down payment,” according to the report – accounted for 25% of all home purchases. In 2013, their share dropped to about 20%, in 2014 to 18%. Then hope began rising, briefly:
However, in January 2015, FHA lowered its insurance premium 50 basis points, and there was a modest resurgence in FHA buyers – a trend perhaps indicative of loosening credit requirements or of a desire to re-enter the housing market for those displaced during the crash.
Their share of home purchases ticked up to 22.3%. Alas, “the FHA resurgence was short lived” and in 2016 eased down to 21.7%.
With first-time buyers twiddling their thumbs, who then is buying? Who is driving this housing market?
Institutional investors? Defined as those that buy at least 10 properties a year, they include the largest buy-to-rent Wall Street landlords, some with over 40,000 single-family homes, who’ve “picked up the low-hanging fruit of distressed properties available at a discount between 2009 and 2013,” as the report put it. That was during the foreclosure crisis, when they bought these properties from banks.
In Q3, 2010, institutional investors bought 7% of all homes. In Q1 2013, their share reached 9.5%. As home prices soared, fewer foreclosures were taking place. By 2014, when home prices reached levels where the large-scale buy-to-rent scheme with its heavy expense structure wasn’t working so well anymore, these large buyers began to pull back. In 2016, the share of institutional investors dropped to just 2% of all home sales.
But as institutional investors stepped back, smaller investors jumped into the fray in large numbers, “willing to purchase in a wider variety of market landscapes and operate on thinner margins.”
To approximate total investor purchases of homes, the report looks at the share of purchases where the home is afterwards occupied by non-owner residents. In 2009, according to this metric, 28% of all home purchases were investor-owned properties. In 2010, it rose to 30%. In 2011, 32%. Then as big investors pulled out, it fell back to 30%. But by 2015, small investors arrived in large numbers, and by 2016, investor purchases jumped to 37%, an all-time high in the ATTOM data series going back 21 years.
The chart shows the share of purchases in a given year. Note the declining share of first-time buyers (blue line), the declining share of institutional investors (gray bars), and the surging share of smaller investors (green line). In other words, smaller investors are now driving this housing boom:
The pie chart below shows the share of properties owned by investor size. Among investors in today’s housing market, small landlords that own one or two properties own in aggregate the largest slice of the rental housing pie – 79%:
However, Wall Street landlords are concentrated in just a few urban areas. For example, Invitation Homes, the 2012 buy-to-rent creature of private-equity firm Blackstone, which owns over 48,000 single-family homes and has nearly unlimited financial resources, including government guarantees on some of its debt, is concentrated in just 12 urban areas, where it has had an outsized impact.
Whereas small investors own properties across the entire country, in urban and rural areas, in cheap markets and ludicrously expensive markets. They own condos, detached houses, duplexes, and smaller multi-unit buildings.
So when the industry tells us about low inventories and strong demand in the housing market, it’s good to remember where a record 37% of that demand in 2016 came from: investors, most of them smaller investors. And when the financial equation no longer works for them, they’ll pull back, just like institutional investors have already done.
In what are now deemed the most expensive multifamily rental markets in the world – San Francisco and New York City – the commercial property bubble is already deflating. Read… Here are the Top “Sell Markets” in an Overpriced World as “the Apartment Cycle Draws Closer and Closer to the End”
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This article reminds me of the commitment of traders charts for commodities. Normally if the small speculators are long, you better be short.
Just wait till the cities and counties start cracking down on AIRBNB.
Many investors purchased homes to be part of this hotel rental economy which has, in my opinion contributed partly to the high rents in the SF Bay Area, in particular.
It’s a bubble within a bubble waiting to pop….
Your thoughts Wolf?
Anecdotally, both homes that I’ve resided in within my urban San Diego neighborhood have had an Airbnb rental in a neighboring house. Looking on Airbnb itself, there appears to be 1-2 units for rent on each block. I’ve never personally had any issues with the guests, but the legality of these units is being hotly contested in San Diego and neighbors have been very vocal about not wanting these in their neighborhoods. Wrong or right, the future of these short term rentals are not a sure thing.
I was just down in SD last week for a conference and spent Sunday looking at open houses. Up in North Mission Hills we drove by a somewhat large sign saying something to the effect of “homes are for living, not Air B&B” or some such. I know there is lots of resistance to ABB in many cities though it just struck me as odd. I never thought of SD as one of those local hyper-activist concentrations like LA or San Francisco where busybodies are more concerned with what is going on with their neighbor’s property than their own.
America has become investor owned. It’s most apparent in the cities where the average worker can’t afford to buy property and is at the mercy of market rent (assuming they don’t live in rent controlled housing). Portland has a big housing crisis and is unable to address it Oregon state law saying there can’t be any rent control laws. Workers are getting squeezed out and it shows in other markets.
Portland and Oregon are liberal meccas supporting sanctuary status for illegals, high minimum wages, but not affordable housing…..does anybody else see the disconnect. The big money speaks to liberals too.
Moved from beautiful Portland to Dallas Texas.. Miss the NW but its not a fair place to live hear stories and go back and see it become desolate… like deserted in spots that were thriving… rents are as high as other cities but jobs are not prevalent
And yet here you are in good ole Dallas of the Republic of Texas where good paying jobs are as rare as hens teeth , the public education system can’t afford to pay its teachers and employees , housing costs as high if not higher than Portland OR , not to mention higher property taxes , the cost of living in Dallas being substantially higher than that of Portland OR as well … etc – et al -ad nauseam . So .. care to make sense out of your previous comment in light of those small albeit significant revelations
By the way Mary dear . Portland OR is anything but ‘ desolate’ . The reality on the ground is that it a thriving city with a substantial ‘ craftsman ‘ and artisanal market along with several high tech etc jobs on offer . Fact is anyone with a modicum of skill and enough ambition can make a decent to good living in Portland whereas fat chance trying that in Dallas . Which … leads me to believe you’ve never so much as been to Portland OR never mind lived there . Or Dallas for that matter .
I owned a small motel and liquor store there for almost 20 years.
The property through out most of the state was artificially inflated From California babyboomers that had just retired.
I can’t tell how many stayed at my motel to look for properties to purchase during 2003 to 2008 time frame.
And what blew me away the most — many were husband/wife retirees that both worked either for the state of federal government for the entire lives. Most them had combined monthly retirement incomes from 6 – 12k per month
The worst thing about them — was they vastly overinflated the day labor force because they paid them like they were from California.
Being one of the whitest cities in the country, I’m not sure how much being a sanctuary city affects Portland, but, yeah, it’s a liberal mecca, which is why we love living here.
The ramping up of real estate prices has apparently been a combination of Californians cashing out and moving here, along with investors, especially from China, getting in the game. I’m sure Vancouver’s crackdown on Chinese investors is pushing them here even more, and I’d like to see Portland crack down on it, too.
FWIW, we’re part of the problem, because we’re also from California, but we didn’t own a home there, and I’m still waiting to buy here in Portland. It seems as though some kind of Chinese and/or tech collapse needs to be the catalyst to start a home price slide. I mean, it was only 6-7 years ago that Portland had one of the highest unemployment rates in the nation.
Why buy it when you can rent it for half the monthly cost?
Not just houses. Housing reflects a new America (since Reagan), where winner takes all money, property, wealth, tax breaks, regulatory influence, etc.
Winner takes all America.
Yep, Austin. Good old Social Darwinism (which actually has nothing at all to do with Darwin’s theories, the term was coined by a “free” market hack named Herbert Spencer, I think, to help the Gilded Age along). But it did give a somewhat just and “organic” twist to unlimited greed at any level, regardless of consequences.
I think it needs a good medical sociopathic acronym…and maybe even a SSRI type pill invented to cure it?
Interesting notion considering the wealthy have no interest in houses and housing.
Our family built our house 40 years ago. Not possible in most places in the U.S. these days – licensing, codes, etc.
But now that it’s built, it would be perfectly legal to steal it from me, by way of a “reverse mortgage”.
But fortunately the corporatocracy doesn’t have me in extremis (old with inadequate income), so the children who helped me build it can have it someday.
Yup ! Been seeing this trend on the rise in Denver over the last three years which has been confirmed by our FA , personal banker as well as friends in real estate and the media . Best estimates at present say some 60- 70% of all homes purchased in the last 28 months in the greater metro Denver market have been investors , private equity and ‘ institutional ‘ investors [ emphasis on institutional wink wink ] So as the WSJ NYTimes Bloomberg etc claim the the Denver market to be in a serious bubble the prices continue ascending with the majority of homes selling well above bank appraisals . Which is why since returning we have been and most likely will remain OWMNB’s [ Out With Money Not Buying ]
But…. Investors from what country?
I saw a house in my old neighborhood of West Linn suburb of Portland Oregon valued at 1.1 million built in the late 1980s.. Nearly 6,000 sq ft fully landscaped, views on hill of Mt Hood, beautiful woodwork inside, just needed some updating as far as colors, decor, at 989,000 december dropped to 765,000 January Sold in February 2017 for 720,000 to a chinese investor and it was immediatly posted for lease 2 weeks after being sold. For 4,800 per month.. good deal if you saw the pics and know the neighborhood Barrington Heights.. PNW is full of chinese investors buying up real estate.. prob Cali too
I continue to believe this is (or will eventually morph into) Chinese national mercantile policy. Why risk military conflict when the enemy’s homeland can be bought out?
The problem is obvious, one relies on the generosity of the enemy’s government. The muppets can simply elect a populist government, and “poof” goes the national mercantile policy.
At the end of the day, to own land, you have to occupy it or have people believe that you can occupy it whenever you want …..
I agree, invasion by other means. If anybody can be here illegally, at some point, the enemy simply needs to send their troops as immigrants. We couldn’t be any more stupid than that.
…and ‘invade’ the finance sector while they’re at it.
RE:CALIF- Don’t know about high end, but a North Bay mobile home in an over 55 park I saw listed for $21K in 2010 went to a retired couple for $83K a couple months ago. Not Chinese. Downsizing is getting expensive, and so far shows no signs of getting cheaper here.
check this out:
http://www.sun-sentinel.com/features/sfl-shipping-containers-take-on-new-life-as-homes-in-south-florida-20170221-photogallery.html#nt=oft12aH-1gp2
Not this country for sure
China.
The main thing is to keep future generations from prosperity and that has been a stupendous success. Thanks Bernanke and Geithner! A gutted middle class is a wonderful way to ruin a democracy.
The Obama administration, superb at platitudes, uninterested in detail, guaranteeing the big loans to the 1%! Too technical to explain to a voter, though.
You can also thank Baby Boomers all the way to the current generation. Takes everyone including Muppets to play. As Voltaire said: “Every man is guilty of all the good he did not do.”
I used to think the world is not just, but it’s actually very just. Nothing comes free in this world. And no, it’s not sarcasm.
There are a lot of people getting into the real estate investing market that have no idea what they are getting into, they were sucked into market by the numerous real estate investment education companies or individuals. They will take a beating on rising rates or a correction in housing prices.
I live in the Portland metro area and have been seeing TV advertisements for house flipping seminars and segments on afternoon local shows about house flipping. When anyone and everyone is getting into the game, it really looks like we have jumped the shark and another downturn is imminent.
I live in the same area, and we’re holding out on buying for the same reason.
I love all of you that are “holding out on buying”, in fact I welcome you to my rental properties with open arms! Come on in, put your feet up, have a drink and take a look at Netflix! Every month you’re paying my mortgage, taxes, insurance AND cashflow on top of that (usually tax-free due to depreciation). I’m buying and holding these properties and you and your ilk are going to pay them off for me, then when I get the urge, I’ll either (a) cash-out refinance them and go buy some more or (b) do a 1031 exchange and trade up into bigger and better properties, maybe even multi-family.
We’ve been trying to buy. We’re no longer holding out now; we’ve given up. We’re looking for jobs in the Midwest… Hard to do when you’re tech employees with advanced degrees, but even our Intel jobs just don’t pay enough for us to afford housing here anymore.
Some perhaps relevant data from the 2017 Silicon Valley Index (posted in Palo Alto Online news site). For Silicon Valley in 2016:
– Net migration was near 0
– About 20,000 local residents (aka domestic) left Silicon Valley
– About 20,000 people from foreign countries replaced them
– Net foreign immigration was at it’s highest point since 2001 (to be fair, just slightly higher than 2015)
– Net domestic immigration was at it’s lowest point since 2006, 3 to 4 times as many people left in 2016 compared to 2015
The only point in recent history where domestic and foreign immigration were somewhat the same was in 2012. From my perspective that was probably when Silicon Valley was still somewhat “affordable”. Prices in 2012, at least on the SF peninsula were about the same as they were in 2005/2006.
As for people leaving, I presume it’s folks cashing out or those who are priced out. If you bought in a condo in the early 2000’s you might be at 3-4x your purchase price. If you bought in 2012 or earlier, you might be at 1.75 to 2x your purchase price. In a lot of cases that means walking away with 500K+ in cash, worst case.
In the Twin Cities, home values have risen, but they have not moved equally. First-ring suburbia has the best values based on price per square foot. People now want to live in the cities closer to the two downtowns compared to ten or so years ago. Traffic jams on daily commutes to and from work are no fun, eh?
When the Super Bowl is played in Minneapolis next year, my city will get shown off proudly, but what are the odds it’ll be cold as heck with a blizzard coming through? Vegas probably has betting line on that???
Attended a funeral in DFW a couple of weeks ago. Have I mentioned how much I think the DFW Metroplex sucks?
Anyhoo, several family members are long time (since the 1930s, at least) Dallas residents. Some of them are throwing in the towel. The cost of living/quality of life issue is becoming a real problem. The only way to get anywhere in a hurry is by using the tollroads. Which gets expensive commuting every day.
The ones who can move to the coasts are saying “why put up with two hour commutes, when I can do the same in California and make a lot more money?” The other end of the skills spectrum are saying “Why work in DFW for $15/hour and be forced to deal with this overpriced Charlie-Foxtrot, when I can move 60 miles to BFE and get a job that pays about the same, and buy a house for what I’m paying for rent?”
As a long time (>50 years) Dallas area resident the criticisms are untrue. There are no two hour commutes from any suburb much less within Dallas. Yes traffic has gotten worst but not as described. And the tollways are not prohibitive even to a penny pincher such as I. In addition, there are many large companies relocating to Dallas area from CA including Toyota, Raytheon Space and Airborne Systems and according to Dallas Morning News 99 others. Housing is still affordable but slowly rising. Yes Dallas proper is controlled by liberal democrat government with typical CA style public pension screw ups but the surrounding suburbs are strictly conservative.
@JDZ – I think you’ve been out of the loop for a while now. It sounds like you haven’t moved around much in the Dallas area the past few years.
DFW is now ranking as a very unaffordable market. With property taxes nearly double that of most in the country, home prices up over 40% in 5 years, and wage growth at an absolute minimum – it is not affordable for most individuals making $60k or less per year.
True, large companies are moving to Dallas – but none of them are paying better than the current jobs. Just because there are more jobs does not mean people are suddenly making more money. Because the fact is, they’re not.
The tollways are incredibly restrictive cash-wise. Have you not seen the current rates? The round trip cost to work for me on George Bush is $12. If I took George Bush to work every day, it would cost me ~$900-1,200 per month. That’s an additional house payment just in tolls. Thus, I avoid the tolls if possible and frequently end up driving in traffic, taking 1.5-2hrs of for a 25 mile or less trip.
I don’t know where you get that there are no Dallas commutes from suburbs nearing 2 hours. It took me 1hr and 45 minutes last week to drive a client from Sachse to Dallas. We’re talking ~15 miles.
When you fix a deflated credit bubble by blowing another one and pumping up assets on cheap funds, you can be sure that every asset market you infect with this disease will be come much more vulnerable in the next downturn. WASS. The whole US economy is becoming a massive ponzi scheme. When the ship turns direction, look out below. Where are these fake dollars go is hard to imagine…but I hear the sound POOF for some reason.
Perfect example of how the homo sapien mind works. People believe that real estate prices always go up and that the best way to become wealthy is to own property. And since the mom & pop investor can only live in one home at a time, buying an “income property” is the stairway to heaven.
Cultural inoculation trumps experience or logic every time. 2008 never happened because prices have come back up to similar levels. All the millions of people who lost their homes to the MERS frauds deserved what they got because they signed up for liars loans. Probably were undocumented immigrants as well. The landlord class deserves their rewards because they didn’t loose everything in 2008. And of course it’s different this time because we have a real estate developer as President, and he has your back.
Human belief systems are formed within the constraints of social norms and ideologies, and those don’t necessarily have any grounding in reality.
A few random examples:
—It’s raining or snowing outside, so global warming is a fraudulent Chinese plot to subvert the US economy.
—Wealth trickles down through the economy, so the best way to create more wealth is to lower taxes on the ultra-rich.
—The mark of a successful economy is permanent exponential growth of at least 3%.
—God is a bearded old man up in the sky who knows every time we sin and supports all America’s wars because we are God’s people.
—Mohamed is a bearded warrior up in the sky who wants us to kill all non-believers and cover up our women.
—Science is just another theory like the one my neighbor goes on and on about, or that my favorite politician espouses.
And of course, real estate always goes up in value.
Delusion is the opium of the People.
That pretty much sums it up, Thor!
“so global warming is a fraudulent Chinese plot to subvert the US economy”
I’ve never heard of this Chinese plot till right now and global warming doesn’t exist as you well know it’s now “climate change” and china is always exempt from the draconian limits put on other countries soooooooooo…..
“climate change” is about one thing $$$$$$ nothing more, nothing less. Gore is the fist climate billionaire and Goldman Sachs will be the first climate trillionaire…..
p.s. Tesla makes more $$ trading carbon credits that it does selling cars
Donald Trump tweeted ‘The concept of global warming was created by and for the Chinese in order to make U.S. manufacturing non-competitive.’
It always was ‘climate change’, at least since the IPCC was founded in 1988 (CC stands for Climate Change).
Also, it is not Gore or Tesla which stands to lose trillions of dollars on stranded assets if not all fossil fuels are burnt.
The myth is that Ostriches have the perfect solution for cognitive dissonance. Bury your head in the sand.
““climate change” is about one thing $$$$$$ nothing more”
I’m sorry, this is plain idiotic.
So the vast majority of scientists around the world– whether Indian, Chinese, American, French, South African, etc.– both public and private sector– across every major scientific discipline (physicists, astronomers, oceanographers, chemists, geographers, etc.) are all in on a global conspiracy to make money by proving climate change is real?
It is seriously one of the dumbest things possible to believe in 2017.
That’s the problem with the social network revolution. All of the conspiracy nuts (like my uncle,) who sit around in their basement with their ham radios, now have an easy way to get together and chat without getting dressed for the day. I mean, our president listens to Alex Jones, for goodness sake. We’re doomed.
Bingo!
Amen to Thor. Well delivered. Personally I worship Loki. I pray that doesn’t offend you.
Chuckles..and.. ya.
hmm, look at the data supplied by the sanguine NAR . Existing home sales hit a cyclical high. But according to this info investor sales for 01/2017 were at 15 % of sales . it did say ‘individual” investors. however this is somewhat shy of the 37 % reported in above narrative. Am i missing something ?
https://www.nar.realtor/news-releases/2017/02/existing-home-sales-jump-in-january
I trust NAR so much, I swear their words is the words of the good book :). NAR is made up of lowest forms of life. If you search for the word scum in the dictionary, you will see the word NAR listed as synonym next to it.
It doesn’t matter whether you believe NAR, Lawrence Yun, Jabba The Hut, or any other scum here on earth or outerspace. The market believes that Trump will Make America Great Again including Real Estate.
The Market is All That Matters. Now And Forever. There, I’ve put out the Neo Liberal Gospel.
Yes … the general rubberiness of definitions and methodologies (no one has an accurate count of “investors” and so they approximate it) and more importantly the small print at the bottom of the NAR press release which explains the mystery:
“Investors are under-represented in the annual study because survey questionnaires are mailed to the addresses of the property purchased and generally are not returned by absentee owners.”
wow , great call wolf . makes you wonder if this investor class is potentially understated which category is over stated per nar reporting .
fuzzy numbers . thanks
With housing demand at record lows and falling fast and prices heading lower, it’s quite clear what the future of housing looks like.
I have noticed more than a few homes here in San Francisco listed on Redfin or real estate.com that end up on Craigslist for rent soon after purchase. As some one who would like to purchase here, but can not (or will not) due to crazy prices, it almost seems like that shouldn’t be allowed, but oh well, capitalism and free market, blah blah blah
It should be allowed that everybody can take risk and compete to buy houses. What should be illegal is force responsible people to pay for the bailout when they go bust. When they go bust, they should move out and let the responsible guys move in.
LOL@JZ
“Compete to buy houses”?
I’m glad you partially identified the problem. With record high supply, collapsing housing demand and falling prices, there’s going to be some competition in the near future.
there is selling competition as well. I am suggesting let people or institutions freely compete on either selling or buying, those are healthy competitions. What is wrong is when those irresponsible compete to their death, they will go to washington and ask blood transfuse from the responsible guys to save them to stay in the game. Well, i can not say it is “wrong”, it basically creates a situation of corruption and decay in the society.
I guess the question is, who is “everybody?” Should large investment groups and the Chinese be allowed to compete?
Exactly!
Yes, the siren sound of EASY MONEY is luring way too many idiots into flipping.
As far as being a Landlord, where else are you going to put your money? On a strict performance basis, where else can a small investor even DREAM of getting a 20%+ cash-on-cash return? In the rigged stock market at historically high PE ratios? In the bond market at the end of a 40-year bull market with inflation on the horizon? In the manipulated gold market?
If times turn bad, you might have a cash flow loss, but long-term the TENANTS ARE PAYING OFF YOUR MORTGAGE AND GIVING YOU A FREE HOUSE!
And if inflation heats up as the Fed and Trump want it to, rental houses are GOLD BRICKS WITH CASH FLOW!
And while investors ARE buying homes that owner-occupants “should” buy, here is a dose of cold hard reality:
1) The average age of our housing stock in this country is getting VERY OLD. Here in the City of Dallas and the inner suburbs, most houses were built in the late 1940s to 1960s. Overall, an average of 60 years old! The AVERAGE ECONOMIC LIFE of a house is 80 years.
Yes, I know there are many that are much older than that, but on average that is when the costs of maintenance and the land value start making the case for redevelopment.
2) Builders ARE NOT building entry-level homes. As long as rates stay near 50-YEAR-LOWS, it makes more economic sense for a builder to get their 15% profit on a $300-500k house rather than a $100-$150k house (this is using Dallas prices… for the West Coast, triple it).
3) Builders are TEARING DOWN low-priced apartments and replacing them with high-priced gorgeous modern apartments. Why live in a 60+ year-old house when you can live in a brand-new apartment? Of course, these renters then spend all their money on rent and going out and cannot save up for a house.
4) The vast majority of Owner-Occupant Buyers don’t want fixer-uppers! The want nicely rehabbed houses with all the bells, whistles, warranties and glitz of a new house. This in turn attracts ever more flippers. Even the low-end Hispanic buyers that work in the building trades don’t want major fixer-uppers. They are too busy. A friend that used to sell into that market has almost completely abandoned it. And that was before all the rapidly growing deportation fears.
5) As mentioned on WS many times, the majority of Owner-Occupants CAN’T or WON’T sacrifice to save up even a modest down payment, pay off their expensive cars and debts so they can meet the front-end and back-end required mortgage ratios, and are too undisciplined to pay their bills on time so as to keep their credit above the 620 minimum score required to get a mortgage.
Without investors, our housing stock would be in even worse shape and many more people would be homeless or living in decrepit housing.
Chris, you said so many things that sounds relevant but in reality , all it boils down to the following. If the fed, ECB, BOJ,PBOC let the rate float and stop QE, nobody would be flipping houses and i will bet you will dump immediately.
At that time,those poor guys who did not save up mortgages will have 10K cash and you will have 100K debt on a house that worth zero.
I am not a flipper for EXACTLY the reasons you stated. When the music stops most will be bankrupt. And QE or not, real estate is a cyclical business and the music always stops at some point.
BTW, “investors” that fix up houses can have a VERY BROAD reach if you include owner-occupants that improve their home (or spend extra) in the hope that it will result in a higher sales price years in the future.
Those bullet points are applicable for Dallas but I think its very different for San Francisco where the average home = $1.1 mil and about %20 (by some estimates) of purchases are foreign cash.
Wolf just posted an article stating that at least %30 of high end home purchases may be laundered money. Visit the Bay and you’ll see quickly that is likely chinese money. These homes are bought and quickly put up for rent. Is that fair that non-nationals can launder money, help escalate real estate values that exclude well compensated middle class citizens from purchasing a home? Seems a bit unfair, but hey capitalism, globalization, blah blah blah.
I’m originally from Houston, TX and comment often that with what we’ve saved we could put half down on a home without exhausting our savings. That’s not even 20% here.
I would love to buy a fixer upper and customize to my liking, but with the average run down, tear-down quality shack in SF well over $600K that is not an option.
I actually am not arguing against real estate investment. I would love to do it myself, but it seems very unbalanced at this point.
Leaving the Bay has come up multiple times in recent conversations. But I’m a scientist about to enter the biotech industry, so the best and most numerous job options for me are here. And we’re affording it for now while continuing to save. Maybe one day when the correction comes, we’ll be able to buy our own.
Those Chinese that you think should be banned from buying US properties are those who have been producing goods to sell to US in exchange for $. For the past 30 years, US has been exchanging goods for paper and now when those paper come back, they should be banned and we should set up a wall and block all trade. Let them have the papers and exchange nothing!
I don’t necessarily think they should be banned. I just said it seems a bit unfair. As with everything, there should be limits rather than free for all
The problem is all these transactions are borrowed cash. None are cash. Borrowed cash. They’re owned by the bank and the “buyers” are renting from the bank.
Jumping on this comment. I live Oklahoma City and we have neighborhood pockets that are definitely in bubbles but have not seen any crazy spikes in home values. It has definitely become harder to find solid investment deals though. My question is to the people that are saying as soon as interest rates rise (or whatever trigger), investors in rental properties are going to be screwed. What exactly will happen that would put investors of rental properties in a precarious situation?
My specific situation, I have 3 rental properties. All with well over 20% down, all have fixed rate mortgages (less than 4% interest) and my gross margin is roughly 50% of the rent (after mtg/tax/ins/vac/repairs/etc). I do not require any of the cash flow for living off of (work full time in unrelated field). I also have 20-30 year ahead of me before retirement. Why should I be worried about the value of the home considering my investment timeline? In my mind, I only need to be concerned with the rent continuing to come in. What factors could cause rent to fall (aside from oversupply)? Am I missing something? Thanks for the input.
“investor purchases jumped to 37%, an all-time high in the ATTOM data series going back 21 years.”
Great article.
But what % of the these investors are foreign investors?
Is there any mention of what % are all cash sales?
Reading some of the Canadian comments on this blog and others mentioned how Chinese buyers in Canada could somehow mask their identity.
Is that possible in the US, and if so couldn’t corporations show up as small buyers???
I just ran some queries to give an idea of how VERY FEW AFFORDABLE houses are being built in the ENTIRE DALLAS-FORT WORTH-ARLINGTON area for a population of 7m people.
For the BOTTOM 3.5 MILLION PEOPLE there are:
59 new houses FOR SALE
108 new houses SALE PENDING
453 new houses SOLD in the last 12 months
=========================================
Total of 620 new houses for 3.5 MILLION PEOPLE
I used a 50-mile radius and a maximum price of $173,500. This is the maximum that the DFW MEDIAN HOUSEHOLD INCOME of $61,644 can qualify for. Note that this uses NEAR-40-YEAR-LOW interest rates, a 30-year mortgage, and a 5% down payment of $8,675. This ignores other qualifying factors such as job stability, credit score, and non-mortgage debt. It also excludes closing costs, moving costs, furnishing/decorating costs, and ongoing maintenance costs.
*NOTE #1: There are an additional 58 new condos, duplexes & townhomes under $173,500.
*NOTE #2: Most condos in DFW are middle to upper-end. The lowest condos generally start at $250k+. In the $250-$500k range there are 909 new condos for sale, pending or sold. 142 from $500k-$1m, and 34 at $1m+.
*NOTE #3: Median household income for the 2.55 million people in Dallas County is only $50,118. Their maximum purchase price is only $157k.
*NOTE#4: The latest MEDIAN SALES PRICE in DFW for existing homes is $201k. Basically unaffordable by the bottom 60% or so of the market.
*NOTE#5: The top 25% household income is $100,286 and qualifies for a $281,500 house/condo with a 5% down payment of $14,125.
>>> “I used a 50-mile radius and a maximum price of $173,500. This is the maximum that the DFW MEDIAN HOUSEHOLD INCOME of $61,644 can qualify for.”
These kinds of numbers make our head spin here in San Francisco. We’re looking at a median home price of $1.1 million and a median household income of $81,294.
I guess that’s one of the reasons Charles Schwab transferred a bunch of employees to Plano.
Better steaks mang! :)
I’m not sure where you’re getting your information from but there are record numbers of housing units under construction in addition to the record amount of existing housing inventory in DFW.
Info is from MLS. Household income from FED and census.
Yes, there is a record number of housing starts in DFW. It is just that very, very little of it is being built so as to be affordable for the bottom HALF of DFW residents.
Finding good tenants isn’t always easy. Many bad tenants prey on small landlords because they aren’t usually as effective at screening. You have to assume that tenants will be less responsible and more destructive than homeowners, although it isn’t always the case. I had tenants leave junk cars, houses full of possessions, dogs, and several tenants left their teenagers after moving out of state (or to prison). If you have a lot of rentals, you may find dead tenants, tenants who lost jobs and switched to drug dealing, tenants who started informal businesses on your property without your permission (recycling old electronics, body shops, auto repair, catering, etc). These things will tend to make you a hard person, and you may begin to hate people.
If you don’t like screening tenants, please sell to a hardworking, deserving middle-class family.
With the (luxury) apartment boom coming and all the anecdotes I have of older coworkers owning 2-3 homes, I think 2017 is going to be a great time to rent a SFH in Seattle come summer. There are a lot of workers coming in, so I could be wrong, but I’ve already started seeing improving rentals on craigslist from the little I’ve tracked.
My tell that the RE bubble is nearing its end. Tarek and Christina brought their flipping show to Colorado Springs recently, I suppose to sell books and things. I started to go just to meet Christina :-) Yeah, guess I’m a dog.
Hey Wolf- Great website. Question: do you think rent prices/home prices will reach 2011/2012 levels again? If so, when?
Thanks