The 2019 multifamily and single-family market proved to be hot, and 2020 will only get hotter.
According to a new survey from TurboTenant, there were 31 cities from 20 states that were featured in the best place to buy a rental investment property report for 2020.
New York and Ohio tied for the most cities represented, at three each, including Buffalo and Rochester, New York, as well as Akron and Columbia, Ohio. Seven states had double representation, including Iowa, Missouri, New Hampshire and Pennsylvania. Cities from Florida, Montana, North Carolina, South Carolina and Delaware also made the list.
To determine the top cities, the report compared the average rent with the monthly mortgage payment. The terms were set at 30 years, with a 20% down payment, and a 4.1% interest rate, which is the current national average. If positive numbers were reported in all categories, the location made the list.
Overall, the results found that the best places to invest in are in the Midwest and the East Coast.
In November, TurboTenant also showed that New York, Pennsylvania, Massachusetts, and New Hampshire were standouts, which is no big change from January’s report.
No. 1 on the list was Reading, Pennsylvania, which TurboTenant said has positive growth across the board. The number of leads per property in this town is its highest, at 271, with an average of eight days on the market. Home values here are increasing 11.1% year over year, with a median sale price of $140,000.
At the bottom of the list, No. 31, Auburn, Alabama actually is second place for the highest population growth and first place for employment growth. The median sale price of a home is $169,000, and the average two-bedroom rent is $919. Properties here spend an average of 14 days on the market.
Check out the rest of the list here.
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What do Americans do when so few new homes are being built? Remodel, according to the latest report for Buildfax.
According to the housing data and analytics company, 2019 marked the lowest rate of mobility in the U.S. since the metric was first tracked in 1947. Only 9.8% of Americans moved last year. Though this marks a new low, it’s not terribly far off from the only 10.1% who moved between 2017 and 2018.
Buildfax’s report pointed to new construction as part of the issue. Namely, the lack thereof. While single-family housing authorizations increased 4.82% year over year in 2019, the year did not close out on a strong note. According to the report, authorizations decreased by 2.61% from November to December 2019.
“The U.S. is facing a housing shortage, in part due to the slowdown in housing construction last year. This has been felt in both large metros and smaller cities across the country,” Buildfax Managing Director Jonathan Kanarek said. “Now, even though the economy is showing strong growth and mortgage rates remain low, those who want to buy a new home are experiencing challenges with increased competition on a tight housing supply.”
Instead, the report states, people are remodeling. Buildfax reports that existing maintenance volume and spending increased 9.47% and 16.26% year over year, respectively. In the past, Buildfax has often referred to home maintenance activity as a recession indicator. As this activity increases, Buildfax asserts that recession probability lowers, and vice versa.
That said, in its December Healthy Housing Report, Buildfax states that “maintenance and remodeling increased substantially, potentially fueled by homeowners who feel unable to buy a new home and therefore invest in their existing property.”
As many economists have pointed out, U.S. homeowners have been staying put for a while now. The concept of “aging in place” is not a new one. In August of 2018, AARP revealed that almost 90% of homeowners approaching retirement want to stay in their homes as they age.
And for the most part, they are.
Last February, Freddie Mac released a study showing that seniors born after 1931 are staying in their homes longer than previous generations. According to the report, this generation held 1.6 million houses back from the market in 2018.
HousingWire Columnist Logan Mohtashami offered his own analysis on the topic.
“Americans are staying in their homes longer because the house they have is perfectly suitable for their family’s need,” he writes. “For more than four decades, home sizes have been getting bigger while family size has been in decline.”
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One of the biggest challenges facing the U.S. housing market is a dearth of construction workers that’s keeping homebuilders from meeting the demand of an expanding population, according to Federal Reserve Governor Michelle Bowman, one of the people who votes on the central bank’s monetary policy.
A shortage of properties on the market has been restricting real estate sales in some parts of the country, she said. The answer is building more homes, but housing starts have lagged household formation, she said.
One of the biggest reason for that is the lack of construction workers, Bowman said Thursday in a speech in Kansas City, Missouri.
“The ratio of job vacancies to unemployment in the construction industry – a measure of labor market strength – shot up to historic highs at the end of 2018, and it has remained near those levels,” Bowman said. “These indicators confirm what I have been hearing from construction industry employers during my visits to different parts of the country – it’s extremely difficult to find and hire workers, skilled or otherwise.”
One solution is vocational training programs that connect young adults with jobs in the construction industry, she said.
“I am hopeful that these efforts, along with a continued strong job market, will encourage more people to join – or, in some cases, rejoin – the construction trades,” she said.
Single-family housing starts likely will total 1 million in 2020, the highest since 2007, the National Association of Realtors said in a forecast last month. In the five-year period that ended in 2019, the average was 822,000 a year, according to government data. From 1958 to 2007, the year before the housing crash, single-family housing starts averaged 1.1 million as the population expanded.
Housing is an issue that has a broad impact on GDP, said Bowman. Spending on existing homes as well as the construction of new residences accounts for 15% of the U.S. economy, she said.
“My colleagues and I at the Federal Reserve pay close attention to developments in the housing sector, in part because it has historically been such an important driver of economic growth,” Bowman said. “If we include the amount families spend on shelter each month as well as the construction of new houses and apartments, housing generates about 15 cents out of every dollar of economic activity,” Bowman said.
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Venture capital-backed home lending startups fill key first-time homebuyer, cash-out and investor niches. But will they really change the world, or just be niches? It’s a little of both. Let’s take a look.
Startups Love Giant Mortgage Stats
Like all venture capitalist pitches, fintech and proptech startup pitches begin with total addressable market (TAM).
Why? Because mortgage and housing TAM is super sexy to entrepreneurs hunting for an opportunity as the economic cycle matures.
The U.S. housing market is worth $30.7 trillion, of which $11 trillion is loans on the homes and $19.7 trillion is equity owned by homeowners. And there are about 6 million homes sold and $1.6 trillion in first mortgages made each year.
If we get just 2% mortgage market share within our three-year plan, that’s $32 billion in fundings!
Laughable, I know. But this is how some startups rationalize.
In reality, it’s way harder than it looks to fund even $5 billion. It gets exponentially harder when you go above $10 billion, and then again for $20 billion.
Then if you almost double that again, you’re in the nation’s top 10 mortgage lenders, all of which took one to three decades to build organically and through mergers and acquisitions.
Startups Must Be Worth $5 to 10 Billion & Change The World
Most lenders aren’t giants, and this clashes with today’s aggressive VC quest for unicorns, which are private companies worth $1 billion or more.
The most vocal of unicorn-or-bust VCs is the indomitable Keith Rabois of Founders Fund. He’s Harvard, Stanford, PayPal Mafia, and has served as an investor and executive at LinkedIn, Square, Yelp, YouTube, Yammer, Palantir, Lyft, Airbnb, Eventbrite, Quora and more (as you’ll see below).
With that record, he’s hard to ignore when he browbeats his winner-take-all unicorn vision into you, which is:
Your startup must change an industry or the world and be worth $10 billion or more. Maybe it can be worth as little as $5 billion, but below that, you haven’t changed either.
This ethos has led to a record 199 U.S. unicorns today, up from an already high 117 just two years ago according to CB Insights and PwC.
Which VC-Backed Mortgage Models Work Best?
So which VC-backed home lending models work right now? Are they unicorns in the making?
Non-owner-occupied models put a fintech spin on hard money, helping investors buy, fix and flip homes. Relevant product, some good brands, but a niche that doesn’t change the industry.
Rent-to-own models keep popping up but it’s very capital-intensive to buy the homes and fund scale marketing. And nine-figure valuations given to firms focused on limited geographies don’t pencil. I’m open to being proven wrong here, but this also looks like a niche.
Shared appreciation models are the most consumer-relevant so far. To summarize all the math, these companies give homebuyers up to half of their down payment with no interest or loan payments in exchange for about one-third of the home’s appreciation later on.
Unison and Andreesen Horowitz-backed Point are the two leading players, but Unison is the OG. They were founded as FirstRex in 2004 and rebranded to Unison in 2016.
Capital markets participants understand how Unison fits within the traditional mortgage mix, and they’re entrenched with lender salesforces, which helps control consumer-direct marketing spend.
Which VC-Backed Housing Models Will Change The World?
Shared appreciation is relevant stuff for the right consumer profiles, but not the stuff of world-changing unicorns.
Happy to eat those words later, but I stand by them now for two reasons:
Niches matter. I disagree with Rabois that companies must be unicorns to change lives. Also maturing unicorns will need great niche companies to buy.
Shared appreciation is smarter than a reverse mortgage for cash out as the home-owning population ages. Maybe still a niche, but a great one.
Niches won’t change our housing finance world, but let’s bring it home with a VC-backed model that might.
One-Stop-Shop Homeownership Will Indeed Change The World
Now back to Rabois for what may be his magnum opus: Opendoor, the pioneer of the instant-buyer (iBuyer) model.
Now worth roughly $4 billion, Opendoor is on it’s way to becoming a one-stop-shop for home buying, owning and selling.
The company he co-founded is making home buying and selling like trading your car.
It’s not just about mortgage or real estate fees, it’s monetizing the whole homeownership lifecycle. Despite the monetization complexity, the story plays by offering a one-stop-shop experience consumers demand.
Opendoor is a key reason Zillow pivoted last year to go “down funnel” from providing leads to buying, selling, and financing homes themselves.
Zillow currently has a market cap of $9.8 billion, and is telling Wall Street it intends to grow revenue from $1.3 billion now to $20 billion in the next four years.
Mortgage Scale Unproven For Opendoor & Zillow
Skeptics say tech unicorns differ from mortgage and housing plays because mortgage and housing touch the real world.
Other real world-touching unicorns have struggled, most notably WeWork in commercial real estate. And like commercial, housing goes way beyond software and apps. There are humans involved at every step.
So far, Opendoor (and Zillow) are proving resourceful with ground teams to fix up the homes they buy, and agents to help consumers. Scaling mortgage remains unproven for both firms.
But my joke for Opendoor here in San Francisco is that it’s Goldman Sachs West – because of it’s highly sophisticated capital markets team. Between that and having such an aggressive and connected co-founder, they might just show us the future of housing finance.
We will see. In the meantime, the consumer wins as the one-stop-shop vision takes shape.
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U.S. homeowners are expected to spend less on home improvement and repairs over the next year, according to the Leading Indicator for Remodeling Activity from Harvard University’s Joint Center for Housing Studies.
Annual gains in homeowner expenditures for improvements and repairs are projected to shrink to 1.5% by the end of 2020 from an annual gain of 4.8% in 2019, the center said in a report on Thursday. Annual increases in the past decade have ranged from 5% to 7%, the report said.
The estimate would put 2020’s spending on home renovation and repairs at $333 billion, compared with $328 billion in 2019 and $313 billion in 2018, the report said.
“A 2020 growth projection of less than 2% is certainly lackluster for the remodeling market, especially given historical average annual growth of about 5 percent,” the report said. “Even so, homeowner improvement and repair expenditures are still set to expand this year.”
Renovation spending can be an indicator of real estate demand because home sellers usually spruce up their properties before listing them. On the other side of the transaction, buyers often spend money after closing on a home to renovate and redecorate in a way they like.
Those expenditures are an important part of the U.S. economy because it boosts the consumer spending that accounts for about 70% of GDP.
The projected softening in renovation demand for existing properties comes at a time when homebuilding activity is expected to pick up. Builders probably will start construction on 975,000 single-family homes in 2020, Fannie Mae said in a Dec. 23 forecast. That would be the highest level since 2007, based on government data.
The slowdown expected for renovation spending this year probably won’t continue into 2021, the Harvard report said.
“While homebuilding and sales activity are now firming, softness from earlier last year will continue to pull on remodeling spending growth in 2020,” the report said. “However, the slowdown should begin to moderate by year-end as today’s healthier housing market indicators will ultimately lead to more home renovation and repair.”
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Foreclosure filings fell to a record low in 2019, according to a report Thursday from ATTOM Data Solutions.
The report showed that foreclosure filings – default notices, scheduled auctions and bank repossessions – were reported on 493,066 U.S. properties last year, down 21% from 2018 and down 83% from a peak of nearly 2.9 million in 2010 to the lowest level since tracking began in 2005.
In November, there were 49,898 U.S. properties with foreclosure filings, ATTOM Data Solutions reported. The company also reported that foreclosure starts were up 13% in October then made a u-turn, dropping 13% in November.
The 493,066 properties with foreclosure filings in 2019 represented 0.36% of all U.S. housing units. That’s lower than 2018’s 0.47%, and 2010’s peak of 2.23%.
“The continued decline in distressed properties is one of many signs pointing to a much-improved housing market compared to the bad old days of the Great Recession,” said Todd Teta, chief product officer for ATTOM Data Solutions, in a release. “That said, there is some reason for concern about the potential for a change in the wrong direction, given that residential foreclosure starts increased in about a third of the nation’s metro housing markets in 2019. Nationally, the number also ticked up a bit in December. While that’s not a major worry, it’s something that should be watched closely in 2020.”
In 2019, lenders repossessed 143,955 properties through foreclosures, known as REOs because accountants record them as “real estate owned.” That’s down 37% from 2018 and down 86% from 2010’s peak of 1,050,500.
Lenders repossessed 13,898 U.S. properties through REOs in December 2019, down 1% from last month, but up 34% from December 2018.
The average time it took to foreclose on a property in the U.S. in 2019’s fourth quarter was 834 days, a 1% decline from the previous quarter, but an increase of 3% from a year earlier.
Even with foreclosure starts at a record low nationally, they increased in 14 states, the report said.
There were 335,985 properties in the U.S. that started the foreclosure process in 2019, down 9% from 2018 and down 84% from the peak of 2,139,005 in 2009.
States with the highest foreclosure rates last year were New Jersey, with 0.82% of housing units receiving a foreclosure filing. It has held the top spot since 2015, according to the report.
Delaware was next, at 0.73%, followed by Maryland at 0.66%, Florida at 0.63% and Illinois at 0.63%.
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Homebuilder confidence slightly fell this month thanks to labor and supply concerns, according to January’s Housing Market Index.
The National Association of Home Builders and Wells Fargo, which publish the monthly report, revealed sentiment slipped by one point to 75.
“With the Federal Reserve on pause and attractive mortgage rates, the steady rise in single-family construction that began last spring will continue into 2020,” said NAHB Chief Economist Robert Dietz. “However, builders continue to grapple with a shortage of lots and labor while buyers are frustrated by a lack of inventory, particularly among starter homes.”
This month, the index measuring current sales conditions fell to 81 points, while buyer traffic grew to 58 points and sales expectations over the next six months held its ground at 79 points.
The three-month moving averages for regional HMI scores show while the South held steady at 76 points, the Northeast rose to 62 points, the Midwest increased to 66 points and the West grew to 84 points.
Although overall sentiment weakened this month, NAHB Chairman Greg Ugalde said construction growth is likely to come in the months to come.
“Low-interest rates and a healthy labor market combined with a need for additional inventory is setting the stage for further home building gains in 2020,” Ugalde said.
NOTE: The NAHB/Wells Fargo Housing Market Index gauges builder opinions of single-family home sales and expectations, asking for a rating of good, fair or poor. Builders are also asked to rate prospective buyer traffic from very low to very high. The scores are used to calculate a seasonally adjusted index with a rating of 50 or over indicating positive sentiment.
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Top-producing loan officers have an outsized impact on a lender’s bottom line, but companies who want to compete for talent at this level need to understand what factors are in play for attracting these LOs and what will keep them happy in the long term.
That’s why we’re excited to feature the No. 1 originator in the nation, Shant Banosian, vice president of lending at Guaranteed Rate, at our engage.talent event in Dallas on Feb. 6. As part of our panel on Recruiting and Retaining Top Originators, Banosian will talk about the technology and support that helped him close 1,906 units and fund $914 million in loans in 2019 alone.
That panel also features top producers Sean Johnson of loanDepot and Jennifer Micklos of Movement Mortgage, moderated by Joel Epstein, top mortgage coach and host of The bigJoel Show.
Banosian has been in the mortgage business for more than a decade and has a career volume of more than $3 billion in funded loans. He was recently ranked as the No. 1 Loan Originator in the U.S. for 2017 and 2018 by Scotsman Guide for Most Loans Closed, and additionally in 2018 for Top Dollar Volume and Top Purchase Volume.
Banosian, who has been with Guaranteed rate for more than 12 years, was also ranked as the No. 1 Loan Originator in America (total volume + units) as listed by Mortgage Executive Magazine for 2017 and 2018. He has been the No. 1 Loan Originator in Massachusetts (by volume) each year consistently since 2013, according to Banker and Tradesman. Banosian has also been featured on Mortgage Professional of America’s Young Guns list of Mortgage Professionals Under 35 for the last three years.
After several years as a Guaranteed Rate President’s Club member, he was named to the prestigious Chairman’s Circle, an exclusive club for top producers who exceed $100 million in annual loan volume, in 2015, 2016, 2017, 2018 and 2019.
Don’t miss the opportunity to hear Banosian and other experts at engage.talent on Feb. 6. Register here.
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This week, the average U.S. fixed rate for a 30-year mortgage averaged 3.65%. While this percentage is slightly above the previous week’s average, it’s still 80 basis points below the 4.45% of the same week last year, according to the Freddie Mac Primary Mortgage Market Survey.
“Mortgage rates inched up by one basis point this week with the 30-year fixed-rate mortgage averaging 3.65%,” said Sam Khater, Freddie Mac’s chief economist. “By all accounts, mortgage rates remain low and, along with a strong job market, are fueling the consumer-driven economy by boosting purchasing power, which will certainly support housing market activity in the coming months.”
Low mortgage rates boost the economy by cutting home financing costs, which puts more money in the wallets of consumers to put toward the purchases that account for about 70% of America’s GDP.
According to the survey, the 15-year FRM averaged 3.09% this week, inching forward from last week’s rate of 3.07%. This time last year, the 15-year FRM came in at 3.88%.
The five-year Treasury-indexed hybrid adjustable-rate mortgage averaged 3.39% this week, rising from last week’s rate of 3.3%. Last year, the 5-year ARM averaged 3.87%.
The image below highlights this week’s changes:
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