Why Aren’t Home Builders Building?

Why Aren’t Home Builders Building?

Home-builder confidence is at its highest level in years. But home building dropped 19 percent in the most recent month. These decreases come at a time when inventory levels are already severely constrained and many in the industry are calling for more new construction to alleviate shortages.With supply short and demand high, what is keeping builders from getting to work?

Home builders say it’s new regulations that are holding them back from filling the void. CNBC reports that such regulations may cost builders up to a quarter of the price of a new home, and a recent National Association of Home Builders study found regulatory costs have increased 29 percent in the past five years. The builders also say labor shortages are holding them back. Finally, prices for land and materials are rising and there is a lack of finished lots in neighborhoods where people want to live. These price constraints create an incentive for builders to construct fewer homes, because under such high demand, they can fetch higher prices for each home they do sell, CNBC reports.

For now, builders remain happy with the market outlook. The NAHB released a survey last week showing builder sentiment at its highest level in 11 years.

“Though this significant increase in builder confidence could be considered an outlier, the fact remains that the economic fundamentals continue to look good for housing,” said NAHB Chief Economist Robert Dietz. “The rise… is consistent with recent gains for the stock market and consumer confidence. At the same time, builders remain sensitive to rising mortgage rates and continue to deal with shortages of lots and labor.”

Source: “Home builders Super Happy But Not Building More Homes: Here’s What’s Up With That,” CNBC (Dec. 16, 2016)

Open House Mistakes to Watch in the Winter

Open House Mistakes to Watch in the Winter

If you live in a colder weather climate, holding open houses in the winter can pose plenty of challenges. Make sure your open house is warm and inviting, regardless of the colder temps or snow outside. Here are a few common mistakes at winter open houses to watch out for:

1. Not clearing a path. “To bring people to your door, you have to literally clear a path to your door,” Joe Moshé, a broker and the owner of Charles Rutenberg Realty in Plainview, N.Y., told realtor.com®. Don’t just shovel a path but also lay down rock salt to keep any melted snow from refreezing and creating an icy sidewalk. Also, watch for snow buildup along the street that may be making the home less visible.

2. Not having a spot for all the winter gear. As potential buyers enter the home, they may be coming in with coats, scarves, gloves, and muddy boots. Create a landing zone upon entrance to try to keep them from trekking the mess into the home. Have coat racks, an umbrella stand, and a placard that requests all guests to remove their footwear.

3. Don’t overheat. Some homeowners may go to the extreme to try to warm up buyers and end up creating a sauna inside the home. Remember, visitors likely already will be wearing coats and hats, so don’t steam them out. “If they find the temperature inside the house to be uncomfortable, that may sink any chance of making a sale,” Moshé says.

4. Not listening to the weather forecast. Keep an eye on the weather and be open to rescheduling. Having a blizzard on its way is not the best time to host an open house. “A little flexibility can mean the difference between a low turnout and a house full of happy potential buyers,” realtor.com® notes.

Source: “Don’t Get Snowed Under by These 7 Winter Open House Blunders,” realtor.com® (Dec. 19, 2016)

Is There an Eviction Crisis Brewing?

Is There an Eviction Crisis Brewing?

An estimated 2.7 million people were evicted from rental units in 2015. And one real estate brokerage says it may partially be the high costs of real estate to blame.

Redfin’s research team scoured eviction data and they believe that higher costs are fostering an environment of greater evictions.

Rents are skyrocketing across the country, having jumped 66 percent since 2000. Household incomes, on the other hand, have risen only by 35 percent in that time frame. More than 20 million renters – half of all renters in the country – in 2015 were considered “cost burdened,” spending at least 30 percent of their income on rent.

The 15 metros with the largest increases in the portion of income spent on rent from 2011 to 2014 saw a 3.8 percent increase in the number of evicted families from 2013 to 2014, according to Redfin’s analysis of the data. The other 56 metros evaluated saw a slight decline in evictions (-1.4 percent). For example, in Newark, N.J., housing costs have risen by 4 percent, and one out of every 11 rental household was evicted from their home in 2014, Redfin’s research shows.

The data from the American Community Survey also reveals that evictions are most common in areas with higher foreign-born population rates.

“Evictions have devastating consequences on families and communities,” Redfin’s blog notes about its findings. “Evicted families are often excluded from participating in the Housing Choice (Section 8) Voucher Program. Getting evicted has also shown to cause jobs loss, or worse, homelessness for some time. Communities with high eviction rates have an unstable social structure and are plagued with crime. … Without an expansion in policies to address the affordable housing shortage and the increase in cost-burdened renters, evictions will become an even more prevalent feature of the U.S. housing market.”

Source: “Millions of Renters Face Eviction – Why Today’s Housing Market Is Partially to Blame,” Redfin (Dec. 12, 2016)

HAMP to Be Replaced with ‘Flex Modification’

HAMP to Be Replaced with ‘Flex Modification’

Mortgage financing giants Freddie Mac and Fannie Mae announced a new foreclosure prevention program that will roll out next year to replace the Home Affordable Mortgage Program (HAMP), which expires at the end of this month.

The new program will be called “Flex Modification.” It reportedly will provide a 20 percent reduction in mortgage payments for eligible borrowers. The majority of those homeowners who can qualify will be 60 days or more past due on their payments, although the GSEs note that some exceptions may be granted to those who are current on their mortgages or less than 60 days delinquent in certain circumstances.

“The new Flex Modification announced by Fannie Mae and Freddie Mac was designed based on lessons learned from crisis-era modification programs to help borrowers stay in their homes and avoid foreclosure whenever possible” says Sandra Thompson, the Federal Housing Finance Agency’s deputy director. “By avoiding the high costs associated with foreclosures, the Flex Modification will result in significant savings for the GSEs and taxpayers. And it will provide borrowers who face permanent hardships with a sustainable modification.”

The new program will be implemented by Oct. 1, 2017.

Source: “‘Flex Modification’ Designed as New HAMP,” Mortgage News Daily (Dec. 15, 2016)

Easy Ways to Enhance the Home’s Entryway

Easy Ways to Enhance the Home’s Entryway

The entrance to the home is where buyers often form some of their first impressions of the interior of the home.

However, too often, “the entryway gets neglected because it isn’t necessary in the same way that a living room sofa is,” Larina Kase, an interior designer and home stager in the Philadelphia area, told realtor.com®. “But it’s actually one of the simplest and least expensive areas to decorate to get the biggest impact.”

That said, many entryways suffer from overcrowded coat racks and oversized furniture that is making the area feel less appealing and less spacious, designers say.

Here are a few simple things you can try to spice up the home’s entryway:

Add a mirror: “Every entryway needs a spectacular mirror, especially in small spaces,” says Jack Menashe of Menashe Design in New York. “It makes them optically larger and adds depth. Plus, who doesn’t want to check themselves out before they leave the house?”

Light it up: Add a small lamp on a table for a welcoming glow.

Fresh flowers: Try an orchid, potted plant, or vase of cut blooms to add a touch of nature and color.

A bench: If there’s space in the entryway, have a place to sit down and that ideally has some storage underneath it too. Add a colorful pillow to brighten up the space too.

Source: “5 Entryway Essentials to Welcome People Into Your Home – and 3 Eyesores,” realtor.com® (Dec. 14, 2016)

Lessons the Chicago Cubs Can Teach Investors

Lessons the Chicago Cubs Can Teach Investors

The Chicago Cubs’ 108-year journey to its World Series championship this year provides some lessons about strategic investment strategies that can be applied to the real estate industry, says David Scherer, cofounder of Chicago-based private equity firm Origin Investments. Theo Epstein, president of baseball operations for the Cubs, learned these lessons from Billy Beane, general manager of the Oakland Athletics and Boston Red Sox, which were then chronicled in the book Moneyball. How can you and your clients compare real estate investment to baseball? Here are Scherer’s six real estate lessons from the Cubs:

1. Don’t follow the herd. Moneyball shows investors that information alone doesn’t make a market efficient; it’s what you do with it. Beane and Epstein used statistics widely available to fellow general managers, who instead trusted traditional scouting reports. The same can be true of investment strategies: Profitable choices often are ignored in popular vehicles such as index funds. Investors can’t beat the market if they mirror the market. Investors can diversify a portfolio with alternative investments such as commercial real estate, which is not correlated to pubic equities.
2. Be ready to change your lineup. While baseball players often enjoy long-term contracts based on past performance, championship-caliber teams are buoyed by veterans who show immediate productivity even when inked to short-term deals. Likewise, investors should remember not to fall in love with specific assets in their portfolios. A property may show its fastest appreciation in just a few years’ time. While it may continue to bring in steady rents, its timetable for maximum appreciation might be much shorter. Strategic private equity real estate managers know how to minimize risk and maximize investment value.
3. Don’t be scared off by shortcomings. As a GM, Beane, and then Epstein, were successful with players other teams had discarded because of age, injury, lack of speed, or awkward mechanics. But those players had talents that were needed or that could be improved. Similarly, value investors look for companies with fixable problems or properties that have been overlooked due to age, management, or marketing issues. In real estate, this is known as value-added investing. Thoughtful and strategic business plans can turn around undervalued assets.
4. Don’t trade at the deadline. The best deals made by championship teams are those made throughout the year, not just at the trading deadline when bidding is fiercest. Beane once told ESPN, “I don’t want to make decisions based on micro-events [or] the small sample size.” In investing, the price swings of stocks and bonds show that markets constantly overreact to new information. Smart investors anticipate market changes rather than reacting to them. Choosing less volatile alternatives, such as commercial real estate, will give a portfolio added protection compared to frequently traded REITS.
5. Look for a track record. Like Beane did years before, Epstein drafted out of college rather than high school, looking for experience that could translate more closely to the big leagues. It’s best not to choose investments based on a single top-rated performance — it’s unlikely to repeat, compared to one that has rated near the top for several years. Similarly, in real estate, we don’t judge an investment’s projected internal rate of return (IRR) without comparing projected and actual IRRs for a manager’s past choices.
6. Measure the right things. The Moneyball approach picked players based not only on their batting average but their on-base percentage, since walks proved as useful as singles. Real estate investors looking to build wealth might want to focus not on IRR alone as much as types of risk and multiple on equity, the degree to which property values are expected to rise.

Source: David Scherer, cofounder of Origin Investments