The majority of new multifamily construction is focusing on the luxury market, and it’s causing rents to soar across the country. In fact, the Wall Street Journal reports that of the 370,000 multifamily rental units built between 2012 to 2014 in 54 U.S. metropolitan areas, 82 percent were in the luxury sector.
This emphasis on high-end rentals is causing an affordability gap for renters in many metro areas. A new report released by the National Low Income Housing Coalition found that there isn’t a state in the country where someone earning either the state or federal minimum wage could afford a market-rate one-bedroom apartment. This echoes a recent study by The NAR that found the gap between rental costs and household income is widening to unsustainable levels in many parts of the country.
It doesn’t appear that rental costs in major cities will go down any time soon. In some areas, including Denver, Tampa, Baltimore and Phoenix, a staggering majority of new multifamily construction targets high-end renters. Around 95 percent of new apartments built in Atlanta are in the luxury category.
As lenders try to capture more of the high-end housing market, J.P. Morgan Chase announced that it’s loosening the underwriting standards for issuing jumbo mortgages. Jumbo mortgages exceed $417,000 in most parts of the country, or $625,500 in pricier areas. The bank is lowering its minimum credit score and down payment requirements for mortgages up to $3 million.
Chase’s decision follows similar steps from Bank of America Corp., Wells Fargo and other banks for jumbo mortgage requirements.
As such, the jumbo market is getting bigger. Jumbo originations in the most recent quarter climbed to an eight-year high of $93 billion — a 58 percent increase from a year ago, according to Inside Mortgage Finance estimates. Jumbo mortgages issued by lenders last year accounted for about 20 percent of all first-lien mortgages, up from 5.5 percent in 2009.
“There’s no question that the jumbo market has probably recovered more than any sector of the mortgage market since the housing crisis,” says Guy Cecala, publisher of Inside Mortgage Finance.
J.P. Morgan is lowering its minimum FICO credit scores for jumbo mortgages from 740 to 680 for loans on primary single-family purchases, second homes and some refinances. The bank is also allowing a 15 percent down payment for loans up to $3 million. That is less than other banks, such as Bank of America and PNC Financial Services Group Inc., which allow a 15 percent down payment for jumbo loans up to $1 million and $1.5 million, respectively.
REOs and short sales are a reminder of the legacy of the housing downturn. In key markets, investors seeking discount prices have transformed what was once undesirable into fashion-forward, instant cash flow. In other markets, however, distressed inventory still hinders overall prices from getting a leg up.
With the effects of global economic volatility on our domestic economy and housing markets still unknown, distressed sales continue to be a critical market indicator. Right now distressed property saturation is close to historic, pre-2008 rates, which hovered around 4 percent of all sales. But increases in distressed property activity this Winter 2015 / 2016 could shift momentum towards peak distressed saturation levels of 40 percent. Typically, distressed saturation fluctuates with the seasons and increases in the winter season.
“Distressed saturation continues to be a challenge we face in today’s housing market,” says Alex Villacorta, Ph.D., vice president of research and analytics at Clear Capital. “In fact, today’s ‘traditional’ housing market continues to be defined by distressed saturation levels. In Act One, at the start of the downturn, distressed properties were an albatross around housing’s neck. In Act Two, between 2011 and 2013, investors stepped in, buying, rehabbing and selling or renting distressed properties, which gave way to higher demand and rising prices.
The economic downturn in China and South America, along with instability in many parts of the Middle East and Europe, are prompting nervous wealthy foreigners to pour their money into U.S. residential real estate. They’re paying cash and driving up home prices.
Chinese investors are leading the charge. “For economic and political reasons, Chinese investors want to protect their wealth by diversifying their assets by buying U.S. real estate,” said William Yu, an economist at UCLA Anderson Forecast.
In 2015, buyers from China have for the first time ever surpassed Canadians as the top foreign buyers. They have plowed $28.6 billion into U.S. homes, at an average price of $831,800, according to the National Association of Realtors (NAR). In dollar terms, Chinese buyers accounted for 27.5 percent of the $104 billion that foreign buyers spent on U.S. homes. This has spawned a whole industry of specialized Chinese-American brokers.
“China’s economic elites have one foot out the door, and they are ready to flee en masse if the system really begins to crumble,” explained David Shambaugh, professor at George Washington University in Washington, D.C.
China has capital controls in place to prevent this sort of thing for the average guy. But Yu says there are ways for well-connected Chinese to transfer money to the U.S., particularly those with business relationships in Hong Kong or Taiwan.
No surprise here for agents representing enthusiastic sellers; for the seventh consecutive month, the gap has widened between what home owners say their home is worth compared to what appraisers say, according to Quicken Loans’ Home Price Perception Index.
Homeowner estimates now stand 2.65 percent higher than appraiser opinions, the largest gap in more than a year, according to the index.
“The perception trend of most of this year suggests home owners may be assuming that home values have been in a steady, linear path upward,” says Bob Walters, Quicken Loans chief economist. “In reality, home values have remained mostly flat this year, and this false assumption may be leaving home owners disappointed when their appraisals come in.”
Consumers remain optimistic about the long-term prospects of the housing market. Still, homeowners say they’re hesitant to list their home for sale for a number of surprising reasons, according to Berkshire Hathaway HomeServices’ Homeowner Sentiment Survey.
The most common obstacles cited by homeowners for not yet listing their home are due to inventory concerns, including “waiting for the right opportunity” and “haven’t found my ideal home yet.”
What’s more, of consumers considering selling their home but who have not yet listed, 73 percent say that home prices have not recovered from pre-recession levels enough for them to sell. Sixty-eight percent of current homeowners surveyed said underwater mortgages remain a big barrier to them. Sixty-one percent say they’re uneasy about the economy, which has kept them from selling.
And some 55 percent of homeowners contemplating selling said they’d be more likely to do so if they had additional information on the home-selling process.
Two of our most basic needs as humans are food and shelter, and a recently released RealtyTrac report takes an enlightening look at an analysis combining these two elements. For this analysis, RealtyTrac looked at home values, appreciation and property taxes in U.S. ZIP codes with a Whole Foods or a Trader Joe’s. The survey aimed to determine the best combination of food and shelter when it comes to these two iconic grocery store chains with cult followings.
Homeowners near a Trader Joe’s have experienced better home value appreciation since their purchase than homeowners near a Whole Foods, according to a report by RealtyTrac.
While the average appreciation for all ZIP codes nationwide is 34 percent, homeowners near a Trader Joe’s have seen an average 40 percent increase in home value since they purchased. Homeowners near a Whole Foods saw a 34 percent increase, the same as the national average.
Homes near a Trader Joe’s also have a higher value on average: $592,339, five percent more than the $561,840 average value for homes near a Whole Foods.
Foreclosure inventory plunged nearly 25 percent last month. The number of completed foreclosures, which reflect the total number of homes actually lost, fell almost 20 percent year-over-year, according to CoreLogic’s latest National Foreclosure Report.
There were 40,000 completed foreclosures nationwide in the month, down from 50,000 a year prior. Foreclosure levels have fallen nearly 66 percent from their peak in September 2010.
The following states had the highest foreclosure inventory (as a percentage of all homes with a mortgage):
New Jersey: 5.1 percent
New York: 3.8 percent
Florida: 3.1 percent
Hawaii: 2.6 percent
District of Columbia: 2.5 percent
More homeowners are keeping up with their mortgage payments, with the number of loans 90 days or more past due down 22 percent year-over-year, CoreLogic’s report shows. About 1.4 million mortgages are “seriously delinquent,” the lowest rate since February 2008.
More than 70 percent of real estate agents purchased online leads in 2014. But do they find it worthwhile? Inman recently surveyed real estate agents about the effectiveness of online leads in their business. Bottom line? Converting leads into business isn’t easy. The majority of agents said online leads accounted for 5 percent or less of their closed business in 2014. Forty percent said online leads accounted for 2.5 percent or less of their business last year. The vast majority of respondents think one word-of-mouth referral is more valuable than 10 online leads.
However, some agents have luck with online leads, attributing 46 percent or more of their deals in 2014 to online leads. These agents might have more discipline than others when it comes to converting leads. They might also do a better job of selecting the type of online leads that deliver the best results.
Half of agents reported buying leads from third-party listing portals, such as Zillow, Trulia, realtor.com and Homes.com, making portals the most commonly used type of online lead purchase. But many agents reported minimal success. The number of agents who gave the portals poor ratings was higher than all agents who gave them a rating of mediocre, good or great combined.