Shilling: Why Renters Rule U.S. Housing Market (Part 1)
By A. Gary Shilling Feb 21, 2012 5:01 PM MT Bloomburg
The collapse in housing and the 33 percent plunge in house prices since 2006 are favoring renting over homeownership. This trend will dominate the housing market for the next four or five years, and put additional pressure on a weak economy.
Policy makers in Washington continue to have a soft spot for homeownership. Many recent government actions can be viewed as attempts to keep people in their homes, even owners who clearly can’t afford them. In addition to specific plans such as the Home Affordable Modification Program, or HAMP, and the Home Affordable Refinance Program, or HARP, the Obama administration is trying to revive the moribund housing sector by encouraging mortgage lenders and servicers to refinance loans at lower rates.
This reduces interest income for banks, which are now compelled by the Dodd-Frank law to retain 5 percent of the credit risk on lower-quality residential mortgages that are securitized and sold to others. Furthermore, banks are reluctant to refinance loans that Fannie Mae and Freddie Mac (NMCMFUS) then guarantee and put back to the lenders if they find any defects. The White House plan is a tough sell.
Refinancing Woes
As banks deleverage and mortgage activities increasingly involve unwanted loans, the ability to deal with refinancing has diminished. Four banks now control more than 60 percent of the mortgage market, and many mortgage servicers have reduced staff or been slow to gear up to handle delinquent mortgages and refinancings. Except for those who qualify for HARP, refinancing is highly unlikely for 8 million owners who are underwater -- owing more than the value of their homes -- because new terms are treated as new loans. Those who have positive home equity face dramatically tightened lending standards, a clogged refinancing system and new fees that can wipe out the savings from refinancing.
Almost 90 percent of mortgages today are only originated because of guarantees from Freddie Mac, Fannie Mae and the Federal Housing Authority, and all three have raised their fees substantially. As a result, many of the 20 million borrowers who could cut their mortgage rates by more than one percentage point through refinancing are unable to benefit.
-- Second Mortgages: Refinancing underwater borrowers is tough when they have second mortgages that also have to be renegotiated, or if mortgage insurers have to agree to the new loans. Many borrowers can’t qualify for refinancing because of tightened lending standards. Fannie, Freddie and the FHA have strengthened their requirements because of pressure from the administration to avoid more losses on bad mortgages. High credit scores are needed to refinance outside HARP, along with two years of tax returns, proof of income and recent evidence of assets such as retirement and brokerage accounts.
During the housing boom, appraisals for house purchases were generous. (And why not? Everyone was certain that house prices would rise indefinitely.) Cooperating appraisers were often recommended by real-estate brokers and mortgage lenders who wanted the deals to go through. After the house-price collapse, however, appraisals became very conservative, as lenders pressured appraisers to make low estimates.
-- Postponed Foreclosures: Foreclosures (HOMFCLOS) have been curtailed for several years, mainly because the administration essentially told lenders and servicers to hold off while they attempted mortgage modifications. Those efforts largely failed. Then the industry voluntarily imposed a moratorium while it was caught in the robo-signing flap, in which documents were approved without proper examination. More recently, lenders and servicers have been trying to avoid throwing people out of their homes as the industry worked out the recently announced restitution with the federal government and state attorneys general for troubled mortgages. As a result, foreclosures in 2011 fell significantly from 2010, and in the third quarter were the lowest since 2007.
Sadly, these efforts to keep people in houses they can’t afford are simply prolonging the process of repairing the housing mess and getting rid of excess inventories.
These measures are the opposite of the successful program led by the Resolution Trust Corp. to clean up the savings-and- loan mess two decades ago, when loans, other assets and whole financial institutions were sold off quickly to private buyers, at very low prices. As we discovered then, large inventories of distressed assets overhang the market and depress prices. To rejuvenate markets, initial sales at low prices are needed to attract buyers and lead to higher prices.
-- Sagging Homeownership: Despite all the efforts to keep people in their houses, homeownership is falling. It dropped to 66 percent in the fourth quarter of 2011, compared with a peak of 69.2 percent in the fourth quarter of 2004. Meanwhile, the 33.5 percent drop in median single-family house prices is the first nationwide decline since 1930s.
Growing Delinquencies
Foreclosures, high unemployment, tight lending standards and lack of money for down payments are playing a role. In the second quarter of 2011, at least 3.6 million mortgages were delinquent and at risk of foreclosure; that could climb to 5 million with further house-price declines and if the recession I forecast for this year takes hold.
The FHA reported that 711,082 single-family loans it insured were seriously delinquent in December 2011, up 3.2 percent from November, and up 18.9 percent compared with December 2010. That pushed the seriously delinquent rate to 9.59 percent in December from 9.34 percent in November and 8.65 percent in December 2010.
Many people who are technically homeowners are really renters. They put little if anything down. In many cases, the equity is negative when, for example, home-improvement loans piggybacked on first mortgages and brought total indebtedness to more than 100 percent of the house value. Many also planned to refinance their mortgages with cash-outs due to appreciation before their mortgage rates reset upward or, in some cases, even before they skipped enough monthly payments to be foreclosed.
-- Rent-Free Renters: Since 2006, 3.1 million people are essentially living rent-free by not paying their monthly mortgage payments. Assuming a monthly mortgage bill equivalent to the national average of $1,721 per person, these nonpayers have increased their purchasing power for other items by $65 billion at annual rates, or the equivalent of 5.6 percent of after-tax income.
That is a big number, but then 12.5 percent of residential mortgages are past due or in foreclosure. This may be an important reason that consumer spending has held up as well as it has in this recovery, despite all the pressure to increase the saving rate and reduce debt. Nevertheless, as heavy foreclosures resume and ex-homeowners are forced to pay rent, this free money will evaporate.
-- Ripple Effect: When house prices were rising, Americans were eager to keep their houses. So the mortgage was the first bill they paid each month, even if that meant they postponed payment on credit cards, cars and student loans. Now, with house prices falling, mortgages are paid last or not at all, especially by the mortgage-holders who are underwater and may be strategically defaulting.
If historical trends hold, the total homeownership rate will return to its earlier base level of 64 percent by the fourth quarter of 2016. Continuing the average annual growth in households over the last decade of 891,000 would increase the total number by 4.5 million by the fourth quarter of 2016. This is enough to increase the number of new homeowners by 550,000 even with that further drop in the homeownership rate.
But it also means the addition of 3.9 million new renters, or 780,000 per year. This doesn’t suggest that we are becoming a nation of renters. Instead, it reflects the elimination of the widely held belief that house prices always rise and the end of loose lending practices that drove the homeownership rate to its 2004 peak. In fact, the reversal to falling prices and the extraordinarily tight lending standards may push the homeownership rate below that 64 percent norm; it would now be 60.9 percent if all those with mortgages that are delinquent or in foreclosure become ex-homeowners.
-- Affordability (AFFD): There are many, including the always bullish National Association of Realtors, who believe that homeownership is bound to rise because houses are now so affordable. In calculating its housing affordability index, the association assumes that a family with median income buys a median-priced single-family house with 20 percent down and finances at the current 30-year fixed mortgage rate. The collapse in house prices and decline in mortgage rates in recent years have more than offset the weakness in median family income, which, according to the Realtors’ group, dropped from $63,366 in 2008 to a $60,824 average for the first 11 months of 2011.
Nevertheless, it is impossible to compare the current attractiveness of buying a home and the conditions in the 1990s and early 2000s. Unemployment rates were much lower then, and house prices were rising as they had been since the 1930s. Financing a mortgage was easy with little or nothing down and spotty credit. Then, huge house-price declines and widespread foreclosures were unthinkable.
-- Weak Earnings: Furthermore, real weekly earnings are falling in what is supposed to be an economic recovery, even as payroll employment growth has been modest. Long-term unemployment is now becoming common, with 43 percent of the unemployed out of work 27 weeks or more and the average length of joblessness at 40 weeks. Job openings have been rising, but hiring is little changed because many of the long-term unemployed, and the newcomers to the job market, don’t have the required skills. Manufacturing output has revived, but it has been accompanied by the resumption of rapid growth in output per employee, which means production advances have arrested but not reversed the long-term downtrend in manufacturing employment.
Realistic housing affordability is also subdued by the 10.7 million underwater homeowners who cannot move to different, perhaps more expensive houses and thereby free up starter houses for new homebuyers. A recent study reveals that underwater borrowers are 30 percent less likely to move than renters or those with positive home equity.
-- Expensive Houses: Despite the collapse in prices, homeownership is still expensive relative to rentals, even as apartment rental rates rise and vacancies decline. Moody’s Analytics Inc. calculates a ratio of home prices to yearly rents at 11.3, down from the bubble peak of 18.5, but still higher than the 1989-2003 average of 10. You’d expect house prices to be lower than average in relation to rents, not higher, now that prices are falling.
Rents have to be higher for landlords to offset the eroding value of their properties. The decline in a rental house’s price is just another cost like taxes and maintenance. In any case, the house price-to-rent ratio is only relevant to the few who can qualify to buy.
In past decades, houses have sold for about 15 times rental income. That was true of the post-World War II years, when owners of rental properties expected inflation to enhance their 6.7 percent return, not including maintenance costs and property taxes. If I’m right about the outlook for slow economic growth and falling house prices, houses and apartments are more likely to sell below 10 times rental income.
The consumer retrenchment and recession I foresee for this year will only add to the lack of affordability of owning houses and to the attractiveness of renting. With it, unemployment will rise, while incomes will fall further. As employment drops, the duration of unemployment will rise, labor force participation will fall and median single-family house prices will decline an additional 20 percent. That will definitely make ownership less attractive even if it raises the Realtors’ housing affordability index.
(A. Gary Shilling is president of A. Gary Shilling & Co. and author of “The Age of Deleveraging: Investment Strategies for a Decade of Slow Growth and Deflation.” The opinions expressed are his own. This is the first of a three-part series.)
Wednesday, February 22, 2012
Monday, February 20, 2012
Rental Demand Goes Up, Rental Prices Go Down?
Arizona Property Management and Investments
(888) 777-6664
www.AZEZRentals.com
Rental Demand Goes Up, Rental Prices Go Down?
February 13, 2012 RSS Feed Print
In the space of just a few years, the nation's foreclosure crisis has chewed up millions of homeowners and spat them back into the housing market as renters.
You would think a huge inflow of rental demand and relatively limited supply—vacancy rates are at their lowest levels in 10 years—would cause rents to spike dramatically, but according to a recent study by Chicago-based risk management information firm TransUnion, that's not the case. The national average for rent has actually dropped slightly, from about $831 in the fourth quarter of 2010 to $820 in 2011.
"On average [rents] went down a little bit, which is sort of counterintuitive based on everything that's been happening," says Steve Roe, vice president of sales for TransUnion's rental screening business unit.
But dig a little deeper and a more logical picture comes into focus. For one, the unemployment rate is still high, and landlords recognize that many Americans simply can't shoulder a rent increase at this point, regardless of how much demand there is for rental housing.
"You look at wage growth and job growth and [landlords] are taking advantage of that where they can, but in many other cases it's a matter of 'We just can't because our tenant base can't afford it,'" Roe says.
Unsurprisingly, location and economic climate has a lot to do with it. While the overall national rent average has gone down, some regions, such as the two coasts, have seen modest upticks. Denver saw an average rent increase of more than 10 percent, according to the survey.
"It depends regionally," Roe says. "[The increases] are in line with what's expected, but we're still not at the pre-crash level, so there's room to grow. The question is: Is the economic strength there to support [higher rents] going forward?"
But while landlords might not be raising rents outright, they are employing other techniques to improve their bottom lines. For one, they are less likely to offer move-in specials or discounts, Roe says, and the deposits landlords have been requiring are on the rise. They're also pickier about their tenants' credit record.
"Property managers' rental volume is sufficient enough that they can afford to be more selective in offering premium terms," said Mike Mauseth, president of TransUnion Rental Screening Solutions, in a release.
That means while renters might not be paying more in rent every month, upfront costs are rising, and the financial hoops landlords require prospective tenants to jump through are getting tougher.
Those dynamics could all change, however, if plans to convert thousands of government-owned properties into rentals gain traction.
"Potentially, depending on what happens, it could be a big wave that comes in a knocks the boat over," Roe says. "It has the potential to affect things drastically."
(888) 777-6664
www.AZEZRentals.com
Rental Demand Goes Up, Rental Prices Go Down?
February 13, 2012 RSS Feed Print
In the space of just a few years, the nation's foreclosure crisis has chewed up millions of homeowners and spat them back into the housing market as renters.
You would think a huge inflow of rental demand and relatively limited supply—vacancy rates are at their lowest levels in 10 years—would cause rents to spike dramatically, but according to a recent study by Chicago-based risk management information firm TransUnion, that's not the case. The national average for rent has actually dropped slightly, from about $831 in the fourth quarter of 2010 to $820 in 2011.
"On average [rents] went down a little bit, which is sort of counterintuitive based on everything that's been happening," says Steve Roe, vice president of sales for TransUnion's rental screening business unit.
But dig a little deeper and a more logical picture comes into focus. For one, the unemployment rate is still high, and landlords recognize that many Americans simply can't shoulder a rent increase at this point, regardless of how much demand there is for rental housing.
"You look at wage growth and job growth and [landlords] are taking advantage of that where they can, but in many other cases it's a matter of 'We just can't because our tenant base can't afford it,'" Roe says.
Unsurprisingly, location and economic climate has a lot to do with it. While the overall national rent average has gone down, some regions, such as the two coasts, have seen modest upticks. Denver saw an average rent increase of more than 10 percent, according to the survey.
"It depends regionally," Roe says. "[The increases] are in line with what's expected, but we're still not at the pre-crash level, so there's room to grow. The question is: Is the economic strength there to support [higher rents] going forward?"
But while landlords might not be raising rents outright, they are employing other techniques to improve their bottom lines. For one, they are less likely to offer move-in specials or discounts, Roe says, and the deposits landlords have been requiring are on the rise. They're also pickier about their tenants' credit record.
"Property managers' rental volume is sufficient enough that they can afford to be more selective in offering premium terms," said Mike Mauseth, president of TransUnion Rental Screening Solutions, in a release.
That means while renters might not be paying more in rent every month, upfront costs are rising, and the financial hoops landlords require prospective tenants to jump through are getting tougher.
Those dynamics could all change, however, if plans to convert thousands of government-owned properties into rentals gain traction.
"Potentially, depending on what happens, it could be a big wave that comes in a knocks the boat over," Roe says. "It has the potential to affect things drastically."
Sunday, February 12, 2012
Renting is the new buying and this trend doesn’t seem to be slowing down anytime soon.
Arizona Property Management and Investments
(888) 777-6664
www.AZEZRentals.com
Renting is the new buying and this trend doesn’t seem to be slowing down anytime soon.
Arizona Property Management & Investments has seen record growth due to positive factors affecting the rental industry.
In previous years, it was embarrassing to say you rent. Today, in most cases, it is embarrassing to say you own. According to the US Census Bureau, the U.S. home ownership rate has fallen about 1.5% over the past year (from 66.9% to 65.9%). For every 1% drop in the home ownership rate, it represents approximately 1 million new renters entering the rental market. Aggregate Official Home Ownership Rate
In some cases, home ownership rates have fallen below some European countries. Italy for example, has an 84% home ownership rate. Along with Spain with a 78% home ownership rate.
High unemployment rates, difficulty in getting financing, changing demographics and increased foreclosure rates are adding to the deceleration of home ownership. In 2011, there was a 4% increase in the amount of renting households compared to 2010.
In the United States, home ownership is the least in states like California (56%), New York (54%) and Washington at (64%). States with the highest home ownership rates are Michigan (75%), Mississippi (75%), South Carolina (75%) and West Virginia at (79%). Click here to see the map.
Rental vacancy rates dropped to 5.6 percent in the third quarter of 2011, down from their record high of 8 percent in 2009, according to Reis Inc. This increase in rental demand is putting upward pressure on rental prices throughout the United States. As more foreclosures and new apartment buildings enter the market, the rental rates should stabilize and reach equilibrium.
Renting is the new buying and this trend doesn’t seem to be slowing down anytime soon.
(888) 777-6664
www.AZEZRentals.com
Renting is the new buying and this trend doesn’t seem to be slowing down anytime soon.
Arizona Property Management & Investments has seen record growth due to positive factors affecting the rental industry.
In previous years, it was embarrassing to say you rent. Today, in most cases, it is embarrassing to say you own. According to the US Census Bureau, the U.S. home ownership rate has fallen about 1.5% over the past year (from 66.9% to 65.9%). For every 1% drop in the home ownership rate, it represents approximately 1 million new renters entering the rental market. Aggregate Official Home Ownership Rate
In some cases, home ownership rates have fallen below some European countries. Italy for example, has an 84% home ownership rate. Along with Spain with a 78% home ownership rate.
High unemployment rates, difficulty in getting financing, changing demographics and increased foreclosure rates are adding to the deceleration of home ownership. In 2011, there was a 4% increase in the amount of renting households compared to 2010.
In the United States, home ownership is the least in states like California (56%), New York (54%) and Washington at (64%). States with the highest home ownership rates are Michigan (75%), Mississippi (75%), South Carolina (75%) and West Virginia at (79%). Click here to see the map.
Rental vacancy rates dropped to 5.6 percent in the third quarter of 2011, down from their record high of 8 percent in 2009, according to Reis Inc. This increase in rental demand is putting upward pressure on rental prices throughout the United States. As more foreclosures and new apartment buildings enter the market, the rental rates should stabilize and reach equilibrium.
Renting is the new buying and this trend doesn’t seem to be slowing down anytime soon.
Tuesday, January 31, 2012
Foreclosures Draw Private Equity as U.S. Rents Homes
Arizona Property Management and Investments
(888) 777-6664
www.AZEZRentals.com
By John Gittelsohn | Bloomberg 1/31/2012
Private equity firms are jumping into distressed housing as the U.S. government plans to market 200,000 foreclosed homes as rentals to speed up the economic recovery.
GTIS Partners will spend $1 billion by 2016 acquiring single-family homes to manage as rentals, Thomas Shapiro, the fund's founder said. That followed announcements this month that GI Partners, a Menlo Park private equity fund, expects to invest $1 billion, and Los Angeles-based Oaktree Capital Management LP will spend $450 million on similar housing.
"It's a massive market," Shapiro said in a telephone interview from New York. "We're starting to see this as a billion dollar opportunity to buy rental housing."
Creating more single-family rental properties is one of a series of programs introduced by President Barack Obama's administration aimed at reviving the housing market. An S&P/Case-Shiller index (SPX) of property values in 20 cities has dropped 33 percent from its peak in July 2006 and 12 percent of homeowners with a mortgage are either delinquent or in foreclosure. Last week, the administration revised its Home Affordable Modification Program, offering government incentives for mortgage investors Fannie Mae and Freddie Mac (FMCC) when they forgive debt on homes that lost value as a way of preventing delinquent borrowers from losing their houses.
Increasing Rentals
Increasing rentals may reduce lenders' losses on foreclosed and surrendered properties and curb declines in home prices, according to a Federal Reserve study Chairman Ben S. Bernanke sent to Congress on Jan. 4. Private equity funds began focusing on these investments in September, after the administration asked for proposals to sell the government's inventory of foreclosed homes -- about half of all houses seized from delinquent borrowers.
The S&P/Case-Shiller index of property values in 20 cities declined 3.7 percent from November 2010 after falling 3.4 percent in the year ended in October, according to data released today. Economists projected a 3.3 percent drop, according to the median estimate in a Bloomberg News survey.
Even as prices dropped, the "seeds to a recovery are being planted," Karl Case, co-creator of the measure, said today in an interview on Bloomberg Radio's "Bloomberg Surveillance," with Ken Prewitt and Tom Keene. "Efforts are underway to deal with a backlog of foreclosed properties," he said.
The Federal Housing Finance Agency, which oversees Fannie Mae (FNMA) and Freddie Mac, plans to complete initial transactions in the first quarter of this year, offering some of the 180,000 foreclosed homes in their inventory to private operators as rental properties, Corinne Russell, a spokeswoman, said in a telephone interview.
Public-Private Partnerships
The Federal Housing Administration, which also will participate in the rental program, had 32,170 real-estate owned homes seized from borrowers, also known as REOs, as of Dec. 31, according to spokesman Lemar Wooley.
Possible aspects of the program include public-private partnerships to share the risk and profits, "seller financing" guaranteed by the government and rent-to-own opportunities for tenants, according to a November memo.
"It marks the first time that institutional investors are really getting involved, and in the process providing a higher quality product to a tightening rental market," Oliver Chang, a Morgan Stanley analyst based in San Francisco, said in an e-mail last week.
$1 Trillion Liquidations
About 7.5 million homes with a current market value of $1 trillion will be liquidated through foreclosures or other distressed sales by 2016, according to an Oct. 27 report by Chang. That will add to the estimated 20 million single-family homes already operated as rentals, which have yielded annual returns averaging 8.1 percent since 1990, Chang's report said.
Rentals can produce cash flows, known as a capitalization rate or cap rate, that reduce losses more than reselling foreclosed homes at a time of weak demand, the Federal Reserve report said.
"Preliminary estimates suggest that about two-fifths of Fannie Mae's REO inventory would have a cap rate above 8 percent -- sufficiently high to indicate renting the property might deliver a better loss recovery than selling the property," the Fed paper said.
While there may be opportunities, investors should be cautious about borrowing to invest in markets such as Las Vegas (SPCSLV), where a transient population and economy dependent on a single industry like gaming, make it hard to see an exit strategy, Kenneth Hackel, managing director heading securitized products strategy for CRT Capital LLC, said in a telephone interview from Stamford, Connecticut yesterday.
Track Record
"For the kind of properties I looked at, and in most cases, capital markets aren't excited to finance the REO-to- Rental marketplace at this stage," said Hackel, who toured Las Vegas (SPCSLV) homes on the market this month. "Once you establish a track record and have some positive cash flow in place, then perhaps you can get some interest in having leverage. But I think as a first step, investors are best served by looking at this on an unlevered basis."
The U.S. homeownership rate was 66.3 percent for the quarter ending Sept. 30, as low as 1998 levels and down from a peak of 69.2 percent in December 2004, according to the U.S. Census Bureau. The fourth quarter report comes out today.
"New households have a much higher propensity to be renters," Thomas Lawler, a former economist with Fannie Mae who's now an independent housing consultant in Leesburg, Virginia. "And a lot of folks who are losing their homes to foreclosure are now renters."
Rental Demand
Demand for rental housing helped boost shares of the 12- member Bloomberg Apartment Real Estate Investment Trust index 13 percent over the past 12 months compared with a 2.1 percent gain for the S&P 500 Index. It's also attracting private equity funds to single-family homes, which historically have been an investment for small investors.
Cerberus Capital Management LP, Deutsche Bank AG, Fortress Investment Group LLC (FIG) , Starwood Capital Group LLC, TCW Group Inc. and UBS AG are among the financial firms that submitted responses to the federal request for information in September, according to a list obtained by Bloomberg through a Freedom of Information Act filing.
"We believe we'll easily be able to raise $1 billion this year in total," said Rick Sharga, executive vice president of Carrington Mortgage Holdings LLC in Santa Ana, California, which will manage the homes bought with Oaktree Capital's money. "The ultimate fund could be several times that."
Carrington Manages
Carrington currently manages more than 3,000 rental homes for Fannie Mae, mostly in California, Arizona, Nevada and Florida, Sharga said.
Single-family home rentals can yield cash flows that are 300 basis points, or 3 percentage points, higher than apartments, said Gregor Watson, principal of McKinley Capital Partners LLC of Oakland, California, which has invested $100 million in the past two years, buying more than 400 foreclosed homes in the San Francisco Bay Area and other western U.S. cities. McKinley's largest financial backer is Och-Ziff Capital (OZM) Management Group, a New York-based investment fund with $28.9 billion under management as of Nov. 1, Watson said. Jonathan Gasthalter, an outside spokesman for Och-Ziff declined to comment.
"This will be a new institutional asset class in the next 24 months," Watson said.
Forming a REIT
GTIS, which has $2 billion of assets, expects to hold its homes about five years, waiting for housing prices to recover before selling, Shapiro said. If housing prices don't rebound, GTIS can exit by forming a real estate investment trust with shares sold to investors attracted by the rental income, similar to REITS for multifamily, industrial or office properties, he said.
"Single family dwarfs any of those asset classes," Shapiro said. "When you think about the number of homes that are going to be rented and institutionally owned, they're going to become its own asset class."
GTIS, which has invested $225 million in partnerships with homebuilders such as Hovnanian Enterprises Inc. (HOV) since 2010, will hire in-house staff to manage the rental properties in each area, Shapiro said. He declined to disclose his expectations for returns on investment.
"We think the important thing is on the operations and management side as opposed to playing a numbers game, like I'm buying for 30 cents on the dollar to a 12 percent yield," he said.
Buying in Bulk
GTIS expects to buy homes in bulk from banks, Fannie Mae and Freddie Mac, Shapiro said. Properties will also be bought individually at courthouse auctions and through short sales, when lenders agree to sell for less than the balance of the mortgage, he said.
GTIS will start buying in cities in Nevada, Arizona and California -- the states with the three highest foreclosure rates, according to RealtyTrac Inc. -- and Florida, which RealtyTrac ranked seventh in December, Shapiro said.
"The key is being able to efficiently manage these homes," he said. "That's why we're targeting select markets. Our intention is to rent them, to hold them for long term."
(888) 777-6664
www.AZEZRentals.com
By John Gittelsohn | Bloomberg 1/31/2012
Private equity firms are jumping into distressed housing as the U.S. government plans to market 200,000 foreclosed homes as rentals to speed up the economic recovery.
GTIS Partners will spend $1 billion by 2016 acquiring single-family homes to manage as rentals, Thomas Shapiro, the fund's founder said. That followed announcements this month that GI Partners, a Menlo Park private equity fund, expects to invest $1 billion, and Los Angeles-based Oaktree Capital Management LP will spend $450 million on similar housing.
"It's a massive market," Shapiro said in a telephone interview from New York. "We're starting to see this as a billion dollar opportunity to buy rental housing."
Creating more single-family rental properties is one of a series of programs introduced by President Barack Obama's administration aimed at reviving the housing market. An S&P/Case-Shiller index (SPX) of property values in 20 cities has dropped 33 percent from its peak in July 2006 and 12 percent of homeowners with a mortgage are either delinquent or in foreclosure. Last week, the administration revised its Home Affordable Modification Program, offering government incentives for mortgage investors Fannie Mae and Freddie Mac (FMCC) when they forgive debt on homes that lost value as a way of preventing delinquent borrowers from losing their houses.
Increasing Rentals
Increasing rentals may reduce lenders' losses on foreclosed and surrendered properties and curb declines in home prices, according to a Federal Reserve study Chairman Ben S. Bernanke sent to Congress on Jan. 4. Private equity funds began focusing on these investments in September, after the administration asked for proposals to sell the government's inventory of foreclosed homes -- about half of all houses seized from delinquent borrowers.
The S&P/Case-Shiller index of property values in 20 cities declined 3.7 percent from November 2010 after falling 3.4 percent in the year ended in October, according to data released today. Economists projected a 3.3 percent drop, according to the median estimate in a Bloomberg News survey.
Even as prices dropped, the "seeds to a recovery are being planted," Karl Case, co-creator of the measure, said today in an interview on Bloomberg Radio's "Bloomberg Surveillance," with Ken Prewitt and Tom Keene. "Efforts are underway to deal with a backlog of foreclosed properties," he said.
The Federal Housing Finance Agency, which oversees Fannie Mae (FNMA) and Freddie Mac, plans to complete initial transactions in the first quarter of this year, offering some of the 180,000 foreclosed homes in their inventory to private operators as rental properties, Corinne Russell, a spokeswoman, said in a telephone interview.
Public-Private Partnerships
The Federal Housing Administration, which also will participate in the rental program, had 32,170 real-estate owned homes seized from borrowers, also known as REOs, as of Dec. 31, according to spokesman Lemar Wooley.
Possible aspects of the program include public-private partnerships to share the risk and profits, "seller financing" guaranteed by the government and rent-to-own opportunities for tenants, according to a November memo.
"It marks the first time that institutional investors are really getting involved, and in the process providing a higher quality product to a tightening rental market," Oliver Chang, a Morgan Stanley analyst based in San Francisco, said in an e-mail last week.
$1 Trillion Liquidations
About 7.5 million homes with a current market value of $1 trillion will be liquidated through foreclosures or other distressed sales by 2016, according to an Oct. 27 report by Chang. That will add to the estimated 20 million single-family homes already operated as rentals, which have yielded annual returns averaging 8.1 percent since 1990, Chang's report said.
Rentals can produce cash flows, known as a capitalization rate or cap rate, that reduce losses more than reselling foreclosed homes at a time of weak demand, the Federal Reserve report said.
"Preliminary estimates suggest that about two-fifths of Fannie Mae's REO inventory would have a cap rate above 8 percent -- sufficiently high to indicate renting the property might deliver a better loss recovery than selling the property," the Fed paper said.
While there may be opportunities, investors should be cautious about borrowing to invest in markets such as Las Vegas (SPCSLV), where a transient population and economy dependent on a single industry like gaming, make it hard to see an exit strategy, Kenneth Hackel, managing director heading securitized products strategy for CRT Capital LLC, said in a telephone interview from Stamford, Connecticut yesterday.
Track Record
"For the kind of properties I looked at, and in most cases, capital markets aren't excited to finance the REO-to- Rental marketplace at this stage," said Hackel, who toured Las Vegas (SPCSLV) homes on the market this month. "Once you establish a track record and have some positive cash flow in place, then perhaps you can get some interest in having leverage. But I think as a first step, investors are best served by looking at this on an unlevered basis."
The U.S. homeownership rate was 66.3 percent for the quarter ending Sept. 30, as low as 1998 levels and down from a peak of 69.2 percent in December 2004, according to the U.S. Census Bureau. The fourth quarter report comes out today.
"New households have a much higher propensity to be renters," Thomas Lawler, a former economist with Fannie Mae who's now an independent housing consultant in Leesburg, Virginia. "And a lot of folks who are losing their homes to foreclosure are now renters."
Rental Demand
Demand for rental housing helped boost shares of the 12- member Bloomberg Apartment Real Estate Investment Trust index 13 percent over the past 12 months compared with a 2.1 percent gain for the S&P 500 Index. It's also attracting private equity funds to single-family homes, which historically have been an investment for small investors.
Cerberus Capital Management LP, Deutsche Bank AG, Fortress Investment Group LLC (FIG) , Starwood Capital Group LLC, TCW Group Inc. and UBS AG are among the financial firms that submitted responses to the federal request for information in September, according to a list obtained by Bloomberg through a Freedom of Information Act filing.
"We believe we'll easily be able to raise $1 billion this year in total," said Rick Sharga, executive vice president of Carrington Mortgage Holdings LLC in Santa Ana, California, which will manage the homes bought with Oaktree Capital's money. "The ultimate fund could be several times that."
Carrington Manages
Carrington currently manages more than 3,000 rental homes for Fannie Mae, mostly in California, Arizona, Nevada and Florida, Sharga said.
Single-family home rentals can yield cash flows that are 300 basis points, or 3 percentage points, higher than apartments, said Gregor Watson, principal of McKinley Capital Partners LLC of Oakland, California, which has invested $100 million in the past two years, buying more than 400 foreclosed homes in the San Francisco Bay Area and other western U.S. cities. McKinley's largest financial backer is Och-Ziff Capital (OZM) Management Group, a New York-based investment fund with $28.9 billion under management as of Nov. 1, Watson said. Jonathan Gasthalter, an outside spokesman for Och-Ziff declined to comment.
"This will be a new institutional asset class in the next 24 months," Watson said.
Forming a REIT
GTIS, which has $2 billion of assets, expects to hold its homes about five years, waiting for housing prices to recover before selling, Shapiro said. If housing prices don't rebound, GTIS can exit by forming a real estate investment trust with shares sold to investors attracted by the rental income, similar to REITS for multifamily, industrial or office properties, he said.
"Single family dwarfs any of those asset classes," Shapiro said. "When you think about the number of homes that are going to be rented and institutionally owned, they're going to become its own asset class."
GTIS, which has invested $225 million in partnerships with homebuilders such as Hovnanian Enterprises Inc. (HOV) since 2010, will hire in-house staff to manage the rental properties in each area, Shapiro said. He declined to disclose his expectations for returns on investment.
"We think the important thing is on the operations and management side as opposed to playing a numbers game, like I'm buying for 30 cents on the dollar to a 12 percent yield," he said.
Buying in Bulk
GTIS expects to buy homes in bulk from banks, Fannie Mae and Freddie Mac, Shapiro said. Properties will also be bought individually at courthouse auctions and through short sales, when lenders agree to sell for less than the balance of the mortgage, he said.
GTIS will start buying in cities in Nevada, Arizona and California -- the states with the three highest foreclosure rates, according to RealtyTrac Inc. -- and Florida, which RealtyTrac ranked seventh in December, Shapiro said.
"The key is being able to efficiently manage these homes," he said. "That's why we're targeting select markets. Our intention is to rent them, to hold them for long term."
Monday, January 23, 2012
New rules will let investors refinance
New rules will let investors refinance
by Catherine Reagor - Jan. 20, 2012 03:24 PM
The Republic | azcentral.com
Fannie Mae and Freddie Mac are changing the rules in a way that could make metro Phoenix's many home investors very happy.
The new program that allows homeowners with mortgages held by those government-owned mortgage giants to refinance, no matter how underwater they are, now will include investors. When the expanded Home Affordable Refinance Program, or HARP, was announced in October, investors weren't going to be included.
But then federal officials realized that many people who don't live in a home they own are accidental investors. They can't sell because they owe much more on their mortgage than their house is currently worth. Some no longer can afford their mortgage, so they are renting out their house and living in a less-expensive rental. Other unintentional investors are people who had to move for jobs but couldn't sell their home and are now renting it out.
Most of metro Phoenix investors buying foreclosure homes are paying cash, so they don't need to refinance.
Housing-market advocates say the addition of investors with Fannie or Freddie loans to the new HARP is a good move by the government because it can help homeowners who are stuck and not professional investors.
Help for homeowners who owe more than 125 percent of what their house is worth will be available in March. Homeowners should call their lender or servicer now and see if they can get the application process going or even refinance under the expanded program now. Some banks are doing the risky refinancings and holding the loan until this spring, when they can hand it off to Fannie or Freddie through the new HARP.
President Barack Obama will be in metro Phoenix next week. He did unveil the federal housing plan, which includes the original HARP and loan-modification plan known as HAMP, when he spoke in Mesa in early 2009.
We'll see if he has something to say about the modified HARP plan, which could help tens of thousands of metro Phoenix residents.
Nearly half of the region's homeowners are underwater.
Homebuilding boost
New-home sales across the Phoenix area in 2011 hit their highest level at the end of the year, according to the "Phoenix Housing Market Letter."
In December, 855 new homes sold. That's nearly double the monthly rate in Phoenix for most of 2011. It could be that the supply of foreclosure and resale homes is at a seven-year low, or the nearly record low interest rates.
RL Brown and Greg Burger, publishers of the report, are presenting their 2012 forecast at a Web conference on Wednesday.
Recent new-home-sales numbers and the big drop in foreclosure homes for sale could mean a slight rebound in homebuilding across the region this year.
Arizona Property Management and Investments
If you are interested in purchasing investment properties or receiving a free quote for our property management services, please call us at (888)777.6664 for immediate assistance.
by Catherine Reagor - Jan. 20, 2012 03:24 PM
The Republic | azcentral.com
Fannie Mae and Freddie Mac are changing the rules in a way that could make metro Phoenix's many home investors very happy.
The new program that allows homeowners with mortgages held by those government-owned mortgage giants to refinance, no matter how underwater they are, now will include investors. When the expanded Home Affordable Refinance Program, or HARP, was announced in October, investors weren't going to be included.
But then federal officials realized that many people who don't live in a home they own are accidental investors. They can't sell because they owe much more on their mortgage than their house is currently worth. Some no longer can afford their mortgage, so they are renting out their house and living in a less-expensive rental. Other unintentional investors are people who had to move for jobs but couldn't sell their home and are now renting it out.
Most of metro Phoenix investors buying foreclosure homes are paying cash, so they don't need to refinance.
Housing-market advocates say the addition of investors with Fannie or Freddie loans to the new HARP is a good move by the government because it can help homeowners who are stuck and not professional investors.
Help for homeowners who owe more than 125 percent of what their house is worth will be available in March. Homeowners should call their lender or servicer now and see if they can get the application process going or even refinance under the expanded program now. Some banks are doing the risky refinancings and holding the loan until this spring, when they can hand it off to Fannie or Freddie through the new HARP.
President Barack Obama will be in metro Phoenix next week. He did unveil the federal housing plan, which includes the original HARP and loan-modification plan known as HAMP, when he spoke in Mesa in early 2009.
We'll see if he has something to say about the modified HARP plan, which could help tens of thousands of metro Phoenix residents.
Nearly half of the region's homeowners are underwater.
Homebuilding boost
New-home sales across the Phoenix area in 2011 hit their highest level at the end of the year, according to the "Phoenix Housing Market Letter."
In December, 855 new homes sold. That's nearly double the monthly rate in Phoenix for most of 2011. It could be that the supply of foreclosure and resale homes is at a seven-year low, or the nearly record low interest rates.
RL Brown and Greg Burger, publishers of the report, are presenting their 2012 forecast at a Web conference on Wednesday.
Recent new-home-sales numbers and the big drop in foreclosure homes for sale could mean a slight rebound in homebuilding across the region this year.
Arizona Property Management and Investments
If you are interested in purchasing investment properties or receiving a free quote for our property management services, please call us at (888)777.6664 for immediate assistance.
Thursday, December 22, 2011
10 Cities Where List Prices Soared Last Month
10 Cities Where List Prices Soared Last Month
Daily Real Estate News | Thursday, December 22, 2011
Median list prices nationwide have risen 4.05 percent on a year-over-year basis, according to November housing data of 146 metro areas from Realtor.com. Fewer cities are reporting year-over-year list price declines, “suggesting a growing optimism on the part of sellers about 2012 market conditions,” according to Realtor.com.
So where have prices risen the most in the last month? The following are the 10 cities that saw the largest median list price increases from October to November.
1. Central Fla.-Regional Statistical Area
Month-to-month median increase: 5.63 percent
Year-over-year increase: 14.27 percent
Median list price: $169,000
2. Phoenix-Mesa, Ariz.
Month-to-month increase: 4.46 percent
Year-over-year increase: 10.54 percent
Median list price: $164,700
3. Miami, Fla.
Month-to-month increase: 3.60 percent
Year-over-year increase: 29.50 percent
Median list price: $259,000
4. Tampa-St. Petersburg-Clearwater, Fla.
Month-to-month increase: 3 percent
Year-over-year decrease: -2.50 percent
Median list price: $144,200
5. New York, N.Y.
Month-to-month increase: 2.71 percent
Year-over-year decrease: -2.57 percent
Median list price: $379,000
6. Fort Myers-Cape Coral, Fla.
Month-to-month increase: 2.69 percent
Year-over-year increase: 21.63 percent
Median list price: $224,900
7. Iowa City, Iowa
Month-to-month increase: 2.50 percent
Year-over-year increase: 3.02 percent
Median list price: $204,900
8. Tucson, Ariz.
Month-to-month increase: 2.41 percent
Year-over-year increase: 2.41 percent
Median list price: $174,000
9. Sarasota-Bradenton, Fla.
Month-to-month increase: 2.13 percent
Year-over-year increase: 16.56 percent
Median list price: $240,000
10. West Palm Beach-Boca Raton, Fla.
Month-to-month increase: 1.86 percent
Year-over-year increase: 15.26 percent
Median list price: $219,000
By Melissa Dittmann Tracey for REALTOR® Magazine’s Daily News
Arizona Property Management and Investments
If you are interested in purchasing investment properties or receiving a free quote for our property management services, please call us at (888)777.6664 for immediate assistance.
Daily Real Estate News | Thursday, December 22, 2011
Median list prices nationwide have risen 4.05 percent on a year-over-year basis, according to November housing data of 146 metro areas from Realtor.com. Fewer cities are reporting year-over-year list price declines, “suggesting a growing optimism on the part of sellers about 2012 market conditions,” according to Realtor.com.
So where have prices risen the most in the last month? The following are the 10 cities that saw the largest median list price increases from October to November.
1. Central Fla.-Regional Statistical Area
Month-to-month median increase: 5.63 percent
Year-over-year increase: 14.27 percent
Median list price: $169,000
2. Phoenix-Mesa, Ariz.
Month-to-month increase: 4.46 percent
Year-over-year increase: 10.54 percent
Median list price: $164,700
3. Miami, Fla.
Month-to-month increase: 3.60 percent
Year-over-year increase: 29.50 percent
Median list price: $259,000
4. Tampa-St. Petersburg-Clearwater, Fla.
Month-to-month increase: 3 percent
Year-over-year decrease: -2.50 percent
Median list price: $144,200
5. New York, N.Y.
Month-to-month increase: 2.71 percent
Year-over-year decrease: -2.57 percent
Median list price: $379,000
6. Fort Myers-Cape Coral, Fla.
Month-to-month increase: 2.69 percent
Year-over-year increase: 21.63 percent
Median list price: $224,900
7. Iowa City, Iowa
Month-to-month increase: 2.50 percent
Year-over-year increase: 3.02 percent
Median list price: $204,900
8. Tucson, Ariz.
Month-to-month increase: 2.41 percent
Year-over-year increase: 2.41 percent
Median list price: $174,000
9. Sarasota-Bradenton, Fla.
Month-to-month increase: 2.13 percent
Year-over-year increase: 16.56 percent
Median list price: $240,000
10. West Palm Beach-Boca Raton, Fla.
Month-to-month increase: 1.86 percent
Year-over-year increase: 15.26 percent
Median list price: $219,000
By Melissa Dittmann Tracey for REALTOR® Magazine’s Daily News
Arizona Property Management and Investments
If you are interested in purchasing investment properties or receiving a free quote for our property management services, please call us at (888)777.6664 for immediate assistance.
Wednesday, December 14, 2011
Phoenix-area declines in foreclosures, home supply bode well for 2012
Phoenix-area declines in foreclosures, home supply bode well for 2012
by Lesley Wright - Sept. 14, 2010 12:00 AM
The Arizona Republic
Read more: http://www.azcentral.com/arizonarepublic/local/articles/2010/09/14/20100914real-estate-scheme-sun-city.html#ixzz1gXJkavbg
by Lesley Wright - Sept. 14, 2010 12:00 AM
The Arizona Republic
Read more: http://www.azcentral.com/arizonarepublic/local/articles/2010/09/14/20100914real-estate-scheme-sun-city.html#ixzz1gXJkavbg
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