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Investors and Rentals Continue to Rule the Housing Market

February 24, 2012

in This Week in Real Estate | Tagged , , , , , , , ,

investors rule housing marketLooking to Invest? Consider the South

If you’re thinking about investing in the housing market, your destination should be Atlanta, Phoenix or Miami.

And not just because of the nicer weather.

That’s where the most attractive assets are, says Marc Faber, editor of Gloom Boom & Doom report. Faber told CNBC that the Southern markets are lucrative because property prices were relatively stable there, compared to other parts of the country. In fact, home prices in some parts of Phoenix and Atlanta are cheaper than homes in Thailand, he said.

“If you look at the supply of homes, new construction, and you compare it to immigration into the United States, to the growth of the population, then these (southern) markets are very attractive from a longer term perspective,” Faber said

At a time when strict lending practices are keeping homebuyers at bay, investing in the rental market could be a good bet. Consumers are still anxious about falling home prices and the economy and are more likely to rent than buy. And a safe bet would be a market where the fluctuations have been minimal.

According to Faber, investors “could earn a rental yield of 8 percent per year and buy homes at a 40 to 50 percent discount to construction costs.”

Housing Market has new Avatar

There’s a lot of talk about the market finally looking up. Builder sentiment is on the rise and so is new construction. Although the numbers are still distant from the industry’s glory days in 2006, a Philadelphia Inquirer story says the housing market is back albeit in a new form. There are more apartment buildings being built than single-family homes.

Despite record-low mortgages, many aspiring homeowners have been shut out from the market because of strict lending guidelines. The economy is still recovering from the aftershocks of plummeting home prices, foreclosures and high unemployment numbers. The American dream of owning that single family home will remain a dream for many as the economy continues to heal.

Under such conditions, the demand for rentals are climbing, triggering new construction in that segment, which in turn is making builders positive about the future.

The numbers couldn’t be more telling. Before the market’s collapse, there were five to six times more single-family homes than apartment buildings, the Inquirer said. The ratio now is three to one. If that trend continues, we may have an industry that looks very different from its heydays, the story says.

New Year Brings Some Cheer to the Market

Looks like we have started the year on a much-needed positive swing. Home sales increased 3.4 percent in January when compared to the same year-ago period, according to RE/MAX Housing Report. Home values slid by .08 percent in the same period. But that’s something that could soon turn around, said Margaret Kelly, CEO of REMAX.

“If sales continue ahead of last year’s pace and inventory does not increase significantly, we could start to see increasing home prices this year,” she said in a release.

The National Association of Realtors® says home sales rose 4.3 percent to a 4.57 million annual rate. According to Bloomberg, the uptick in sales is a result of investors rushing in to take advantage of lucrative rates. Almost one of four sales were made by investors, the Bloomberg report said. But that could change with employment numbers improving, foreclosures dropping and mortgage rates still hovering at the bottom.

“I don’t think we’re seeing a full-fledged recovery in housing,” Michelle Meyer, a senior economist at Bank of America Corp. in New York told Bloomberg. “Outside of investors and people wanting to buy distressed properties, the primary housing demand is recovering much more gradually.”

Home Prices Slipped in the Fourth Quarter

Although sales are trending upwards, home prices fell in the fourth quarter because of investors scouting out lower-cost, distressed properties.

Prices dropped 2.4 percent compared to the same period a year ago, according to Bloomberg.

On a seasonally adjusted basis, prices dropped 0.1 percent from three months prior, according to the Federal Housing Finance Agency.

The flood of foreclosures continue to overwhelm the market, while putting a dent on prices. The problem will not disappear anytime soon. Last year, banks took a hiatus from aggressively pursuing foreclosures after they came under scrutiny for bad foreclosure practices. Now that the investigation is over and a settlement has been reached, foreclosures are expected to rise this year – to the tune of 1 million, according to RealtyTrac.

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