Investors Are Buying More of the U.S. Housing Market Than Ever Before

Investors Are Buying More of the U.S. Housing Market Than Ever Before

Their interest poses a challenge for millennials and other first-time buyers



Strong rental demand, technology that facilitates buying homes online and low interest rates that make other investments less appealing have fueled investor appetite. Shown, a broker’s open house in San Francisco. PHOTO: JUSTIN SULLIVAN/GETTY IMAGES
By
Laura KusistoUpdated June 20, 2019 7:12 pm ET



The share of investor purchases of U.S. homes have climbed to an all-time high, a sign that rising home prices have done little to dampen demand for flipping homes or turning them into single-family rentals.

Big private-equity firms, real-estate speculators and others that buy properties comprised more than 11% of U.S. home purchasers in 2018, according to data released on Thursday by CoreLogic Inc.


The investor purchases are the highest on record and nearly twice the levels before the 2008 housing crash. The investor interest poses a challenge for millennials and other first-time buyers who are increasingly looking to buy starter homes and are forced to compete with deep-pocketed cash buyers.

Big commercial property owners like Blackstone Group LP and Starwood Capital Group began buying thousands of homes out of foreclosure during the housing bust. Many economists credit investors with helping to stabilize the housing market in 2011 and 2012 by buying with cash when prices were low and mortgage credit froze.

But analysts expected those purchases to slow, as the market rebounded and properties could no longer be had for fire-sale prices.
Cashing InPurchases of single-family homes byinvestors are at an all-time high.Percentage of homes purchased byinvestors, by home valueSource: CoreLogic
%OverallLow-priced2000’05’10’1505101520Low-pricedx2011x16.8%

Instead, demand for properties has intensified. While these purchases dipped slightly when the market started to recover in 2015 and 2016, they have rebounded to surpass the previous peak of six years ago.

Strong rental demand, technology that facilitates buying homes online and low interest rates that make other investments less appealing have fueled investor appetite.

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Investors are an especially powerful force at the bottom of the market, where they often pay all cash. Investors purchased one in five homes in the bottom third price range in 2018, according to the CoreLogic analysis, up 5 percentage points from the 20-year average of less than 15%.

“These are the homes that first-time home buyers would logically be buying,” said Ralph McLaughlin, deputy chief economist at CoreLogic.

Shane Parker, a real-estate agent in metropolitan Detroit, said first-time buyers he works with are struggling to win bidding wars against out-of-state buyers. The locals he works with are becoming more aggressive, putting in escalation clauses and agreeing to pay the difference if properties don’t appraise.

One of his clients, Michael Burnett, a tech writer in Detroit, and his wife are looking for their first home so they can have a treehouse for their young girls. They have visited 25 properties and bid on half a dozen but keep losing out to cash buyers.

The couple recently fell in love with a property they thought had great potential. “It’s ugly on the outside, ugly on the inside, but it can be made beautiful,” said Mr. Burnett, 43 years old.

The house ended up getting a dozen offers, more than half of which were cash, and selling for $40,000 over the asking price of $150,000. “We write letters. You think you’ve composed this great heartfelt, ‘I have a family, see my family,’” he said. “Oh, please…Cash is king.”

Real-estate entrepreneur Gregor Watson’s business has helped boost investor participation. Following the housing bust, he and partners bought more than 6,000 homes across the country and turned them into single-family rentals.

Then he founded Roofstock, a company that enables investors to purchase properties online. The internet has made it easier for smaller investors and foreign buyers to purchase properties they may never have visited. Demand is also shifting toward former industrial cities in the Northeast and Midwest where prices remain low.

Mr. Watson said that many people in San Francisco and New York are priced out of buying homes where they live but are able to purchase an investment property in less expensive cities.

Michael Pickens, 31, who works in tech sales in the Bay Area, and his wife kept losing out in bidding wars to all-cash offers. “It was all cash, no contingency, seven-day close,” he said.

He and his wife decided instead to rent a small apartment in Santa Clara County and buy investment homes on Roofstock in less expensive locales.

They now own homes in Georgia and Tennessee despite never having visited either state.

So-called iBuyers, such as Opendoor, Zillow Offers and RedfinNow, which snap up homes in cash for a fee to help sellers avoid the hassle of putting their homes on the market, comprised less than 2% of investor purchases last year, according to CoreLogic.

The biggest markets for investor purchases in 2018 were Detroit, followed by Philadelphia and Memphis, Tenn., where home prices are still low enough for investors to profit by renting them out. Investors bought nearly half the starter homes in Philadelphia last year and about 40% of lower-priced homes in Detroit, according to CoreLogic.

When Tawan Davis launched a business renting out single-family homes three years ago, he focused on Philadelphia because of the city’s slow foreclosure process and history of disinvestment, he said.

Mr. Davis typically purchases homes for about $75,000 to $90,000, puts an additional $50,000 to $80,000 into renovation and rents them out for around $1,300 a month.

He said he is often welcomed in these neighborhoods because his modestly priced rental properties help act as a bulwark against gentrification. Many of his renters are single and work as nurses or adjunct professors, he said.

“They’d much rather see us than a lawyer from New York,” he said.

Write to Laura Kusisto at laura.kusisto@wsj.com

Appeared in the June 21, 2019, print edition as 'Investors Buy Homes At Unparalleled Rate.'

We thought rent control would protect us

OPINION

We thought rent control and human decency would keep us in our home of 48 years. We were dead wrong

By JUDITH FREEMAN
OCT 28, 2018 | 3:05 AM



A sign advertising a house for rent in Los Angeles on Feb. 27, 2015. (Richard Vogel / Associated Press)

One hot afternoon this past July, I returned to my apartment near MacArthur Park to find a three-day “pay or quit” notice posted on the front door.

I panicked. How could this possibly be? We had paid our rent on time, as we did every month, sending it in by mail. How could we be facing eviction for non-payment ?

My husband, Anthony Hernandez, had lived in this apartment since 1970. He moved in shortly after he returned from Vietnam. I joined him in 1986, the year we were married.

The rent was cheap — very cheap — and we had decided that we would try to live off our art rather than take jobs. We weren’t sure we could do it, but why not try? I had recently placed a few stories in literary magazines and was working on my first novel. Tony’s photographs were being collected by museums and exhibited in group shows. We figured if we lived simply, our plan might work, and low rent was the key.

Our lovely old Spanish-style building, dating from the early 1930s, was surrounded by an overgrown garden, perfect for Tony’s cat Ursa and my dog Dudley. Our apartment was small, just one bedroom, but large enough for the two of us. The neighborhood felt rough but that seemed to suit the novel I was working on, part of which was set in MacArthur Park. I wrote at a desk next to the bed. Tony went out to make his photographs.

We believed we were protected. By rent control. By the fact we’d lived there so long. By our age. About all this we were dead wrong.

Our landlord, a sweet man named Billy Ray Williams, lived in one of the duplexes at the back of the property. He kept the rents low. I used to say he was the worst capitalist in the world, which made him seem to me like the finest of men.

Billy Ray appeared less concerned with making money than simply having stable tenants and enjoying his modest life: He was a flâneur, walking the streets of L.A. every day. We joked that Billy Ray was our patron, enabling us to live off our work just as we’d hoped: No matter what happened, we would have an affordable place to live.

Occasionally we imagined moving to a better neighborhood. But we liked our little apartment; it continued to suit us. So instead we bought a small place in Idaho, out on a high prairie, where we could spend the summers, when it was too hot to photograph in the city.

Time passed — a lot of it — and nothing much changed. Until Billy Ray died, at the age of 96. Then our building became part of a years-long contest over his will, which was finally settled in the spring of this year. The Spanish-style building was sold in March.

By then it had begun to go downhill. The garden was neglected. Yucca, bougainvillea, lantana, even jade plants and a huge cactus had died. The bare dirt in front was the new curbside neighborhood dumping ground. The building sold for a song.

The new landlord came to collect the rent in person. He was not, as we discovered, a very nice man. Surly, coarse, as opposite from Billy Ray as a person could be.

His first demand: Our pets — cats now — would have to go. He didn’t have the right, we found out. Then he offered us money to move — the minimum amount required by law. We told him we had no interest in leaving our apartment.

We believed we were protected. By rent control. By the fact we’d lived there so long. By our age. About all this we were dead wrong.

After we received the pay or quit notice we knew he had destroyed our July rent check, and then had the court post an order demanding we pay up.

We immediately sent a cashier’s check. It was not cashed. Nor was the next month’s check, or the next. All attempts to communicate with the landlord were fruitless. He continued to claim we were not paying rent.

We hired a lawyer. We filed a complaint with the city. Nevertheless, on the morning of Sept. 25, we awoke to an eviction notice posted on our door. This one informed us we had five days to vacate the apartment or sheriff’s deputies would arrive the following Monday, Oct. 1, to lock us out. Oct. 1 is my birthday.

We could have continued fighting. Gone to court. Had a jury trial. Paid the ballooning legal fees. But there was no guarantee we’d win, and even if we did, we’d have a scummy landlord to deal with, and who knew what he’d try next? Our lawyer said that landlords all over the city were employing dirty tactics to get people out of apartments with low rents, especially before the vote on Proposition 10, which would give cities more power to regulate rental prices.

“They count on causing so much anguish they’ll simply wear you out,” the lawyer said. And that’s what happened. We got worn out.

In the end, we accepted a modest payout, not much more than he’d originally offered. We had 48 hours to pack up and vacate the apartment. Forty-eight hours for 48 years.

I don’t know how we did it, but the day the deputies were supposed to show up to lock us out, the only thing remaining in the apartment was a half-empty bottle of Jim Beam and two glasses we’d left on the kitchen counter, a toast to the apartment that had been so good to us.

Judith Freeman is the author of “The Long Embrace: Raymond Chandler and the Woman He Loved,” as well as the recent memoir, “The Latter Days.”

CityBldr will start buying up homes and breaking up neighborhoods with their development tool.

CityBldr will start buying homes in Seattle — taking on Zillow, Redfin, Opendoor with a twist

BY MONICA NICKELSBURG on June 18, 2018 at 7:00 am

1 Comment  Share  68  Tweet  Share  Reddit  Email

Early-bird tix: The 2018 GeekWire Summit!

CityBldr Bryan Copley in at the startup’s Seattle headquarters. (GeekWire Photo / Monica Nickelsburg)

Seattle startup CityBldr is getting into the home buying game, taking on real estate heavyweights in its backyard. But unlike Zillow and Redfin, which have both started buying properties directly from homeowners, CityBldr is targeting homes that can be converted into multi-family residences.

CityBldr’s software identifies underutilized land in cities, like Seattle, and makes connections between homeowners and developers to repurpose properties. For example, CityBldr helped seven homeowners in the Seattle area realize that if they sold their properties as a bundle to a real estate developer, they could make more money. Going forward, CityBldr will start buying properties like those directly, then sell them to builders and developers who will convert single-family homes into multi-unit residential buildings.

“We’re only going to be targeting properties that are zoned for multi-family development,” CityBldr CEO Bryan Copley said. “The big problem we’re trying to solve is that everybody’s moving to the city and there aren’t enough homes in the city to accommodate that growth.”

CityBldr will start buying houses sometime in the fourth quarter of 2018 or first of 2019. The startup is currently raising its Series A round and searching for a Chief Investment Officer to oversee the home buying business. Copley says that CityBldr should be able to guarantee a higher price on properties it targets because the resale value to real estate developers is higher than the listing price for a home that would be resold as a single-family residence.

“The reason we’re able to do that is we’ve built a tool that understands the development potential of every property … Instead of only looking at what would a homebuyer pay for that property, we look at what would an investor or builder or developer be able to pay for that property,” Copley said.

CityBldr is taking a different approach than Zillow, Redfin, and Opendoor, the incumbent instant offers company based in San Francisco. Opendoor just raised a whopping $325 million to expand into new markets and defend against new challengers. Unlike CityBldr, all of those companies are buying homes to sell to other home buyers, not brokering deals to convert properties into multi-unit buildings.

“We’re not competing with Zillow and Redfin directly on their instant offer,” Copley said. “We just believe that property owners will come to CityBldr first to see if they can get a better offer than all the other companies looking at the same underwriting for the property.”

Has urban revival caused a crisis of success?

Attract members of the "creative class" to a city and they will create jobs and spur urban renewal. But that idea, championed by noted urbanologist Richard Florida, has a double-edged downside: increased economic segregation and less affordable housing. Economics correspondent reports on how Florida wrestles with that tension in his latest book, "The New Urban Crisis."


Editor's note: Plan Bay Area is projected to INCREASE the cost of housing.  While it promises to build more taxpayer subsidized housing, the rest of us will be forced to pay for them.  San Francisco will become a have for the very rich and the poor. Middle classes will need to move elsewhere for the American Dream.

Low Interest Rates Have Created New Housing Bubble, Says UBS

Low Interest Rates Have Created New Housing Bubble, Says UBS

Vancouver and London came first and second on the 2016 list of cities most at risk of real estate bubbles

ENLARGE
A real estate for sale sign is pictured in front of a home in Vancouver on Sep. 22, 2016. PHOTO: REUTERS
By
ART PATNAUDEUpdated Sept. 27, 2016 9:56 a.m. ET


Housing bubbles are inflating in major cities around the world, with Vancouver and London most at risk, according to Swiss lender UBS Group.

Ultralow interest rates at global central banks have contributed to overheating in the housing market in recent years, the report from UBS Wealth Management said Tuesday.

Vancouver and London came first and second on the 2016 list of cities most at risk of real estate bubbles. Bubble risk was also evident in Stockholm, Sydney, Munich and Hong Kong, UBS said.

House prices in all these cities have increased by nearly 50% on average since 2011. The average price rise in other financial centers has been less than 15%.

Loose monetary policy at global central banks is a key driver behind rising prices, the report said. Low interest rates have pushed investors to hunt for returns in tangible assets, “so it is hardly any wonder that housing markets are again overheating,” according to report authors Claudio Saputelli and Matthias Holzhey.


For the European Central Bank, which controls monetary policy for all 19 member countries, the inability to adjust interest rates for particular economic development in separate countries has contributed to rising house prices in the region, UBS said.

“All European cities are overvalued, apart from Milan,” the report said. Central banks in theU.K., Canada and Australia are also keeping interest rates low. Combined with stable supply of homes and strong demand from foreign buyers, especially in China, “this has produced an ideal setting for excesses in house prices,” the authors said.

Vancouver house prices have been significantly overvalued since 2007, according to UBS. Neither the financial crisis nor weakening commodity prices incited a slowdown.

In an attempt to temper soaring prices in Vancouver, the provincial government of British Columbia introduced a 15% transfer tax on foreign home buyers in August.

London and Hong Kong topped UBS’s bubble index in 2015. London has been knocked into second place this year, and Hong Kong sixth, but both are still in bubble-risk territory.

In London, an acute housing shortage and readily-available mortgages “should be able to sustain the inflated prices for the time being,” the report said.

What might pop the bubbles, and when, is impossible to predict, even in cities with the clearest signs of a problem, UBS said. “A sharp increase in supply, higher interest rates or shifts in the international flow of capital could trigger a major price correction at any time,” Mr. Holzhey, a real estate economist, said in a written statement.

Investors now buying cities considered overvalued “should not expect real price appreciation in the medium to long run,” UBS said.

Kelo V. City of New London (Important Video if you live within 1/2 mile of the 101 Freeway)

AB2, SB628,  are redevelopment laws that have received Governor Brown's signature.  It allows eminent domain for " inefficient development" i.e. single family homes for Multi-Family homes. This will force the urbanization of Marin.

If you live within 1/2 mile of the 101 corridor  or within the "urban boundary" your home is under threat of being taken by eminent domain so that new multi-family developments can be built. Planners call this "densification" of the urban footprint. In England, where this has been practiced since the 1990s they call it "cramming".

The Kelo decision is a serious misreading of the Constitution and affects EVERYONE.

Spotzoning will affect the price of your real estate but smart real estate companies are providing disclosures now.

see full meeting video at :  June 24, 2013 Planning Commission Meeting

In this clip above, the Planner Lele Thomas explains that only Bradley Real Estate is currently providing disclosures about controversial housing issues in their standard list of documents.  The Marin County Board of Supervisors, has not yet taken an official position but many realtors are insisting in disclosures for their sellers for legal protection.

Lele Thomas explains that selective zoning for projects like Los Ranchitos  60 unit apartment building is not "spot zoning" according to county counsel.  The 60 unit project is situated in the middle of a single family home development with 1 acre minimum lot sizes.  Later Commissoner Ericka Erickson argues to keep this project to "prevent segregation" policies.  It is not spotzoning according to County Counsel when we are fullfilling housing mandates for the State.

We can surely expect a legal test of this poor planning decision if allowed to remain in the Housing Element.

If spot zoning is allowed to occur, then single family neighborhoods will effectively no longer be legal.  This is a developers dream and a planner's utopian Smart Growth fantasy.

Politicians may expect voter backlash!

Wednesday Adams Dance- Once upon a time in Marinwood-Lucas Valley

It seems like yesterday, when we were blissfully unaware of the plans to urbanize Marinwood-Lucas Valley.

What Happened?

On August 7, 2007 Marin County Supervisor, Susan Adams put forth a motion for the Marinwood Priority Development Area for urbanization.  It will change our neighborhood of single family homes to apartment house densities of 30-50 units per acre.   As late as June 4th, 2013  Supervisor Adams denied its existence and even expressed surprise about the size of the PDA.

Here is the Map of the Priority Development area.  If you live west of Las Gallinas, the densities may "only" be 20 units per acre.

The Photos Low Income Housing Developers won't show you

"No, the new apartments won't be anything like the last ones" 

The celebrated Pruitt-Igoe housing project designed by famous architect Le Corbusier lasted only 18 years before it was abandoned and destroyed. 

 

To see what Bridge Housing wants to build in the Marinwood Plaza visit:

 

 

http://www.marinwoodvillage.com/

More Bubble Trouble in California?

full article: More Bubble Trouble in California?

by Joel Kotkin 02/04/2013

Just six years since the last housing bubble, California is blowing up another. This may seem like good news to homeowners and speculators alike but it could further accelerate the demise of the state's middle class and push more businesses out of the state.

On its face, a real estate turnaround should be a strong sign of an economic recovery. In Southern California, home sales have jumped 14 percent over last year and the median price is up 16 percent, some 25 percent in Orange County. We may not quite be at 2007 super-bubble levels but we're getting there, particularly in the more desirable areas.

Yet, before opening the champagne, we need to look at some of the downsides of this asset recovery. We are not seeing much new construction, particularly of single-family homes, so the supply is not being replenished as inventory sinks. Meanwhile, many of the homebuyers are not families seeking residences, but flippers, Wall Street types and foreign investors. A remarkable one-in-three Southern California home purchasers paid with cash, up from 27 percent from last year.

It's clear that this increase is not being fueled primarily by income growth among middle-class Californians; these "prices are rising disconnected from household incomes," notes one analyst. Indeed, California incomes have been dropping somewhat more rapidly, down $2,600 per household from 2007-11, according to the American Community Survey, compared with a $200 drop nationwide. California incomes are still 13 percent higher than the national average, but a lot less so than in the past, particularly given the much higher costs and taxation.

This leads to what is becoming the biggest problem facing the state – a decline in the rates of affordability. The previous bubble left us a legacy of more-affordable housing, an advantage we may now be losing. Historically, and in much of the country, the median multiple, which compares the median-price home to median household income, was in the three range. At the height of the previous bubble, the median multiple for the Los Angeles-Orange County metropolitan area, reached 11.5 in 2007, then fell to a still-elevated 5.7 in 2009, notes demographer Wendell Cox. It remained steady in 2011, but in just the past year the measurement has shot up to 6.2. A few more years at this rate, and housing affordability could worsen materially.

The new bubble can be seen elsewhere in the state. The most prominent inflation in housing values can be seen in the San Francisco Bay Area, which has enjoyed the most buoyant recovery from the recession. Never a cheap area, in 2006, San Francisco reached a median multiple of10.8 and Silicon Valley (San Jose) rose to 9.3. When the bubble imploded, the median multiple fell to 6.7 in both metropolitan areas, still well above any level recorded before the housing bubble. But now, amidst a concentrated boom in the western side of the Bay, the median multiple rose the equivalent of 1.1 years of income in San Francisco (to 7.8) and 1.0 years of income in San Jose (7.9) in a single year.
Of course, you can argue that the higher prices in the Bay Area are explainable at least in part by a growth in employment and wealth generated by tech start-ups. But what about soaring prices in places like the Inland Empire (Riverside-San Bernardino), Sacramento or Fresno, where economic growth has been torpid, and unemployment remains well north of 10 percent? Over the past year, Sacramento's median multiple has risen from an affordable 2.9 to 3.2, the Inland Empire from 3.2 to 3.7 while Fresno's has gone from 3.1 to 3.5.

As these prices rises, the California dream, already increasingly off-limits in the coastal areas, begins to become less achievable even in the inland areas. Already, barely 55 percent of Californians own their own home, down from the bubble-period high of 60 percent in 2005 and compared with upward of 65 percent nationally.

Traditionally, the pent-up demand for houses would be met in the marketplace, but California's Draconian planning laws make this very difficult. In the first 11 months of 2012, the Census Bureau reports that the Los Angeles-Orange County metropolitan area had half as many construction permits than much smaller Dallas-Fort Worth, 60 percent of Houston's permits and fewer even than the relatively tiny Austin, Texas, metropolitan area. More to the point, more than 70 percent of L.A.'s construction was in multifamily units while the majority in most areas, (except for such areas as New York, San Francisco, San Jose and San Diego) was in single-family homes.

Given the state's planning preference for high-density housing, even in suburban and exurban areas, there's little hope that California single-family home buyers can expect much relief. As millennials age, and seek out this form of housing as they start families, they will likely look increasingly elsewhere, for example, in Dallas-Fort Worth, Houston, Phoenix or Atlanta. The great California exodus, which slowed during the housing bust, will likely pick up, joining up with the continued movement of employers to more business-friendly states.

In the short run, of course, not everyone loses from a new bubble. Owners of homes, particularly along the coast, will see a big increase in their net worth. There could be good times ahead again for what author Bob Bruegmann calls "the incumbent's club." With projected new units running at one-half their 2007 level until 2015, scarcity will help the state's graying gentry. These same citizens also enjoy a double bonus, since most are protected by Proposition 13 from paying higher property taxes on their rising property values.

The bubble may also have short-term positive impact on local governments, which may benefit from high property taxes if more homes change hands at higher prices. The "wealth effect" could also bring new capital-gains income to a state government whose revenue stream increasingly depends on the upper-class taxpayer, particularly after the passage of Proposition 30, which increased the state's reliance on high-income earners. In this sense, the asset inflation could help Gov. Jerry Brown enjoy his much-trumpeted surplus, and he may even avoid the deficit projected next year by the Legislative Analyst.

These positive effects may be outweighed by bigger concerns. The pushback against single-family homes will restrain the growth of the construction industry, still down 400,000 jobs from its 2006 peak. This is particularly critical for working-class Californians, many of whom previous made decent livings in this industry.

But workers and homebuilders won't be the only ones affected; so, too, will consumers. Without a loosening of regulatory constraints, pent-up demand for housing, particularly the single-family variety, will remain largely unaddressed. This will further inflate the bubble even in unfashionable areas. We may soon see a surplus of rental apartments, but not enough single-family homes; the ownership market, as evidenced by the rising median multiples, will continue to tighten, and prices could rise even more, even in a mediocre economy.

The groups hit hardest by this scenario will be middle- and working-class Californians, particularly above the age of 30-35, most of whom desire to own their own home. Unable to qualify, or unwilling to overleverage, many will be forced either to give up their dreams or look elsewhere, taking their talents and, eventually, their offspring, with them.

Joel Kotkin is executive editor of NewGeography.com and a distinguished presidential fellow in urban futures at Chapman University, and a member of the editorial board of the Orange County Register. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA.
This piece originally appeared in the Orange County Register.
Photo by Sean Dreilinger: One of two adjacent bank owned homes