Half of all Renters Spend 30% or More Income on Housing

2013-Ourlook-Real-EstateFreddie Mac reports that residents of apartment communities that include five or more rental units currently make up 15 million U.S. households — a figure that is expected to climb with shifting demographics and housing preferences.

Such factors as demographic trends, household formations, and higher credit standards for home loans are driving the increase in rental housing, notes Freddie Mac senior vice president of multifamily David Brickman. At the same time, though, affordable rental housing is becoming more elusive in certain parts of the country because of gross rent, or rent plus resident-paid utilities.

More than half of all people who rent spend more than 30 percent of their income on housing — an increase from 40 percent in 2000. Low-income households tend to spend even larger portions of their incomes on rent, based on the U.S. Census Bureau’s American Community Survey 2000-2011.

Brickman asserts that Freddie Mac remains dedicated to supporting affordable rental housing. He concludes, “Working closely with multifamily property owner/borrowers and our network of lenders, Freddie Mac Multifamily structures financings in a way that lets us offer very competitive, long-term rates.

Source: “Freddie Mac: Multifamily Affordability Is Now a Key Focus,” Housing Wire

Various ways to invest in real estate

Forbes-2009_08-03_Still_Get_Rich_in_Real_EstateForbes reporter Morgan Brennan shares insight on three ways to grow wealth in the housing market. Real estate investment trusts, turn key investment properties, and renting and managing homes as a traditional landlord are good options now and in the future. Watch the video for details.

Rising rental costs may drive home sales up

Homes-For-RentHome sales could turn out sunnier than expected this spring based on data coming out of the rental market, according to economists at the Mortgage Bankers Association.

Jay Brinkmann, the trade group’s chief economist, said Thursday that apartment owners have raised their rates, in particular large investment trust Equity Residential ($58.05 0.45%). That’s coupled with fewer people, roughly 60%, who intend to renew a lease, according to a study by Kingsley Associates.

"This means we might see a spring season better than the numbers are predicting," Brinkmann said at the MBA’s mortgage servicing conference in Orlando, Fla. The trade group forecasts 4.39 million single-family homes sold in the second quarter, already an increase from the seasonally adjusted 4.17 million a year earlier.

Many Americans ran to rentals during the worst of the housing crisis, pushing homeownership to a 14-year low, and more tenants elected to stay put.

"The question is not how did (homeownership) fall, but how it got so high in the first place," Brinkmann said.

The MBA adjusted its forecast for mortgage originations in 2012 to just more than $1 trillion with more refinances than initially expected, according to Mike Fratantoni, vice president of economics and research. That’s still below 2011 levels and would be the lowest since 1997.

Fratantoni expects home sales to grow 10% in 2013, though he predicted refinances will drop off considerably as MBA projects interest rates to slowly move off the lowest levels in 40 years.

Positive employment news, including a continued decline in jobless claims, could impact housing soon, but Brinkmann said uncertainty over business taxes in an election year and European debt could keep growth at bay.

"Everything is going to be based overall where the economy goes," Brinkmann said. "This is going to be a slow year. There are a number of headwinds we’re facing in terms of economic growth."

Source: “MBA: Rising Rental Costs May Drive Home Sales Up,” HousingWire (Feb. 23, 2012)

It may be the time for you to consider buying an investment property. Give me a call or email me.

Rising Rents Improve Investors’ Returns

real estate investorWith rents rising faster than last year, the picture for residential real estate investors is getting even better than it already was as a result of once-in-a-generation prices and low interest rates, according to the founder of a leading Internet platform for investors and real estate professionals.

Greg Rand, CEO of OwnAmerica, downplays concerns over near term price declines and urges investors to take a long view of the opportunities.

“This is a long term investment,” says Rand, who differs with what he calls the “get rich quick” approach to investing. “Rents are a steady return on your investment through the years, leaving you with an attractive asset when prices improve. And they will. The best profits in real estate accrue to long term investors who take a long term view.”

Rents are growing at a 5.17 percent annualized rate compared to a 4.72 percent at this time last year Assuming effective rent grows at the same rate in the next four months as it did in 2010, the full-year total would fall just below the historic highs of 2000 (6.18 percent) and 2005 (5.81 percent), according to a report from Axiometrics Inc., a provider of data and analysis on the apartment market.

With 1.4 million new renters this year, apartment construction can’t keep up with demand. Tenants, especially former homeowners forced from their homes because of the economy, are increasingly turning to single family homes owned by investors, especially in high foreclosure markets like Las Vegas.

During this year, investors have accounted for between 20 and 40 percent of monthly existing home sales, according to surveys of Realtors by Campbell/Inside Mortgage Finance and the National Association of Realtors. Yet, the investor market share may increase even more next year.

A survey by Realtor.com in April found that by a three to one margin, investors plan to be more active in their local markets compared to typical homebuyers in the next 24 months, and 69 percent of investors say it’ll be easier to find properties in the near future.

Most investors are newcomers. Fifty-nine percent (59%) said they’re new to real estate investing, with 33.5 percent considering their first investment purchase and 8.5 percent in the process of buying and selling their first investment property. Another 17 percent said they just completed their first transaction and plan to make more. Only 36.5 percent have experience in more than one property transaction.

Author of “Crash! Boom,” Rand argues that even in the Great Depression, owning real estate was always better than not owning real estate. Holding real estate for the long term has always been a formula for success and most family wealth has been accumulated by purchasing real estate and keeping it in the family for many generations. Real estate plus time usually equals success.

There are 6 million people who went from being owners to being renters, Rand says. “The stars are aligned to make this the best time in modern history to be a landlord,” he wrote in his book.

If you are interested in exploring investment opportunities, call me @ 206-713-3244 or email Emmanuel@EmmanuelFonte.com

Inhabi matches renters and landlords eHarmony style

inhabi Inhabi matches renters and landlords eHarmony style

Landlords and renters, sittin’ in a tree…

Inhabi.com just launched in beta in Portland and Boise, and they call themselves the eHarmony for renters and landlords. Users create a profile describing their ideal rental and landlords search renters which is how the magic happens. Jameel Farruk, Inhabi CMO told AGBeat, “Our company is taking the traditional newspaper-classified listing model and turning it on its head.”

The company started Inhabi because they say they’ve seen from both sides of the table how difficult it can be for landlords and renters to be matched, and they claim they are the “easiest way to find an apartment online.”

Inhabi aims to reduce a renter’s stress in hunting, saying they simplify the process not only by providing high quality listings (read: no false advertisements a la Craigslist) but by being a conduit for effective communication with a potential landlord. They tell renters to pull up a comfy chair because their “hunt for a new apartment is now on autopilot.”

Traction in the rental technology sector

Inhabi seeks to be a disruptive force in the residential rental industry, opening doors for renters and landlords, and they’re not alone. We reported yesterday that ApartmentList has launched as the Pandora recommendation engine of real estate listing portals, and others are rumored to be on the horizon. Rentals are complicated as multi-family is often guarded with their information not only because rent rolls can change by the hour and are used exclusively on an internal basis, but landlords with single units often don’t input property information anywhere effective.

The rental technology startup scene is starting to have the energy and traction of the residential real estate world four years ago- the ideas are big, fresh, life-altering, but most importantly, disruptive. Since the rental industry has a movie to watch and they know the ending (read: Zillow, Trulia, Movity, etc.), will they learn from the lessons of residential sales tech companies and aim to be acquired, or will the free spirit of the scene push them to stay small, run parallel to each other and push for transparency?

Rejoice, landlords! Sorry, tenants

ForRentSignFor some time, there’s been reporting on the trend toward residential leasing as the housing sector continues limping along. Leasing is chic and the stigma around it is slowly fading. People that are fully capable of buying are sitting still or trying out new areas of town while others have no choice and are living in rentals due to foreclosure. Either way, “rent” is no longer a cuss word.

Rental rates have been going up considerably over the last year and it appears it is accelerating, rising at a rate beating most economists’ projections for 2011. A new report released by real estate search site HotPads.com reveals that residential rental listing prices have jumped 6.7% from June 2010 with the fringe listings of studio and five bedroom apartments escalating most rapidly.

HotPads.com says that “this is a telling trend which may indicate a growing demand for rental housing among first time renters and larger families” but we see it more as a supply and demand issue in that studios and very large rental units are less common (low supply) and because rentals of all sizes are in high demand right now, it appears a premium is being set on studios and five bedroom units.

In most cases, the rapid rise in rent has occurred in 2010 rather than a slow increase over the past twelve months. We are seeing consumers flocking to their chosen social networks, flustered that their landlord is screwing them over and are being met with the harsh reality that it isn’t their landlord, it is the entire market. Times have been rough for landlords, is this the time to recoup the losses met since 2008? In some markets, rents have been held down but national trends are allowing an increase as perception of the market is softening.

Rental trends graphed:


Let me know how I can help: emmanuel@emmanuelfonte.com

Harvard Study Warns of Rent Bubble

housing_bubble_861feFor renters, the national recovery could be very bad news. That warning came from the Harvard Joint Center for Housing Studies’ latest report on America’s rental housing. Rental markets are now tightening, with vacancy rates falling and rents climbing. With little new supply of multifamily units in the pipeline, rents could rise sharply as demand increases. Regardless, affordability is likely to deteriorate further over the next few years as persistently high unemployment limits renter income gains.

When job growth regains momentum, the number of renter households could climb quickly. Given the long lead times needed to develop new multifamily housing, a sharp increase in demand could quickly reduce vacancy rates and put upward pressure on rents. While this would be good news for owners and investors in rental housing, it would also fuel the intense affordability pressures, the study warns.

A variety of rental market indicators suggest that the worst repercussions from the recession may be over. While this is good news for most of us, especially property owners, the recovery may increase the rent pressures on households still struggling in an environment of sluggish job growth. The ongoing foreclosure crisis should continue to spur growth in the number of renter households as former owners switch to renting. Single-family home foreclosures will also add a steady flow of units to the rental market. The ability of renter households to occupy these homes will be an important factor in maintaining the stability of distressed neighborhoods hard hit by the foreclosure crisis.

Although there appears to be an excess supply of rental housing at present, this could change quickly as the economy recovers and household formation among younger adults returns to a more typical pace. An upsurge in demand could outstrip the available supply and push construction activity back up, the study says.

One of the most important questions going forward is whether mortgage financing will be available to fuel rental property purchases and investments. Even before the financial crisis, Fannie Mae and Freddie Mac were an important source of financing for both multifamily and investor-owned single family properties. And during the crisis, the GSEs—along with FHA—accounted for the vast majority of new financing. As Congress takes up debate about what, if any, role the GSEs should play in the mortgage markets, policymakers must consider the vital importance they have as a source of capital for rental housing.

By Steve Cook