While many investors are enticed by the larger potential profits of high-end real estate, statistics continue to show that your best bet is to stay in the entry-level price points sought after by first time homebuyers. More experienced investors might find success from time to time in the luxury space, but when analyzed on a percentage basis, high end homes rarely return the profit margins found in “work-force” housing or entry-level properties that fall at or below the median home price in your area. Recent news regarding inventories on entry level homes brings this point into much better focus.
Recent data reveals that there are currently 10.4% fewer entry level homes on the market today than there were at this time one year ago, and those inventory constraints are driving prices up even higher on homes in these price ranges. While recent price appreciation has been in a healthy 5-6% per annum range, the MAJORITY of that appreciation has come in the 1st time home buyer range. Homes in the “move-up” and luxury price ranges have been rising at a 2-3% clip in most areas, while their entry level counterparts have been jumping at rates near 10% per year.
New investors will find that their is significantly less competition in the luxury market, but it can also be fraught with risk for even the most experienced flippers. If a real estate rehabber doesn’t have at least 10 deals under his or her belt, it’s advisable that they continue to stay in the 1st time home buyer range to continue to build confidence and much needed capital before taking on more expensive projects. The “get rich slowly” method might not be as exciting, or land investors a show on HGTV or DIY network, but those who read the book, “The Tortoise & the Hare” will find that the same character wins every time.Read More
*Don’t feel like reading? Check out the video above for the entire “In the News” section from one of our recent PIG meetings, and stay up to date on what’s happening in the world of creative real estate investing.” Hungry to learn more? Then sign up now for our email list at www.pigfreegift.com.
As an entire generation of home buyers begin to hit their retirement years and start looking to downsize, it’s important for real estate investors and home flippers to stay up to date with what this massive block of home purchasers is looking for in a home. The National Association of Home Builders recently did a survey to find out what attributes and amenities were important to this demographic, and this is what they found out:
63% of baby boomers desire single story, single family homes. They don’t want to be in a multi-family community with neighbors on either side of them, and they definitely don’t want anything with stairs due to the increased potential for falling, or the possibility they may be in a wheelchair in their latter years.
63% of baby boomers want a formal living room. Sometimes in the frenzy to “modernize” a house, or make it more contemporary, rehabbers look to “open up” spaces to resemble newer construction. However, if you’re in an area or a neighborhood with a lot of elderly buyers, you would never want to sacrifice a formal living room in order to open up a space, as it will eliminate a large part of your buyer pool.
93% of all baby boomers want to be in the suburbs or a rural area, away from the hustle and bustle of the city center. And lastly, only 13% of baby boomers are willing to pay extra for “green” or environmental features, so don’t waste your money on them if you’re targeting retirees in your market.
Do you have any experience rehabbing and selling to baby boomers? Do your experiences match up to the above survey? Let us know your thoughts in the comment section below!Read More
A normalizing of the housing market in the last few years has meant a huge decline in distressed inventory available for sale—which has contributed to the low levels of existing homes for sale in recent months. Despite the lack of inventory, investors are becoming more involved in the market, according to data released by the National Association of Realtors (NAR) on Monday
The short supply of existing homes combined with price appreciation and slow wage growth has resulted in an over-the-month decline of 7.1 percent for the seasonally adjusted annual rate of existing-home sales in February, from 5.47 million down to 5.08 million, according to NAR’s February 2016 Existing-Home Sales Report. Over the year in February, existing-home sales were up by only 2.2 percent.
“The overall demand for buying is still solid entering the busy spring season, but home prices and rents outpacing wages and anxiety about the health of the economy are holding back a segment of would-be buyers,” NAR Chief Economist Lawrence Yun said.
Investor activity in the existing-home sales market has been on the rise as of late. The share of investor-purchased homes rose from 17 percent in January to 18 percent in February, which was the highest investor share since April 2014. Approximately 64 of those investors paid cash for the homes they purchased in February.
“Now that there are fewer distressed homes available, it appears there’s been a shift towards investors purchasing lower-priced homes and turning them into rentals.”
As a further indicator that investor activity is increasing, the distressed sales share rose by 1 percentage point over-the-month in February up to 10 percent (7 percent foreclosures, 3 percent short sales), Investors were also able to purchase distressed inventory at much lower prices in February—the average discount for foreclosed homes during the month was 17 percent below market value, up 4 percentage points from January; for short sales, the average discount was 16 percent below market value, also up 4 percentage points over-the-month.
The increased investor activity may be preventing potential first-time buyers from entering the market, however. NAR reported that February’s first-time buyer share (30 percent) is down 2 percentage points over-the-month and is at its lowest level since November 2015. The 30 percent for February matched the first-time buyer share for all of 2015.
“Investor sales have trended surprisingly higher in recent months after falling to as low as 12 percent of sales in August 2015,” Yun said. “Now that there are fewer distressed homes available, it appears there’s been a shift towards investors purchasing lower-priced homes and turning them into rentals. Already facing affordability issues, this competition at the entry-level market only adds to the roadblocks slowing first-time buyers.”
The homes that ARE on the market aren’t staying there long. The number of days an existing home stays on the market in February was 59 days, which was down from 64 days in January and 62 days in February 2015. About 35 percent of the homes sold in February were on the market for less than a month. Short sales were on the market for an average of 126 days; for foreclosures and non-distressed homes, the average number of days on the market was 57.
“With low supply this spring buying season, it’s easy for buyers to get discouraged when their offer is rejected in favor of a higher bid,” said NAR President Tom Salomone, broker-owner of Real Estate II Inc. in Coral Springs, Florida. “That’s why it’s important for buyers to stay patient and work with a realtor to develop a negotiation strategy that ensures success without overstretching their budget.”
Article printed from DSNews: Posted By Brian Honea
Other Articles by the Professional Investors Guild:
WHO AM I?
I am the basis of all wealth, the heritage of the wise, the thrifty and prudent.
I am the poor person’s joy and comfort, the rich person’s prize, the right hand of capital, the silent partner of thousands of successful people.
I am the solace of the widow, the comfort of old age, the cornerstone of security against misfortune and want. I am handed down through generations, as a possession of great value.
I am quietly growing in value through countless days. Though, I might seem dormant, my worth increases, never failing, never ceasing. Time is my aid and the ever increasing population adds to my gain. I defy fire and the elements, for they cannot destroy me.
My possessors learn to believe in me and invariably they become envied by those that have passed me by. While all other things wither and decay, I alone survive. The centuries find me younger, always increasing in strength. All oil and minerals come from me. I am the producer of food, building materials and the home to every living thing. I serve as the foundation for homes, factories, banks and stores.
I have not been produced for thousands of years, yet, I am so common that thousands, unthinkingly and unknowingly, pass me by.
Who am I? “I AM LAND.”
Other Articles by the Professional Investors Guild:
The housing market is slowing down, with home values seeing the first negative monthly change since the market began its recovery nearly four years ago, according to the Zillow July Real Estate Market Reports.
Nationally, home value appreciation is leveling off after its rapid pace in the early years of the recovery. Homes lost 0.1% of their value in July, falling to a Zillow Home Value Index of $179,900.
Homes appreciated 3% on an annual basis, down from 3.4 percent in June.
“This slight dip in home values is a sign of the times. Many people didn’t think it was happening, but it is: we’re going negative,” said Zillow Chief Economist Svenja Gudell. “We’ve been expecting to see a monthly decline as markets return to normal. However, this is not like the bubble bust. We’re not going to see 10 percent declines. The market is leveling off, and it’s good news, particularly for buyers, because it will ease some of the competitive pressure.”
Of the 517 metros covered by Zillow, 204 saw a slowdown, including major metros like Washington, DC and Cincinnati, where home values declined month-over-month in July. The slowing appreciation is a sign that the market is returning to normal; economists have expected to see growth flattening out as the recovery continues.
“Nationally, 63% of homes listed for sale on June 17 were still on the market on August 17, which is up a bit from 61% for the same period last year,” says Ralph McLaughlin, Housing Economist for Trulia. “And it turns out homes across all price tiers have slowed about the same.
“Home sales in all three tiers slowed 2-3 percentage points compared with a year ago. The share of low-price and mid-priced homes still on the market after two months increased 2 percentage points, compared with a 3-point increase for high-tier homes. As always though, the national trend hides big differences from one local market to another. In many metros, the sales pace is quickening, while slowing in others,” McLaughlin said.
McLaughlin said affordability may be starting to play a role in the priciest markets. Of the 50 most expensive housing markets, those with fewer homes for sale that are affordable to the middle class in 2014 tended to experience a slowdown.
“In other words, home buyers, no matter how competitive the market is, have a limit. When the stock of cheaper homes dries up, not every buyer is able to up their budget and put offers on homes in a higher price tier,” he said. “So some may delay buying a home, which leads to existing homes sitting on the market a tad longer. Still, homes in these expensive markets are moving faster than other less expensive metros.”
Slowing home values could provide more opportunities for hopeful buyers who have been waiting on the sidelines for the market to cool off. More homes may be coming online as homeowners who have been watching strong home value growth decide to list their houses as appreciation slows and smaller gains are expected. This could help ease the constrained inventory the market has been facing for the past several months.
Meanwhile, rents continue to grow at a rapid pace, up 4.2% from last July to a Zillow Rent Index of $1,376. With no sign of rents slowing down and the potential for more homes for sale, conditions may be right for buyers to enter the market.
By Trey Garrison, reprinted from Housingwire.com