If you want Ashley and Tony to answer a real estate question, you can post in the Real Estate Rookie Facebook Group! Or, call us at the Rookie Request Line (1-888-5-ROOKIE).
Ashley:
This is Real Estate Rookie, episode 138.
Tony:
Welcome to the Real Estate Rookie Podcast where every single week, two times a week, you get Ashley and I breaking down the basics of becoming a real estate investor. And we do that by going deep into the topics, into the questions that you know you want to ask but sometimes you’re too embarrassed to ask. So, that’s what we’re going to get into today, some questions that folks might have. I am here with my lovely co-host Ashley Kehr. Ashley, what’s going on?
Ashley:
Hello, Tony Robinson. Before we do any small talk today, getting into the episode, I want to read the question that I have chosen for this Rookie Reply, because I feel like you will have some comments based off of this person’s message to me. So, this message is from Daniel O’Neil. He sent it to me on Instagram and he says, “Episode 126, Movie Quotes. Princess Bride is always good. Emperor’s New Groove, wrong lever. Not much of a movie person but growing up quoting Tommy Boy, so you always make me laugh when you throw one in there. For your brother, I’d recommend civil or architectural engineer. I work in civil and electric, but civil is really handy for anything outside the building, water, sewer, grading, soil composition.” Okay, so before we get to part two of his question, we had asked, said on an episode that maybe I need to start quoting new movies. So, those are his recommendations. Tony, have you seen any of those movies?
Tony:
Well, I just had to Google The Princess Bride. I’ve definitely never seen this movie, came out like in 87. So, I was, I don’t know, not born yet. And then the other was Emperor’s New Groove, right? I love that one.
Ashley:
Yeah.
Tony:
I can get down with some Cusco all day.
Ashley:
Okay. My brother was… Him and his friends were people from Emperor’s New Groove for Halloween this year. Maybe we can post a photo of my brother in the show notes.
Tony:
Well, funny enough, David Spade is also the voice for the main character in that movie. So, there’s that [crosstalk 00:02:03] connection.
Ashley:
Oh really? I didn’t realize that.
Tony:
Yeah. Still some Tommy Boy connection there.
Ashley:
Okay. So we’ll have to freshen up on that one then.
Tony:
All right. I’m going to re-watch that tonight.
Ashley:
Yeah. I had asked for my brother too, my youngest brother, who is 17, asked about careers he should go into if he even goes to college, so that was Daniel’s recommendation for that.
Ashley:
Okay. So part two, here we go. Enjoyed the podcast, by the way. An episode about gathering local rent numbers would be cool. I know it’s mentioned before, but a refresher would be nice for this rookie. Well Daniel, your wish is our command. We are going to break that down today as to how you can find what rent is going for in your area. Tony, kick it off.
Tony:
There’s a lot of different ways that you can go about this. I think maybe we can give them both ways, right? We can give them the kind of free, easy way to do it. Then we can give them the Biggerpockets kind of way that makes it probably a little bit easier, but both of which I think a new rookie can go with. So I’ll maybe give him the quick and dirty way, and then you can give the Biggerpockets way. But I just want to highlight really quick before we keep going, this question came in through your Instagram. For those of you that are watching, that are listening, if you want your question possibly featured on the show, feel free to reach out to Ash and I on Instagram as well, I’m @TonyJRobinson, she’s @wealthforrentals. And from time to time, we’ll pick some questions that people kind of slid into our DM’s with and use those as the premise for an entire show.
Tony:
Okay. So getting into the nitty gritty here. If I wanted to understand potential rents and I wanted to do it the kind of quick and dirty way, my preference is to go with a site like Zillow or Redfin, whatever, any other website that shows all of the properties that are for rent in your area. I like to get really narrowed down and focused on a specific zip code when I’m looking at long term rentals. So, for example, me, when I was investing in Louisiana, I knew that 71105 and 71104 were the two zip codes that I focused on in Louisiana. So what I would do is I would type in those zip codes into Zillow, change a little filter to say ‘For rents’ and I would start looking for properties that were comparable to my property or the property that I was thinking about purchasing.
Tony:
For example, my first purchase was a three, two. I looked at all of the other three two’s that were for rent in that market, just started in a little Excel sheet, a little Google Sheets file, putting down here’s the address, here’s the rent, here’s the address, here’s the rent, here’s the address, here’s the rent. And if you do that enough times for enough listings, you start to get a sense of what things might rent for in your neighborhood.
Tony:
Now, the kind of important thing I think to take note of is that it’s helpful if you can check this at more than one point in time. For example, someone might list a property for rent today, and then two weeks from now, they decrease that rent because it hasn’t been rented out yet. So I’d try to get at least two different time points, data points, to support that. And if I see that the price didn’t decrease, or maybe that listing went away, then it’s a good sense that, or it’s a good indicator that someone’s probably actually rented that property out. That’s really the easiest, kind of quickest, dirtiest way that I did it when I first got started in long term rental space was just getting really, really intimate, really, really familiar with the data in that specific zip code. And when you see enough, you’ll kind of understand what you might be able to charge for it. That was a mouthful, Ash. What do you got for us?
Ashley:
Tony, the only things that I would add to that is if you want to get super technical is actually start an Excel spreadsheet. So every day you’re going through the listings and you’re putting in the address and then what it’s for. And then when it’s taken down and it’s no longer up, that probably means it was rented. You’re getting an idea of how fast things are rented and if they’re actually renting for that price. If something is staying on for a long time, then it’s probably too high of a price and people aren’t paying that. You can also look at the pictures too, to see how they compare to your unit. Another thing to note was use the map view. So on Craigslist, Facebook Marketplace, they all have the map view where you can see exactly where these units are located, which can kind of help you stay within your area, too.
Ashley:
Then Biggerpockets. If you are a Pro member, they have the Rent Estimator Tool. And all you have to do is put in the property address or the zip code of where you want to invest. And that will actually give you comparables. So you can put in, if it’s a two bedroom, one bath, three bedroom, two bath, whatever it is, and it will pull up those comparables for you in your market. And it will show when it was last rented, how much it rented for. It also does a map view for you. And you can click on those and go to the old listing sometimes too. So if it was listed on Zillow, you can usually click on the Biggerpockets website where they show that comp and it will take you to the actual listing, even if it’s expired, so you can see some pictures through there too. Also, checking dates, making sure the dates are comparable, that it’s not from a long time ago.
Ashley:
If you’re in really rural areas, it’s going to be a lot easier to do what Tony talks about is going through and searching because there’s not going to be a lot of comps anyways. And the Biggerpockets rent estimator might not have that much data for you because it’s so small and there’s not a lot of rentals anyways. I think one thing to note too, is if you are having trouble finding comparables, because there’s nothing available, then that’s a good sign potentially that there is not a lot of vacancy in the area and that there is a demand for units.
Tony:
Or you could live in maybe in the middle of nowhere where there’s no people either. So it could go either way. But I think just one thing to add on the Biggerpockets data side is that whenever you’re using software tools like this, there always is some kind of margin of error. But Ashley just looked up the zip codes that I invested in, in Louisiana and our last house, it was a three bedroom, two bath. We had it rented out for 1350. I plugged in that same data into the rent estimator here and it said that the median rent is 1325. So it’s actually pretty close to what we were actually getting. So, just to give you a little bit more confidence in the data that’s presented there.
Ashley:
Okay, well, awesome. Hopefully that helps you guys. One last thing that you can actually do is you can call property management companies in those areas too. Just ask what rents are for two bedroom, one bath. You don’t have to say that you’re going to be their competitor, that you’re looking to buy investments in the area, but just say that you’re looking for an apartment if they even ask, but you can get data that way. I’ve had other investors call me saying that their tenant’s giving them a hard time raising rent and they want to show them that it’s actually not that high compared to other areas. I’ve given out that information. No problem. One great thing about real estate investing and investors is that everybody is willing to give out so much information. You’ll rarely find somebody who keeps it a secret of what they’re doing or is not willing to share.
Tony:
Yeah, that’s great advice, Ashley. I guess just last thing they even do that like apartments calling each other, they do that with bigger apartments as well. I worked for a property management company briefly after college and part of our job as the leasing agents was to call other apartment complexes in the area. And you know, these are big apartments. These are like thousand plus unit apartment complexes. And part of our job was to call the other apartment complexes in the area to see what their rents were. And you know, every time we call it, it was just a normal thing. They knew that that was part of what came with it. So really, really good points to do that with the single family houses as well, because they’re even nicer than these big corporations. And they’re probably even more willing to share that information.
Ashley:
Well, thank you guys so much for listening to this week’s Rookie Reply. Big shout out to Daniel for giving us our topic on talking about estimating rent in your market. If you guys have other tips, check us out on YouTube and leave a comment below our YouTube video of where you guys find out what your market rent is. My name is Ashley Kehr. You can find me at Wealth from Rentals on Instagram and my co-host is Tony Robinson. And you can find him on Instagram @Tony J Robinson. And we will be back on Wednesday with another great guest.
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How lenders can continue to serve borrowers despite housing affordability challenges
Housing inventory remains persistently low, home prices are at all-time highs and affordability is becoming out of reach for more people with every passing day. These dynamics are creating a perfect storm for potential homebuyers who are quickly running out of options.
HousingWire recently spoke to Finance of America Mortgage President Bill Dallas about viable alternative options for homebuyers and the innovative products FAM offers to meet the unique financial needs of today’s modern borrowers.
HousingWire: What are the current challenges when it comes to affordable housing?
Bill Dallas: As construction and labor costs have climbed, so, too, have home prices. The same trend is seen in existing-home sales due in large part to a lack of inventory of available homes for sale.
Median new-home sales prices rose 17.5% to $407,700 in October compared to the previous year, according to the National Association of Home Builders. Meanwhile, the median existing-home price for all homes in the U.S. in October was $353,900, up 13.1% from the previous year, marking the 116th straight month of year-over-year existing-home price increases, according to the National Association of Realtors.
Despite persistently low mortgage rates, many potential homebuyers who fall in the middle- to lower-income tiers are being sidelined due to a lack of affordable housing options. That’s because home-price gains have galloped far ahead of income growth. The national price-to-income ratio is 4.4 as of 2020 — the highest level since 2006, according to the State of the Nation’s Housing 2021 report from the Harvard Joint Center for Housing Studies.
Twenty years ago, the ratio was less than three times income in two-thirds of the nation’s 100 largest metropolitan areas and above five times the income in just a few metros, according to the Harvard report.
With higher home prices, potential homebuyers — particularly millennials who are grappling with student loan debt and increasing rents — are struggling to save enough for upfront costs to buy a home, such as down payments and closing fees.
HW: How can LOs and brokers serve more borrowers in spite of these challenges?
BD: We have to meet borrowers where they are today, and that means avoiding the one-size-fits-all approach in qualifying them for a mortgage. It also means we have to get back to the basics of building relationships with our clients and being their loan adviser for life instead of treating them as transactional customers.
Loan officers and brokers need to reconnect with past clients and show their value. That value lies primarily in our knowledge and expertise. We’re mortgage and home equity advisers who can show borrowers how to take a holistic approach to understanding how their home financing decisions impact their overall financial wellness.
In 2022, we’re all pivoting to serving the purchase market, and it’s going to be a lot different than 2021 given the affordability headwinds facing potential homebuyers. Even homeowners who’ve amassed significant equity might be reluctant to tap it given muscle memory from the Great Recession.
So, to serve more borrowers, we need to do more outreach, educate more, follow up more and connect with referral partners more to ensure consumers understand the integral role we play in helping them reach their homeownership goals.
HW: What does the future of affordable housing look like?
BD: In my opinion, there are two major areas we need to focus on to create more affordable housing opportunities for American families: zoning laws and building costs.
The cost of acquiring land and building a new home is expensive, and it’s helping drive up housing prices across the board. I believe we need to increase access to new housing in areas that have higher density and build homes in a more cost-effective way.
A key way to make housing affordable is to loosen stringent local zoning regulations. These local zoning laws make it illegal for developers to build anything other than single-family detached homes.
This takes more affordable options like townhomes, high-density condo buildings and duplexes off the table, especially if there’s strong political and resident opposition to adding those home types into neighborhoods with existing single-family detached homes.
One exception involves recent policy changes that have warmed up to the construction of accessory dwelling units (ADUs). ADUs can generate additional income to homeowners who rent them out and they serve as an affordable alternative to traditional rentals. They can also be a cost-effective arrangement for multigenerational households.
HW: How is Finance of America Mortgage meeting borrowers’ unique financial needs?
BD: Potential borrowers who’ve been priced out of the housing market need to be able to compete with an increasingly growing share of cash buyers and investors who are beating them in bidding wars.
Finance of America Mortgage offers innovative loan products to help borrowers, particularly those who are self-employed or earn income in nontraditional ways, stay in the game. Our proprietary Two-X Flex suite of mortgage loans, including jumbo and non-qualified mortgage, or non-QM, borrowers, puts more borrowing power into the hands of borrowers who might otherwise be shut out of a conventional loan.
FAM’s ADU refinance option allows borrowers to refinance their primary mortgage and certain ADU financing into a single, new conforming mortgage loan. This helps borrowers reduce their monthly interest payments if they financed the ADU construction at a higher interest rate.
This is a game changer for homeowners who wish to leverage their property to generate rental income, and it can increase housing supply by providing access to a new, low-cost form of housing in an ADU.
The post How lenders can continue to serve borrowers despite housing affordability challenges appeared first on HousingWire.
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9 Types of Must-Have Insurance for Landlords—Including Renters’ Insurance
Becoming a landlord is an excellent way to provide a secondary income or create a portfolio that’s strong enough for your principal income. As such, knowing all the types of must-have insurance policies for landlords—including renters insurance—is crucial to protecting your assets.
Without adequate insurance cover, you run the risk of losing money and even putting your rental business at risk. While insurance might seem an unnecessary extra cost, the moment you need it is when it pays for itself. Here’s why landlord insurance is a must-have.
Why insurance for landlords is vitally important
Homeowners insurance policies cover a wide range of misfortunes caused by nature and humans. This type of insurance is vital in case of a fire, flood, or other damage to the property or appliances. Despite being the homeowner, you still need it because as soon as you rent out the property, your homeowners insurance becomes invalid.
As soon as your home becomes a source of income and you have paying tenants, you must switch to a landlord insurance policy. Tenants are generally not responsible for broken appliances, burglaries, or even accidents that occur on the property. However, if someone injures themselves on the property, you could be liable as the building owner—so you must have the right kind of insurance policy to protect yourself against losses.
What does landlord insurance cover?
Landlord insurance policies vary from one provider to the next. However, any policy you consider should include three primary protections: Property damage, rental default insurance, and liability protection. Coverage within each policy is categorized as DP-1, DP-2, or DP3. A DP-1 has basic coverage against nine perils and insures the property’s cash value. DP-3 has extra coverage and is the most extensive—and the most expensive.
Three must-have landlord insurance policies
1. Property damage
With the increasing number of natural disasters that are occurring, insurance with property damage coverage is an absolute must-have for landlords. This coverage includes natural disasters like wildfires, earthquakes, or floods. Property damage will also cover electrical or gas issues. If you happen to have problematic tenants, you will be covered if they cause damage to your property.
It may also be best to find a policy covering replacement costs rather than actual cash value. For example, a 20-year-old sofa might be worth $100, but replacing it could be closer to $1,000, as you would have to purchase an entirely new sofa.
2. Rental default insurance
There might be some situations where your property becomes uninhabitable and you face lost rental income. For example, your rental property could become infested with pests, termites, or severe mold. In that case, you would lose rental income while the necessary treatment or repairs are carried out. With rental default insurance, your income is insured during this time—which means you’re covered from rental losses when you need to be.
3. Liability protection
Suppose a tenant or visitor suffers an injury because of property maintenance faults. In that case, you could face a massive lawsuit for high medical or legal costs. However, you should always check the fine print to find out what is covered. This type of coverage could range from icy paths to injuries caused by structural collapses.
Insurance for landlords—additional cover
As with any type of insurance, it’s a personal choice whether you want to stick to the bare minimum or think it is worth adding additional cover. Depending on your circumstances, you could add other types of coverage to protect against unforeseen events.
Additional coverage may include:
Other types of insurance for landlords
When it comes to other types of landlord insurance, what you have access to or need will typically come down to the specifics of your area and your individual situation. For example, you won’t need workers compensation insurance if you don’t plan on hiring anyone. Still, it is always better to know all the types of insurance to make an informed decision.
These extra insurance options may include:
Why landlords should require renters insurance
You may not like the idea of asking your tenants to acquire extra insurance, but would be best if you always insisted that tenants have renters insurance. You can easily require this by including it as a clause in the rental agreement.
Renters insurance should be a requirement for your tenant because your landlord insurance policy doesn’t cover a tenant’s personal items—so your renters need this type of coverage in case something occurs and causes loss to their property. For example, let’s suppose there was a fire that destroys the interior of the property. In that case, the landlord’s insurance will only cover the physical property. Your insurance policy won’t provide any coverage for the tenant’s personal property that was lost in the fire.
This doesn’t seem like a big issue for the landlord, but any additional costs a tenant incurs could put financial pressure on them. As such, the knock-on effect could make it more difficult for the tenant to pay their rent. In some situations, they could also hold you, as the building owner, liable for damage to their belongings.
The good news is that the average cost of renters insurance is relatively low and affordable for most tenants.
Being a landlord can be fun—if you do it right
No matter how great you are at finding good rental property deals, you could lose everything if you don’t manage your properties correctly. Being a landlord doesn’t have to mean middle-of-the-night phone calls, costly evictions, or daily frustrations with ungrateful tenants.
What does renters insurance cover?
Like insurance for landlords, coverage from renters insurance policies varies from one provider to another. You should encourage your tenants to take out renter’s insurance that covers theft, water backup damage, some natural disasters, and injuries.
A renters insurance policy should have a list of covered items—but things like jewelry, clothing, electronics, and appliances are typically covered. It’s also an excellent idea to encourage tenants to get a renters insurance policy that covers replacement costs, not just the cash value.
What does renters insurance not cover?
Earthquakes, riots, and pests are a few things that renters insurance doesn’t cover. Renters insurance also typically won’t cover damage to cars or a roommate’s property, so pay attention to the names listed on the policy. Finally, there might be some small print regarding pets. For example, a pet dog biting someone on the property could be covered under the policy unless it is a dangerous breed of dog.
Final thoughts on must-have insurance for landlords
Must-have insurance for landlords should always include property damage and liability. Although it’s an extra expense, the cost of landlord insurance can be insignificant when you need to make a large claim.
However, landlord insurance products can become expensive if you add on items you don’t need. That said, you shouldn’t underinsure, either. Always take out the type of coverage you require to ensure you are never faced with large, unexpected bills and hefty legal expenses.
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Automation is coming to non-QM lending
The non-QM mortgage market, which encompasses most home loans not backed by a government-sponsored guarantee, is expected to reach the $25 billion mark this year in private-label securitization volume.
Over the next several years, however, assuming interest rates continue to tick upward absent great volatility, the non-QM (or non-qualified mortgage) market has the potential to grow tenfold, according to some industry executives.
To accommodate that growth in both loan origination and related private-label securitization, lenders in the space will need to evolve their underwriting capacity in an industry already facing a shortage of loan underwriters. That has some producers of non-QM loans, which require specialized underwriting expertise, looking to technology, big data and the development of automated underwriting platforms as the solution for dealing with the anticipated surge in loan volume in the years ahead.
“Automated underwriting for agency [Fannie Mae and Freddie Mac] products is definitely much easier because there’s a defined set of scenarios that you have to meet,” says Keith Lind, executive chairman and president of Acra Lending (a non-QM lender formerly known as Citadel Servicing). “With non-QM, the scenarios are just everywhere, and it requires an expertise and a skill set that takes years to learn.
“Could someone one day come up with the right technologies [for automating underwriting of] non-QM? It’s going to happen at some point, or at least make it much easier.”
Non-QM mortgages, Lind explained, include everything that cannot command a government, or “agency,” stamp through Fannie Mae, Freddie Mac or via another government-backed loan program, such as the Federal Housing Administration. It’s a wide and growing segment of the mortgage-finance market that is expected to expand rapidly as rising home prices, changing job dynamics and upward-sloping interest rates push more borrowers outside the agency envelope.
The pool of non-QM borrowers includes real estate investors, property flippers, foreign nationals, business owners and the self-employed, as well as a smaller group of homebuyers facing credit challenges, such as past bankruptcies.
“We are looking at the current $25 billion-a-year market [for non-QM] growing to $200 or $300 billion [over the next several years], and it’s going to require automation,” said Tom Hutchens, executive vice president of production at Angel Oak Mortgage Solutions, part of Angel Oak Companies, a long-time player in the non-QM market.
“Automation just increases efficiencies,” Hutchens added.
Angel Oak Companies, Hutchens said, is focused on originating and securitizing non-QM loans to the self-employed and real estate investors, which represent about 90% of the company’s loan-origination base. And it is growing fast, he added.
“We’re expecting close to 100% growth [in 2022] from 2021, and this year, 2021, is our biggest year ever,” he said. “We think non-QM is in a high-growth mode, and that’s going to continue for years to come.”
Consequently, Angel Oak is embracing automation to better accommodate that projected growth. In fact, this past spring, Angel Oak made a $3 million seed-round investment in a Dublin, Ireland-based fintech called Asset Class that is focused on that very project.
“Asset Class removes the inefficiencies and waste that come from largely paper-based interactions across our target markets,” said Ferdinand Roberts, CEO and founder of Asset Class, in a statement announcing Angel Oak’s investment. “We are delighted to welcome Angel Oak as a strategic investor to help us accelerate the development of next-generation solutions for the financial services marketplace.”
Hutchens said that technology and underwriting automation will not replace human underwriters, but rather just make them more efficient by allowing the computer to handle the functions that can be automated. “So, maybe instead of underwriting three loans a day, they could underwrite five or six or seven” because technology is creating efficiencies in the process.
A recent Fitch Ratings report on Angel Oak’s most recent private-label securitization, its eight this year, states the following: “Angel Oak is also working on the rollout of a non-QM desktop underwriter tool to speed up and standardize the manual underwriting of non- QM loans.”
The Fitch report also reveals that Angel Oak is in a high-growth mode in the non-QM space.
“Through July 2021, AOMS [Angel Oak Mortgage Solutions] has originated $1.52 billion in non-QM loans and AOHL [Angel Oak Home Loans] has originated $260.88 million,” the report states. “Angel Oak forecasts its origination volume for non-QM loans to be $400 million per month combined for both platforms.”
Hutchens is convinced that greater automation of the underwriting process for non-QM loans is achievable today, despite the extra loan-review challenges these anything-but-cookie-cutter mortgages pose. The hurdles include underwriting for interest-only or 40-year terms and making use of alternative documentation — like bank statements, assets or debt-service coverage ratio — to verify ability-to-repay.
Hutchens said a potential, though unlikely, headwind that concerns him is if the current upward slope in interest rates reverses itself in the year ahead for some reason and rates begin to trend downward. He said the housing industry went from slightly more than $2 trillion in origination volume in 2019 to $4.5 trillion in 2020, driven largely by the impact of the pandemic and low interest rates.
“So that was a headwind for non-QM, simply from a capacity standpoint,” he explained. “Originators didn’t have time to do anything but refinance their prior customers. Their phones were ringing off the hook all year to refinance their prior business.”
Many market observers anticipate the Federal Reserve over the next several years to slowly bump up the benchmark interest rate, in part to stem inflation in a fast-growing economy but also to recharge its monetary-policy tool chest. Given that context, Hutchens said he is confident the tide has turned toward a non-QM lending expansion — one that can be assisted with technological innovation.
“I’m not a forecaster of macro-economics,” Hutchens said, “but I’m pretty optimistic that non-QM is well positioned for the next few years.”
The post Automation is coming to non-QM lending appeared first on HousingWire.
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Biden nominates Thompson to be permanent FHFA director
President Joe Biden has nominated the Federal Housing Finance Agency’s acting director, Sandra Thompson, to become its permanent director.
Thompson has been doing the job on a temporary basis since June, after Biden removed the former Trump-appointed FHFA director, Mark Calabria.
While the housing finance industry had a prickly relationship with Calabria, it has welcomed Thompson, a veteran regulator. Affordable housing advocates, too, have praised her efforts to tackle the racial homeownership gap.
Early on in her tenure leading the FHFA, Thompson made it clear she would prioritize both stability and sustainable lending practices, as well as expanding credit to underserved communities.
“As a longtime regulator, I am committed to making sure our nation’s housing finance systems and our regulated entities operate in a safe and sound manner,” Thompson said in June, when she was appointed acting director. “We can accomplish this, and at the same time have a laser focus on mission and community investment. There is a widespread lack of affordable housing and access to credit, especially in communities of color.”
She has made substantial progress toward that goal in the first six months of her tenure. Within three months, she had set new affordability benchmarks to expand access to credit in underserved communities, made on-time rental payment history part of Fannie Mae’s underwriting process and signed a historic interagency fair lending agreement.
The FHFA has tasked the government sponsored enterprises with crafting equitable housing finance plans — which could potentially include special purpose credit programs — by the end of this year. The FHFA has also directed GSEs to make housing affordability a top priority for 2022.
The housing finance industry has also welcomed the FHFA’s actions under Thompson. In September, at an industry conference, Thompson announced desktop appraisals would become permanent, easing a choke point for the industry. The crowd of industry professionals erupted into cheers at the news.
Yet while Thompson is well-regarded in both the industry and affordable housing circles, for a time, it was not certain she would be the permanent nominee. In September, sources floated Mike Calhoun, president of the Center for Responsible Lending, as Biden’s choice.
Calhoun had in the past advocated for treating Fannie Mae and Freddie Mac as public utilities. An analyst at the time said that Calhoun’s nomination would have been neutral or positive for the housing finance industry.
But California Congresswoman Maxine Waters, who chairs the House Financial Services Committee, called on Biden to nominate Thompson for the permanent job. It further consolidated support for Thompson among both industry stakeholders and affordable housing advocates.
“It is in part due to the past and ongoing lack of representation of people of color in the senior ranks of our financial services regulators that we see stark racial and economic inequities throughout our country today,” Waters said. “We will not find a more qualified, more dedicated, or more deserving public servant than Ms. Thompson to lead the FHFA at this moment in our nation’s history.”
The post Biden nominates Thompson to be permanent FHFA director appeared first on HousingWire.
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Critical defects increase as refi market fades
Mortgage lenders generated more defective loans in the second quarter, reflecting the transition from a refinance to a purchase market, according to ACES Quality Management’s latest critical defect report.
The critical defect rate climbed to 2.27% in the second quarter of 2021, ending the trend of improvement in the previous two quarters. In the most recent quarter, it was 2.01%, according to the report published on Tuesday. For the coming months, the expectation is that the rate may be volatile.
The report is based on post-closing quality control data from around 100,000 unique records. Defects are categorized using the Fannie Mae loan defect taxonomy.
Nick Volpe, executive vice president of ACES, said that as the market continues to transition to primarily purchase transactions, lenders should expect continued volatility over the next few quarters and, therefore, keep a close watch on defects for the foreseeable future.
“Given the uncertainty of 2022’s market and increasing regulatory pressures, lenders must ensure their existing QC and compliance programs are leveraging automation to maximize loan quality and mitigate risk.”
Volpe mentioned volume stabilizations and declining unemployment numbers as silver linings in the second quarter findings. However, he cited the effect of inflation on interest rates as potentially dampening the outlook.
The defect category that needs some attention from mortgage lenders is income/employment, which made up 32% of all defects, the highest share since ACES began tracking defects by category. In the previous quarter, it was 31.4%.
The second category in critical defects was loan documentation (12.5% of the total), followed by borrower and mortgage eligibility (10.4%) and legal/regulatory/compliance (10.4%). The assets category made up 10% of all critical defects in the second quarter, down 2.37 basis points from the prior quarter. However, liabilities nearly doubled in defect share, to 6.67% of the total.
According to the report, defects in the appraisal category also more than doubled to 5.42% in the second quarter. ACES said appraisal issues are well documented, with most of the concern centered around rising appraisal costs, long turnaround times, and a shortage of qualified appraisers.
“Property appreciation is still very strong, but the appraisal process becomes more important in a purchase-driven market. Rising defects in the appraisal category indicate lenders should increase their risk and quality control efforts in this area,” the report said.
Conventional loans represented 72.25% of all defects in the second quarter, compared to 74.50% from the previous quarter. FHA defects share went from 19.44% to 21.99% in the same period. VA represented 3.14%, and USDA/RHS was 2.62%.
Improvements in conventional lending defect rates are essential given that these loans have dominated the market for the past 18 months, said ACES.
The post Critical defects increase as refi market fades appeared first on HousingWire.
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How one real estate company is navigating the industry’s shift to B2B transactions
Consumers have flipped the script on lenders and real estate agents when it comes to the home-buying process. Ninety percent of consumers start their home search online and many get prequalified for financing before they even reach out to a real estate agent. In this changing landscape, it has become increasingly more difficult to get to the consumer. Lenders and search companies alike need to look for trusted agent partners to provide the client with the experience they deserve.
The Jason Mitchell Real Estate Group (JMG) pioneered this relationship-based model more than a decade ago, facilitating partnerships by providing a platform that seamlessly connects consumers captured by some of the largest lenders and networks in the country to top agents who can deliver a quality experience.
“Serving some of the top organizations in the real estate and lending space is a privilege,” said Jason Mitchell, president of JMG. “Our goal is not to simply be a distribution warehouse. All our agents have an incredible amount of accountability to each of our partners to make sure all clients have a world-class real estate experience.”
JMG, which was recognized by Real Trends in 2021 as the No. 5 mega team by volume at $1.370B, works with some of the biggest names in the industry including Rocket Mortgage, Veterans United, New American Funding, Amerisave, Zillow and many more.
“By having a vast arrange of partnerships, we have created a significant amount of leverage with our agents considering the number of referrals they receive,” Mitchell said. “When you are able to add the number of closings we do to our agents’ book of business, they understand the importance of delivering the results we require.”
Technology plays a key role in managing a platform like JMG, where each real estate agent is under the JMG brokerage umbrella. Having systems and processes in place to receive, distribute and follow up with consumers is a must. The JMG platform is a centralized model where referrals are sent to their mission control team for immediate distribution in any of their markets across the country. Accountability including instant communication, weekly updates, follow-up as well as surveying the client before, during and after the transaction is also part of the JMG process.
“Serving our partners at the highest level is our goal,” Mitchell said. “We have an obligation to not only the partner but most importantly to the consumer to deliver. Technology plays a vital role in this. From the minute we receive a referral until closing, our client experience and the journeys implemented with technology and personal communications are second to none.”
The JMG model was designed to bring more accountability in serving other business and their clients.
“Simply having a network isn’t good enough,” Mitchell said. “A great partner has the control. They manage their agents with the understanding that receiving referrals at a high level is great but it comes with a high level of accountability. “
When you look at the systems and processes in place at JMG, that’s hard to argue. Every JMG real estate agent is network certified, which requires three weeks of initial training and once-a-month continued coaching to educate them on their assigned partners and ways to increase their closing ratio. Additionally, every partner has specific campaigns which highlight a variety of key components when it comes to agent performance. All the opportunities, training and support from JMG were created to achieve high satisfaction from customers, and of course, partners.
From a real estate agent perspective, the JMG model aims to provide high levels of opportunity. According to Mitchell, as a referral agent under the JMG umbrella, the average agent receives over 120 high-quality referrals a year resulting in an additional 36 closings a year for approximately $167,000 in additional income.
“When you can help build agents’ book of business at an extremely high level, you have agents that understand the importance of delivering the results you need,” he said. “These referral closings lead to an incredible amount of increased self-generating business by those clients referring their friends and family. It’s a perfect circle of success.”
As for the future, Mitchell sees the market continuing to push to where organizations want the trust and support from real estate agent partners across the county. The trend certainly seems to be indicating so.
“Managing a brokerage is a lot of work,” Mitchell said. “Partners want trusted real estate relationships where they know their client is taken care of and where they simply take a referral for the business. It’s simplistic. It makes sense. To me, if you are going to be in purchase mortgages or search, having trusted partners is no longer an option, it’s a necessity. We are just thrilled to be a choice of so many. It’s been an amazing journey.”
For lenders looking to partner with JMG, find out more here.
The post How one real estate company is navigating the industry’s shift to B2B transactions appeared first on HousingWire.
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Through the eyes of the single-family rental lobby
First thing’s first. There’s a problem with the U.S. single-family housing market.
“U.S. housing supply is dwindling once again as homes continue to fly off the market at record prices,” said Jeremy Sicklick, CEO of real estate data analytics firm HouseCanary. “For homebuyers, across the country we expect the shortage of homes for sale to extend well into 2022.”
In assessing blame for a high-demand, low inventory housing market, one finger is pointed at companies that purchase single-family homes as an investment.
“Selling out: America’s local landlords. Moving in: Big investors,” reads a Reuter’s headline from this July. “A $60 billion housing grab by Wall Street,” trumpets an October New York Times magazine story.
Last month, Zillow said it was winding down its iBuying division, and courting corporate investors to buy its 18,000 homes remaining in inventory. Meanwhile, Redfin released a report with the headline: “Investors bought a record 18% of U.S. homes that sold in the third quarter.”
But despite these headlines and recent developments, big investors and Wall Street play a small role in the U.S. single-family home market.
Take the Redfin report. The report’s methodology is a keyword search from counties with publicly available deed records, using the keywords “LLC” “Inc” “Trust” “Corp” and “Homes.”
An “LLC” can be used by individual homebuyers to shroud their identity, and “Anyone with a living trust is supposed to buy the home in their trust’s name,” said John Burns, at John Burns Real Estate Consulting.
Added Burns, “I would ignore this study completely.”
Sheharyar Bokhari of Redfin, who co-authored the study, acknowledged it is “Very hard to figure out which homeowners are really Wall Street firms and which ones are mom-and-pop landlords.”
The report should be read for what it is, Bokhari said, the universe of possible “investors” who do not use their home as a primary residence. This includes institutional investor Invitation Homes, or a person who buys a property and then rents it out on Airbnb.
It’s this latter group – which also includes owners of a summer home, timeshare participants, and people who hold on to the abode of a deceased relative – who predominate non-owner-occupied single-family homes in America.
As HousingWire reported last month, an Amherst Pierpont study found that 85% of single-family U.S. rentals are owned by investors who own 10 or fewer properties. Institutional investors – companies with a multistate presence and the capital to buy dozens of homes at once – own 2% of single-family rental homes, or less than 300,000, the study found.
The National Rental Home Council – a Washington, D.C. group that lobbies for Invitation Homes, American Homes 4 Rent and most other corporate single-family landlords – puts the number at 261,000 homes owned by their members.
That’s 1.1% of all single-family rental units in the country. It’s 0.2% of all housing units in the country. Burns, the real estate consultant who produces his own data on single-family home investors, said he believes the trade group’s numbers to be accurate.
The National Rental Home Council data raises questions about why corporate single-family home ownership is a focus for some real estate agents, and, well, journalists in diagnosing the housing market’s ills. Still, the overall number does not end the possibility that institutional investors may impact particular geographic areas or niche housing economy sectors, including iBuying.
HousingWire recently had an extended discussion with David Howard, who is the executive director of the National Rental Home Council. Howard is, as they say, inside the beltway, having worked in Washington on behalf of various housing organizations for the last 22 years. This includes time with the National Association of Real Estate Investments Trust and the Urban Land Institute.
Howard discussed what his organization does, and the contention that, regardless of their exact reach, the impact of big investors in single-family homes is harmful.
Here’s an edited version of that conversation.
HousingWire: What’s the National Rental Home Council’s objective?
David Howard: We are a trade association that represents the single-family rental industry. We do a good bit of legislative and regulator work.
We are a relatively young organization (founded in 2014), which reflects the fact that the single-family rental industry is relatively young.
In the past 12-18 months, we have also focused on issues that were borne out of the Covid crisis including moratoria on evictions, rent control, and rental assistance. Lately, we’ve been working with various legislators in our offices in D.C. on issues of home ownership and affordability.
HW: You say it’s a relatively young industry. Is it true to say that the single-family rental industry got its start after the housing bubble burst in 2008?
DH: The business of single-family rental has been around as long as I can remember. Certainly, the great financial crisis accelerated the growth and development of the single-family home industry.
From 2007 to 2014, institutions accounted for about 2% of homes that were purchased out of foreclosures and short sales, which is out of five million-plus homes. That period of time did jumpstart things for the industry. There were very few people actually purchasing homes, and home prices started falling. Investors came in, and I think we created a floor for the housing market.
HW: How did you arrive at the figure that your members own 261,000 single-family homes?
DH: At the end of the year, we ask our members to provide a count of properties owned by state. We already have prior statistics and have a pretty good sense of the inventory of some companies who are publicly traded. When companies join, they do commit in writing that they will accurately self-report. I have no concern about the validity of the data.
HW: Any major institutional investors that are not members?
DH: Yes, Amherst Properties and they have a portfolio of about 35,000 properties nationally.
HW: Okay, that’s a small part of the market, but your members might be making a significant dent in some areas including iBuying.
You have said before that iBuyers sold “less than 4,000” homes to institutional investors in the first nine months of this year. But, if you add up all the homes that Zillow, Opendoor, and Offerpad – the three main iBuyers that are publicly traded – report selling in the first nine months of 2021, the total is 22,964.
Now, that doesn’t include the universe of iBuying. There’s Redfin (which said it does not resell properties directly to corporate investors) and Keller Williams has an iBuying program, for example. But 4,000 is 17% of 23,000 – arguably significant. And it doesn’t include Zillow selling 2,000 homes to Pretium Partners, and additional sales to corporate investors they might undertake while winding down iBuying.
It also jibes with Offerpad publicly acknowledging that sales to institutional investors fluctuate around 10-20% of total sales per quarter.
So, when institutional investors are looking to buy, do they often turn to iBuyers?
DH: I wouldn’t say that we’ve really seen that in the first three quarters of 2021.
Most of the iBuying that our members engage in comes directly through the MLS [Multiple Listings Services, largely owned by local realtor associations and aggregated to the public by Zillow and other listings websites]. That’s really because the companies need to directly understand the market. They really need to be part of communities.
Our companies are very methodical in their iBuying. They are finding local real estate brokers and using them over and over again in purchasing new homes. Companies have found that is the most efficient new way of expanding their portfolio.
HW: Another area where your members arguably a larger impact have is certain states and cities. These tend to never be Northeast cities, rarely Midwest or west coast cities, and usually Arizona, Texas, or the Southeast
Why these disparities in where single-family rentals are?
DH: We have expanded in places like Charlotte, Raleigh [North Carolina] and Atlanta has been a good market, as has Texas. If you look at the economic and demographic trends in those markets, it’s been population growth and millennials moving into those markets.
And, so, oftentimes when someone moves into the city the first thing you do is rent. Intuitively, it makes more sense to rent first. Companies are not buying homes in market where there’s no demand. Companies are not creating the demand, migration patterns are.
HW: The National Home Rental Council seems to walk a fine line, because as much as extolling the virtues of your members, you seem to be minimizing their role. I first learned about your group from a report you did downplaying the number of single-family rentals. Why such an emphasis on seemingly your group’s lack of impact?
DH: Recent headlines have suggested that large companies have come into the single-family housing market. And some of the stories have really been sensational. So, we decided that we needed to be more transparent.
It was important to point out what was out of context. The fact is that there are 23 states in our country where our members don’t own one home. I recently talked with one U.S. Senator, who I won’t name, and she was concerned about the home buying activities of corporations in her state. I had to tell her that our members don’t own a single property in her state.
HW: Well, I think there’s a concern that corporations already own a sizable chunk of the multifamily market and are now moving into single-family, though I can see your frustrations with articles that exaggerate your member’s inventory.
Still, what about the argument that any inventory owned by your members contributes to the inventory crisis in real estate?
DH: There seems to be an assumption that everyone in the country wants or needs to buy a home.
Our members do help put people on the path to homeownership. For example, we provide formal credit counseling programs. Living in a single-family rental does not set you up to be a lifetime renter.
Also, supply is as much a challenge in the rental housing market as it is in the owner-occupied market. The Census Bureau produces data that shows how much housing is owner occupants versus renters. In the last five years it showed that the amount of owner-occupied housing has increased 10% while renter increased has grown 1%. The overall amount of owner-occupied housing dwarfs rental housing. (As of the third quarter, there were 140.9 million housing units in the U.S., according to the Census Bureau and 126.7 million homes were occupied. The Census reports that 85.4 million units were owner occupied and 41.2 million units lived in by renters.)
There’s as much a challenge with rental housing inventory as there is with owner-occupied.
HW: Let’s finish where you started, which is your group’s legislative agenda. You mentioned the eviction moratoria. Did the National Rental Home Council lobby to let evictions continue amid the pandemic?
DH: No, we never came out publicly against eviction moratoria even though it was very difficult for small homeowners. But it has been such an unusually difficult time for many people.
The post Through the eyes of the single-family rental lobby appeared first on HousingWire.
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reAlpha partners with Title First Agency
Fractional real estate investment firm reAlpha announced late last week that it is partnering with Title First Agency to provide title and closing services on all of the firm’s property acquisitions. The company hopes that this partnership will allow reAlpha to simplify and streamline its purchase procedures.
Unlike other fractional investment companies, such as Arrived Homes, reAlpha specializes in short term rentals, touting its product as “Airbnb ownership without the hassle” and promising investors that they will never be responsible for cleaning after guests or conducting home repairs. As a perk to investors, they are allowed to vacation at the short term rentals they have invested in.
When a potential investor shows interest in a particular property, reAlpha pairs the investor with other individuals who are interested in the property to form a syndicate and raise the necessary 10% down payment. reAlpha is a 51% investor in each of the syndicates. The minimum investment starts at $2,500 per property.
Potential investment properties are identified using algorithms and artificial intelligence, and are then vetted by the reAlpha team.
reAlpha believes that this partnership will give it the ability to scale with one vendor under a customized process that will improve efficiencies, enabling reAlpha to achieve its national and global growth goals.
“As we start purchasing a large number of properties, their vast expertise in the title space provides a valuable consultancy and their vast network provides a seamless service to all transactions,” Mike Logozzo, the CFO of reAlpha said of Title First Agency in a statement. “They are a trusted partner and considered as an extension of our team.”
Title First Agency has a footprint in all 50 U.S., as well as 20 other countries. The title and closing services provider was acquired by Stewart Title in late July and helped Stewart obtain 8.2% of the title insurance market share during the third quarter of 2021, according to the latest statistics from the American Land Title Association.
The post reAlpha partners with Title First Agency appeared first on HousingWire.
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How Do I Find Rental Comps for My Property?
This week’s question comes from Daniel, who reached out directly to Ashley through her Instagram (@wealthfromrentals). Aside from giving Ashley some more movie quotes to use, Daniel is also asking: How do I gather local rent numbers for my rental property?
Landlords can struggle when trying to price a rental appropriately, that’s why rental comparable (comps) research can be so important when looking into a new area or when shopping for properties. Both Ashley and Tony use rental comps daily, so they can calculate the right rent price in their sleep!
If you want Ashley and Tony to answer a real estate question, you can post in the Real Estate Rookie Facebook Group! Or, call us at the Rookie Request Line (1-888-5-ROOKIE).
Ashley:
This is Real Estate Rookie, episode 138.
Tony:
Welcome to the Real Estate Rookie Podcast where every single week, two times a week, you get Ashley and I breaking down the basics of becoming a real estate investor. And we do that by going deep into the topics, into the questions that you know you want to ask but sometimes you’re too embarrassed to ask. So, that’s what we’re going to get into today, some questions that folks might have. I am here with my lovely co-host Ashley Kehr. Ashley, what’s going on?
Ashley:
Hello, Tony Robinson. Before we do any small talk today, getting into the episode, I want to read the question that I have chosen for this Rookie Reply, because I feel like you will have some comments based off of this person’s message to me. So, this message is from Daniel O’Neil. He sent it to me on Instagram and he says, “Episode 126, Movie Quotes. Princess Bride is always good. Emperor’s New Groove, wrong lever. Not much of a movie person but growing up quoting Tommy Boy, so you always make me laugh when you throw one in there. For your brother, I’d recommend civil or architectural engineer. I work in civil and electric, but civil is really handy for anything outside the building, water, sewer, grading, soil composition.” Okay, so before we get to part two of his question, we had asked, said on an episode that maybe I need to start quoting new movies. So, those are his recommendations. Tony, have you seen any of those movies?
Tony:
Well, I just had to Google The Princess Bride. I’ve definitely never seen this movie, came out like in 87. So, I was, I don’t know, not born yet. And then the other was Emperor’s New Groove, right? I love that one.
Ashley:
Yeah.
Tony:
I can get down with some Cusco all day.
Ashley:
Okay. My brother was… Him and his friends were people from Emperor’s New Groove for Halloween this year. Maybe we can post a photo of my brother in the show notes.
Tony:
Well, funny enough, David Spade is also the voice for the main character in that movie. So, there’s that [crosstalk 00:02:03] connection.
Ashley:
Oh really? I didn’t realize that.
Tony:
Yeah. Still some Tommy Boy connection there.
Ashley:
Okay. So we’ll have to freshen up on that one then.
Tony:
All right. I’m going to re-watch that tonight.
Ashley:
Yeah. I had asked for my brother too, my youngest brother, who is 17, asked about careers he should go into if he even goes to college, so that was Daniel’s recommendation for that.
Ashley:
Okay. So part two, here we go. Enjoyed the podcast, by the way. An episode about gathering local rent numbers would be cool. I know it’s mentioned before, but a refresher would be nice for this rookie. Well Daniel, your wish is our command. We are going to break that down today as to how you can find what rent is going for in your area. Tony, kick it off.
Tony:
There’s a lot of different ways that you can go about this. I think maybe we can give them both ways, right? We can give them the kind of free, easy way to do it. Then we can give them the Biggerpockets kind of way that makes it probably a little bit easier, but both of which I think a new rookie can go with. So I’ll maybe give him the quick and dirty way, and then you can give the Biggerpockets way. But I just want to highlight really quick before we keep going, this question came in through your Instagram. For those of you that are watching, that are listening, if you want your question possibly featured on the show, feel free to reach out to Ash and I on Instagram as well, I’m @TonyJRobinson, she’s @wealthforrentals. And from time to time, we’ll pick some questions that people kind of slid into our DM’s with and use those as the premise for an entire show.
Tony:
Okay. So getting into the nitty gritty here. If I wanted to understand potential rents and I wanted to do it the kind of quick and dirty way, my preference is to go with a site like Zillow or Redfin, whatever, any other website that shows all of the properties that are for rent in your area. I like to get really narrowed down and focused on a specific zip code when I’m looking at long term rentals. So, for example, me, when I was investing in Louisiana, I knew that 71105 and 71104 were the two zip codes that I focused on in Louisiana. So what I would do is I would type in those zip codes into Zillow, change a little filter to say ‘For rents’ and I would start looking for properties that were comparable to my property or the property that I was thinking about purchasing.
Tony:
For example, my first purchase was a three, two. I looked at all of the other three two’s that were for rent in that market, just started in a little Excel sheet, a little Google Sheets file, putting down here’s the address, here’s the rent, here’s the address, here’s the rent, here’s the address, here’s the rent. And if you do that enough times for enough listings, you start to get a sense of what things might rent for in your neighborhood.
Tony:
Now, the kind of important thing I think to take note of is that it’s helpful if you can check this at more than one point in time. For example, someone might list a property for rent today, and then two weeks from now, they decrease that rent because it hasn’t been rented out yet. So I’d try to get at least two different time points, data points, to support that. And if I see that the price didn’t decrease, or maybe that listing went away, then it’s a good sense that, or it’s a good indicator that someone’s probably actually rented that property out. That’s really the easiest, kind of quickest, dirtiest way that I did it when I first got started in long term rental space was just getting really, really intimate, really, really familiar with the data in that specific zip code. And when you see enough, you’ll kind of understand what you might be able to charge for it. That was a mouthful, Ash. What do you got for us?
Ashley:
Tony, the only things that I would add to that is if you want to get super technical is actually start an Excel spreadsheet. So every day you’re going through the listings and you’re putting in the address and then what it’s for. And then when it’s taken down and it’s no longer up, that probably means it was rented. You’re getting an idea of how fast things are rented and if they’re actually renting for that price. If something is staying on for a long time, then it’s probably too high of a price and people aren’t paying that. You can also look at the pictures too, to see how they compare to your unit. Another thing to note was use the map view. So on Craigslist, Facebook Marketplace, they all have the map view where you can see exactly where these units are located, which can kind of help you stay within your area, too.
Ashley:
Then Biggerpockets. If you are a Pro member, they have the Rent Estimator Tool. And all you have to do is put in the property address or the zip code of where you want to invest. And that will actually give you comparables. So you can put in, if it’s a two bedroom, one bath, three bedroom, two bath, whatever it is, and it will pull up those comparables for you in your market. And it will show when it was last rented, how much it rented for. It also does a map view for you. And you can click on those and go to the old listing sometimes too. So if it was listed on Zillow, you can usually click on the Biggerpockets website where they show that comp and it will take you to the actual listing, even if it’s expired, so you can see some pictures through there too. Also, checking dates, making sure the dates are comparable, that it’s not from a long time ago.
Ashley:
If you’re in really rural areas, it’s going to be a lot easier to do what Tony talks about is going through and searching because there’s not going to be a lot of comps anyways. And the Biggerpockets rent estimator might not have that much data for you because it’s so small and there’s not a lot of rentals anyways. I think one thing to note too, is if you are having trouble finding comparables, because there’s nothing available, then that’s a good sign potentially that there is not a lot of vacancy in the area and that there is a demand for units.
Tony:
Or you could live in maybe in the middle of nowhere where there’s no people either. So it could go either way. But I think just one thing to add on the Biggerpockets data side is that whenever you’re using software tools like this, there always is some kind of margin of error. But Ashley just looked up the zip codes that I invested in, in Louisiana and our last house, it was a three bedroom, two bath. We had it rented out for 1350. I plugged in that same data into the rent estimator here and it said that the median rent is 1325. So it’s actually pretty close to what we were actually getting. So, just to give you a little bit more confidence in the data that’s presented there.
Ashley:
Okay, well, awesome. Hopefully that helps you guys. One last thing that you can actually do is you can call property management companies in those areas too. Just ask what rents are for two bedroom, one bath. You don’t have to say that you’re going to be their competitor, that you’re looking to buy investments in the area, but just say that you’re looking for an apartment if they even ask, but you can get data that way. I’ve had other investors call me saying that their tenant’s giving them a hard time raising rent and they want to show them that it’s actually not that high compared to other areas. I’ve given out that information. No problem. One great thing about real estate investing and investors is that everybody is willing to give out so much information. You’ll rarely find somebody who keeps it a secret of what they’re doing or is not willing to share.
Tony:
Yeah, that’s great advice, Ashley. I guess just last thing they even do that like apartments calling each other, they do that with bigger apartments as well. I worked for a property management company briefly after college and part of our job as the leasing agents was to call other apartment complexes in the area. And you know, these are big apartments. These are like thousand plus unit apartment complexes. And part of our job was to call the other apartment complexes in the area to see what their rents were. And you know, every time we call it, it was just a normal thing. They knew that that was part of what came with it. So really, really good points to do that with the single family houses as well, because they’re even nicer than these big corporations. And they’re probably even more willing to share that information.
Ashley:
Well, thank you guys so much for listening to this week’s Rookie Reply. Big shout out to Daniel for giving us our topic on talking about estimating rent in your market. If you guys have other tips, check us out on YouTube and leave a comment below our YouTube video of where you guys find out what your market rent is. My name is Ashley Kehr. You can find me at Wealth from Rentals on Instagram and my co-host is Tony Robinson. And you can find him on Instagram @Tony J Robinson. And we will be back on Wednesday with another great guest.
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Will the housing market continue its hot streak in 2022?
As we approach the end of another hot year for the market, homebuyers and sellers are eagerly looking ahead to the 2022 housing market. Will the market continue its streak of strong growth, or are we finally about to see a slow down?
Here’s a high-level forecast for what to expect next year, based on the supply and demand signals we can already see in today’s data. I’ll also highlight which variables we should be watching for unexpected market shifts.
1. Demand will continue to be strong into 2022.
The first signal we look at to forecast the strength of the housing market is days on market – how fast are homes moving? Right now, we’re seeing a median of 49 days on market and climbing, as it normally does this time of year. A typical December would see market time at 85-100 days, so you can see from the chart that demand is staying elevated later in the year, which is a bullish sign for next year.
Due to the strong seasonal patterns, I predict days on market will hit a low of 21 days in April, tying the record-fast market times from earlier this year.
With homebuyer demand off the charts earlier this year, Altos Research began tracking the phenomenon we call “immediate sales.” You’ve probably seen this in your local market, where offers happen more or less immediately after the home gets listed for sale. At this moment, about 25% of properties are going into contract essentially immediately every week (around 20,000 of them within hours or days of listing) — even as supply and transaction volume declines through the end of the year.
I actually expected immediate sales to be dropping at this point, but it isn’t. Even over the Thanksgiving holiday, total volumes were down, but immediate sales as an indicator of demand were still dominant. The fact that this trend is continuing unabated into the winter indicates continued strong demand into next year.
That being said, if the housing market turns, immediate sales will be one of the first places we’ll be able to see it. For example, if buyers are cooled by higher interest rates, the first thing that’s going to happen is they’re not going to make those immediate offers.
Since it will take several months for rates to rise high enough to discourage buyers, we can expect immediate sales and all the related buyer competition characteristics (multiple offers, over-bidding) to remain common well into at least the second quarter of 2022.
Another signal pointing to continued elevated demand is the percent of homes on the market taking price reductions. In a normal market, we tend to see about 30% to 35% of sellers initially over-price their homes and eventually reduce the price to attract buyers.
Right now price reductions are at 27%, and starting to tick down again after the fall peak in September. You can see that it’s higher than last year, but still lower than normal. Home sellers with properties on the market now know that the demand is there, and they don’t have to cut their prices. This tells us that the transactions for these homes that happen in the first quarter will still be priced very strongly.
2. Low inventory will continue to be a major issue.
Unfortunately for all these eager homebuyers, inventory continues to be at record low levels. We are currently at just over 350,000 single-family homes on the market. You can see from this chart that inventory has been on a downward trajectory for years, and recent strong demand has only accelerated this trend. You can also see that it’s normal for inventory to drop at this time of year, but it’s actually declining faster than I expected even a few weeks ago, which indicates that we’ll start 2022 with record- low levels of available inventory, even less than in 2021.
At this point, it looks like we’re going to end the year at just under 300,000 single-family homes for sale. If we’re lucky, we’ll start getting greater inventory in the housing market in February, then it’ll start climbing and be at a more normal curve next year, but we’re still miles away from a normal level, with no indication that we’ll return to our usual million homes anytime soon.
That being said, keep an eye on rising interest rates. If you look at the 2018 line in the inventory chart, you’ll see that inventory hadn’t yet declined by this time of year in 2018. Why? Because interest rates rose from around 3.9% to 4.9% between April and December, and that cooled the market enough that a little bit of inventory built up during 2018. You can see that 2019 was the only recent year that started with more inventory than the year before.
3. Home prices will remain high into 2022.
With demand showing no signs of cooling and record-low inventory, I expect home prices to remain high into next year. The median home price for single family homes this week is $375,000, which is about 10% higher than last year and where we are likely to end the year.
As we look towards 2022, all the leading indicators show tight inventory and strong demand keeping prices high — a strong seller’s market. If interest rates start rising, and we’re seeing inflation or other economic challenges, this could have a cooling effect on the market. These variables aren’t in the data yet, but they’re looming. We’ll want to keep watching the data closely to spot any major shifts.
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