FHA loans easier to get – but more in default

WASHINGTON – March 13, 2017 – Riskier borrowers are making up a growing share of new mortgages, pushing up delinquencies modestly and raising concerns about an eventual spike in defaults that could slow or derail the housing recovery.

The trend is centered around home loans guaranteed by the Federal Housing Administration (FHA) that typically require downpayments of just 3 percent to 5 percent and are often snapped up by first-time buyers. The FHA-backed loans are increasingly being offered by non-bank lenders with more lenient credit standards than banks.

The landscape is nothing like it was in the mid-2000s when subprime mortgages were approved without verifying buyers’ income or assets, sparking a housing bubble and then a crash. Still, for some analysts, the latest development is at least faintly reminiscent of the run-up to that crisis.

“We have a situation where home prices are high relative to average hourly earnings and we’re pushing 5 percent-down mortgages, and that’s a bad idea,” says Hans Nordby, chief economist of real estate research firm CoStar.

The share of FHA mortgage payments that were 30 to 59 days past due averaged 2.19 percent in the fourth quarter, up from about 2.07 percent the previous quarter and 2.13 percent a year earlier, according to research firm CoreLogic and FHA. That’s still down from 3.77 percent in early 2009, but it represents a noticeable uptick.

While that could simply represent monthly volatility, “the risk is that the performance will continue to deteriorate, and then you get foreclosures that put downward pressure on home prices,” says Sam Khater, CoreLogic’s deputy chief economist. Such a scenario likely would take a few years to play out.

The early signs of some minor turbulence in the mortgage market add to concerns generated by recent increases in delinquent subprime auto loans, personal loans and credit card debt as lenders target lower-income borrowers to grow revenue in the latter stages of the recovery.

FHA mortgages generally are granted to low- and moderate-income households who can’t afford a typical downpayment of about 20 percent. In exchange for shelling out as little as 3 percent, FHA buyers pay an upfront insurance premium equal to 1.75 percent of the loan and 0.85 percent annually.

FHA loans made up 22 percent of all mortgages for single-family home purchases in fiscal 2016, up from 17.8 percent in fiscal 2014 but below the 34.5 percent peak in 2010, FHA figures show. The share has climbed largely because of a reduction in the insurance premium and home price appreciation that has made larger downpayments less feasible for some, says Matthew Mish, executive director of global credit strategy for UBS. House prices have been increasing about 5 percent a year since 2014.

At the same time, the nation’s biggest banks, burned by the housing crisis and resulting regulatory scrutiny, largely have pulled out of the FHA market as the costs and risks to serve it grew. Non-bank lenders, which face less regulation from government agencies such as the FDIC, have filled the void.

Non-banks, including Quicken Loans and Freedom Mortgage, comprised 93 percent of FHA loan volume last year, up from 40 percent in 2009, according to Inside Mortgage Finance. Meanwhile, the average credit score of an FHA borrower has fallen modestly since 2013. Mish says non-banks generally have looser credit requirements, and lenders have further eased standards – such as the size of a monthly mortgage payment relative to income – as median U.S. wages stagnated even as home values marched higher.

Here’s the worry: If home prices peak and then dip, homeowners who put down just 5 percent and are less creditworthy than their predecessors and will owe more on their mortgages than their homes are worth. That would increase their incentive to default, especially if they have to move for a job or face an extraordinary expense, Khater says. Foreclosures would trigger price declines that ignite more defaults in a downward spiral.

In turn, funding for the non-bank lenders from banks and hedge funds likely would dry up, and FHA loans would be harder to get, dampening housing.

Guy Cecala, publisher of Inside Mortgage Finance, says such fears are unfounded, citing some complaints that FHA mortgage standards are too rigorous.

“The non-banks (bring) a welcome change,” he says. They must meet FHA standards, he says, and are overseen by the Consumer Financial Protection Bureau.

Bill Emerson, vice chairman of Quicken Loans, the top non-bank lender, says the credit standards of his firm and his peers are stringent by historical standards and seem looser only because banks tightened requirements after the housing crash.

“I don’t have any concerns about” a potential rise in bad loans, Emerson said.

Copyright 2017, USATODAY.com, USA TODAY, Paul Davidson

1 in 5 mortgage borrowers regret their decision

COSTA MESA, Calif. – Nov. 10, 2016 – Overall satisfaction scores have increased year over year, but a high percentage of homebuyers still have regrets about their mortgage lender, according to the J.D. Power 2016 U.S. Primary Mortgage Origination Satisfaction Study.
The study found that 1 in 4 (21 percent) customers purchasing a home express have regrets about their lender, a claim voiced even more by first-time buyers (27 percent).
Among customers who regret their decision, there are two distinct situations:
Customers who have a poor experience. This group cites an above-average incidence of problems, lack of communication and unmet promises. While this group’s responses aren’t unexpected, they are often vocal about their displeasure, making an average of 9.0 negative comments compared with the study average of 0.7.

Satisfied customers who feel they made a decision too quickly. The second situation is more unexpected, according to survey authors. This group tends to be very price-focused and frequently obtains multiple quotes. However, on some level they feel the process itself was too complex, even though they were happy with the lender they finally chose.

Among customers who regret their lender selection, 72 percent say they were pressured to choose a particular mortgage product. Their final lender choice is often linked to financial reasons, such as getting a lower rate because they have a relationship with the firm (e.g., checking account with direct deposit).
“This ‘happy buyer’s remorse’ is in part due to customers feeling that circumstances out of their control drove them to a particular choice and that options weren’t totally clear,” says Craig Martin, director of the mortgage practice at J.D. Power. “Like a lot of consumers, they are happy with a good deal, but they can feel that they have to jump through hoops to get the deal. In the end, they may not fully understand exactly what they got, and the longer-term risk for lenders is that customers’ perceptions of the deal may change in the future.”
One potential contributing factor to this condition could be TRID (TILA RESPA Integrated Disclosure). Over the past two years, much of lenders’ attention has been focused on complying with and minimizing the negative effects of these new requirements, which became effective in October 2015. Lenders feared that the new requirements would extend an already lengthy process and negatively affect satisfaction.
While various sources have reported increases in the total number of days for the lending process, findings of the 2016 U.S. Primary Mortgage Origination Satisfaction Study show little change in the perceived speed of the process. Improved communication and setting expectations appropriately helped prevent negative perceptions.
“Whether it is a new regulation, shifting rates or new technology, lenders will continue to face challenges that require them to change,” Martin says.
Key findings
A higher percentage of customers this year said their loan representative always called back when promised, compared with last year (85% vs. 81%, respectively), and their loan closed on the desired date (81% vs. 79%)

Satisfaction is significantly higher among customers buying a home (840) than among those refinancing (821). In the 2014 and 2015 studies, the levels of satisfaction in these groups were nearly identical

Technology is becoming increasingly important, with 28% of customers saying they completed their detailed application online, up from 22% in 2015 and 18% in 2014

Top lenders by satisfaction
Quicken Loans ranks highest in primary mortgage origination satisfaction for a seventh consecutive year, with a score of 869. Quicken Loans performs particularly well in the application/approval process, interaction, loan closing, loan offerings and onboarding factors.

CitiMortgage moves up three positions from fifth in 2015 to second this year, with a score of 851. Ditech Financial, new to the study in 2016, ranks third with a score of 849.

Wells Fargo Home Mortgage (+52 points) and Nationstar Mortgage (+50 points) post the most significant year-over-year improvements in overall satisfaction.

Consumer advice
Plan ahead when researching mortgages. Satisfaction among customers who waited until they found a home to look for a mortgage is 92 points lower than among those who started before they began a home search.

Get more than one quote. Among the 32% of customers who received just one quote, overall satisfaction is 19 points lower than those who get multiple quotes. Satisfaction is 38 points lower among first-time buyers only getting one quote vs. those who get multiple quotes.

Choose a lender based on merits, not just price or affiliation. Customers who say they chose their lender primarily because of price/rate or based on a recommendation are significantly less satisfied than those whose choice is based on other reasons.

© 2016 Florida Realtors®

Average 30-year mortgage rate rises to 3.57%

WASHINGTON (AP) – Nov. 10, 2016 – Long-term U.S. mortgage rates rose this week for a second straight week.

Mortgage giant Freddie Mac said Thursday the average for a 30-year fixed-rate mortgage increased to 3.57 percent from 3.54 percent last week. Rates remain near historically low levels, however. The benchmark 30-year rate is down from 3.98 percent a year ago. Its all-time low was 3.31 percent in November 2012.
The 15-year fixed-rate mortgage, popular with homeowners who are refinancing, rose to 2.88 percent from 2.84 percent.

The rates reflect the mortgage market in the week prior to Republican nominee Donald Trump’s election as president. On Wednesday, the day the result became known, bond prices fell sharply. That sent yields higher.

Long-term mortgage rates tend to track the yield on the 10-year Treasury note, which jumped to 2.06 percent from 1.80 percent a week earlier – exceeding 2 percent for the first time since January. Traders have been selling bonds more aggressively to hedge against the possibility that interest rates, which have been extremely low for years, could rise steadily under a Trump administration.

The sell-off in bonds continued Thursday morning, with the yield on the 10-year Treasury note rising to 2.12 percent.

To calculate average mortgage rates, Freddie Mac surveys lenders across the country at the beginning of each week. The average doesn’t include extra fees, known as points, which most borrowers must pay to get the lowest rates. One point equals 1 percent of the loan amount.

The average fee for a 30-year mortgage was unchanged from last week at 0.5 point. The fee for a 15-year loan also held steady at 0.5 point.

Rates on adjustable five-year mortgages averaged 2.88 percent, up from 2.87 percent last week. The fee remained at 0.4 point.

AP Logo Copyright © 2016 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

HUD charges Fla. landlord with discrimination

HUD charges Fla. landlord with discrimination
 

WASHINGTON – Nov. 10, 2016 – The U.S. Department of Housing and Urban Development (HUD) is charging landlords in South Florida with discrimination against tenants with disabilities. Rather than a tenant-based allegation, the charge reflects concerns about a visitor who travels with an emotional support animal.

HUD charged three entities in the Florida case: the owner of Hillcrest East Building No. 22, a multifamily development in Hollywood, Florida; the property’s management company, Rhodes Management; and a previous president of the homeowners’ association. The housing discrimination allegation claims they failed to make reasonable accommodations, published discriminatory notices and statements, and attempted to intimidate and retaliate against two family members who filed a housing discrimination complaint.

One individual lives at the subject property, and the other person, who has a disability, was allegedly prevented from visiting her cousin at the property because she requires the use of an emotional support animal.

HUD’s charge also alleges that the owners and managers discriminated against persons with disabilities by requiring personal and unnecessary medical information in order to grant reasonable accommodations, and by prohibiting emotional support animals and their owners from having access to the development.

The complete HUD charge is posted online.

The charge will be heard by a United States Administrative Law Judge. If the administrative law judge finds after a hearing that discrimination has occurred, he may award damages to the complainants to compensate them for the discrimination and may assess a civil penalty

The Fair Housing Act makes it unlawful to discriminate based on disability in the sale, rental, and financing of dwellings, and in other housing-related transactions, including refusing to make reasonable accommodations in rules, policies, practices, or services. In addition, Section 504 of the Rehabilitation Act of 1973 prohibits discrimination on the basis of disability by any program or activity receiving federal financial assistance

“Discrimination against people with disabilities continues to be the most common type of housing discrimination complaint we receive each year,” says Gustavo Velasquez, HUD’s Assistant Secretary for Fair Housing and Equal Opportunity. “It’s unacceptable and the cases we’re announcing today reflect HUD’s commitment to making sure housing opportunities are available to every American, including those with disabilities.”
© 2016 Florida Realtors®
 

Wage growth now matches rental rate growth

WASHINGTON – July 22, 2016 – U.S. renters are seeing their housing costs rise at a much more manageable pace, as new construction has tempered years of runaway increases in rent.
Real estate data firm Zillow says that median rent rose a seasonally adjusted 2.6 percent in June from a year ago, matching the gains in average hourly wages. Rental costs have decelerated after consistently exceeding earnings growth in previous years, a sign that additional building is giving more options.
The median monthly rent nationwide was $1,409. Annual increases in rent surpassed 9 percent in both the Seattle and Portland, Oregon areas, although it has moderated in markets such as San Francisco, where yearly price growth went from double-digit gains to 7.4 percent.
Prices are rising above the national average in New York City and Los Angeles. But they’ve settled at less than 2 percent in Cincinnati and Cleveland, host of the Republican National Convention this week. Still, rental costs are much cheaper in both Ohio metro areas than the national average.
In Philadelphia, where the Democrats will hold their convention, median rent is more expensive and has been rising at a 2.5 percent to $1,582 a month.
Not all indicators show rent as moderating. The government’s consumer price index found that rents had jumped 3.8 per cent from a year ago. Shelter accounts for a third of all consumer expenses, according to the index.
Builders have been adding to the national supply of apartments. They completed 310,300 multi-family buildings last year, a 21.4 percent jump from 2014, according to the Commerce Department. Apartment construction through the first half of this year is running another 5.6 per cent ahead of the 2015 pace.
Copyright © 2016 The Canadian Press, Josh Boak. All rights reserved.

96
Things first-time home buyers need to know

 

WOODLAND PARK, N.J. – July 22, 2016 – The economy is improving, interest rates are low and many consumers now find themselves in a great position financially to become a first-time homeowner. There’s a small problem though for some locations around the country – the booming real estate market is resulting in rising home prices and increased competition for the most desirable properties.
The S&P/Case-Shiller national home-price index recently estimated that 2016 prices are within four percent of the peak in 2006. In some areas, low inventories around the country are making the situation even more challenging.
These conditions are introducing first-time buyers to common challenges and frustrations while searching for their dream home. “Don’t get discouraged,” says Travis Peace, executive director of mortgage at USAA Bank. “Buying a home requires some fortitude and the process intimidates many – not just those doing it for the first time.”
As a result, Peace says it’s easy to concentrate too much on home buying “can’ts” rather than “can-dos,” and he offers this advice on how to overcome some common barriers.
“I Can’t” No. 1: I can’t figure out the home-buying process.
Peace notes that it’s essential to do research and to be equipped with basic information, but also be willing to ask for help when needed. For example, an experienced real estate agent can keep a buyer apprised of everything from area sales trends to the latest changes in state and federal laws that could impact a mortgage application.
“This is where experienced, licensed professionals can help,” Peace says. “Real estate agents can be an advocate for the buyer throughout the entire process.”
In addition, free tools like USAA’s Real Estate Rewards Network can connect buyers with an agent and even provide rewards based on the sale price of the home.
“I Can’t” No. 2: I can’t find the perfect home for my family.
Finding the perfect home may not be realistic, but shoppers can find the right home. Personal situations will dictate buyers’ ability to wait for a home in a particular neighborhood or design style to come on the market, but not everything has to be left to chance.
Peace says the key is to set realistic expectations and not fixate on negatives that can be changed. “Whether it’s the number of bedrooms or distance to work or school, it’s alright to have some non-negotiables. However, buyers should be willing to be flexible on things that can be relatively easy to change, like paint colors or landscaping.”
“I Can’t” No. 3: I can’t afford a 20 percent downpayment.
Putting 20 percent down on a home has become more of a guideline than a rule. Today, not being able to put 20 percent down does not mean buying a home is out of reach. Peace notes that depending on a buyer’s financial situation, there may be a responsible way to get into your new home without putting 20 percent down.
Government-sponsored loan programs from the Federal Housing Authority, Fannie Mae and Freddie Mac provide loan options that require downpayments as low as three percent. Veterans Affairs (VA) loans don’t require any downpayment. While those programs are often great options for consumers who qualify, Peace notes that buyers should keep an eye on their potential total monthly payment.
“Some of these loans include fees and private mortgage insurance (PMI) that could significantly impact your overall cost,” Peace says.
Even private lenders are offering more competitive loan options. For example, USAA Bank’s Conventional 97 loan allows borrowers to acquire a mortgage with only three percent down and the bank pays the PMI costs.
Scott McEniry, a USAA member, recently moved into his new home with the help of the Conventional 97 loan. “It felt like a lifeline had been thrown to me as suddenly a house purchase was within reach again,” McEniry says.
Whether a house-hunting novice or seasoned expert, Peace underscores that being informed, getting the right help and having a healthy dose of determination are the best ways to turn a dream home into a reality.
Copyright © 2016 Argus, North Jersey Media Group, Inc. All rights reserved

Fla. metros added to federal homebuyer program

WASHINGTON – Nov. 11, 2015 – The Federal Housing Finance Agency (FHFA) announced an expansion of the Neighborhood Stabilization Initiative (NSI) to 18 additional metropolitan areas around the country, including four in Florida: South Florida, the Orlando area, the Tampa area and Jacksonville.
Effective Dec. 1, local community organizations in the metro areas will be able to buy foreclosed properties owned by Fannie Mae or Freddie Mac before the general public has a chance.
FHFA, Fannie Mae and Freddie Mac jointly developed NSI through a partnership with Fannie Mae and Freddie Mac and the National Community Stabilization Trust (NCST). The pilot program launched initially in Detroit and was later extended to the Chicago metro area.
“The number of REO properties that Fannie Mae and Freddie Mac hold continues to decline nationwide, but there are still some communities in which the number of REO properties remains elevated,” says FHFA Director Melvin L. Watt. “Our goal is to take what we learned in Detroit and Chicago and apply it to these additional communities as quickly and efficiently as possible.”
Watt says “giving local community buyers an exclusive opportunity to purchase these properties at a discount, taking into account expenses saved through a quicker sale, is an effective way to give control back to local communities and residents who have a vested interest in stabilizing their neighborhoods.”
The 18 metropolitan areas designated for NSI expansion include:
Akron, Ohio

Atlanta-Sandy Springs-Roswell, Georgia

Baltimore-Columbia-Towson, Maryland

Chicago-Naperville-Elgin, Illinois

Cincinnati, Ohio

Cleveland-Elyria, Ohio

Columbus, Ohio

Dayton, Ohio

Detroit-Warren-Dearborn, Michigan

Jacksonville, Florida

Miami-Fort Lauderdale-West Palm Beach, Florida

New York-Newark-Jersey City, New York-Pennsylvania-New Jersey

Orlando-Kissimmee-Sanford, Florida

Philadelphia-Camden-Wilmington, Pennsylvania-New Jersey-Delaware

Pittsburgh, Pennsylvania

St. Louis, Missouri

Tampa-St. Petersburg-Clearwater, Florida

Toledo, Ohio

Community organizations in South Florida estimate that about 2,000 foreclosed homes could eventually end up in the program, which focuses on homes valued at $175,000 or less.
“It’s very difficult to compete with investors who get distressed properties,” Terri Murray with the nonprofit Neighborhood Renaissance told the Miami Herald. “The investors are profit-driven while we are mission driven. This program evens the playing field for us.”
© 2015 Florida Realtors®  

Rent-to-Own Homes Make a Comeback

Investment firms bank on giving renters an option to buy

Wall Street firms have found a new way to profit from consumers with blemished credit who can’t qualify for a mortgage: let them rent a home first with the option to buy it later.

Rent-to-own programs, once run mainly by small operators, were popular with cash-strapped consumers during the 1990s. They faded a decade later when easy lending made it possible for almost anyone to buy a home with no money down, but with lenders setting a higher bar, they are making a comeback.

For investors, it is a chance to profit off the recovering housing market. Consumers get a chance to lock in a home before they have the money together for a down payment. But the price may be higher rent in the interim and a higher purchase price the longer they wait to move from renting to owning.

One of the fastest-growing rent-to-own companies is Home Partners of America, which was co-founded three years ago by formerGoldman Sachs executive William Young. Mortgage securities veteran Lewis Ranieri was an early investor in the company, and real-estate mogul Sam Zell has acted as an adviser to Mr. Young. Late last year, Home Partners received a $500 million equity investment from a group led by money manager BlackRock Inc.’s alternative investments arm.

Mr. Young, who formerly co-headed Goldman Sachs’s European mortgage department, said he saw an untapped market helping people who are being shut out of the housing market.

“What really frustrates me personally is that a lot of people I grew up with, extended family members, would have trouble getting access to mortgage credit today,” said Mr. Young. He says his company spent $100 million to buy about 320 homes in June, up from $15 million, or 66 homes, in June of last year.

Brian Stern, a managing director at BlackRock, said he sees Home Partners as a long-term, sustainable business. Mr. Ranieri said the program is both viable and needed given tightness of mortgage credit and the lack of readily available solutions. Mr. Zell declined to comment.

Here’s how Home Partners’ program works. A consumer teams up with a real-estate agent to select a home in one of Home Partners’ approved communities, which tend to be suburban locations with strong school systems and with homes priced between $100,000 and about $725,000. Home Partners buys the home and leases it to the consumer, who has the right to purchase the home from Home Partners within five years in most places. During the renting years, the consumer is expected to repair his or her credit and save for a down payment, but the longer they rent the more they will pay to acquire the house.

For example, a house shown on Home Partners website has a list price of $449,975 in Chula Vista, Calif. The family that agrees to rent that house from Home Partners has the right to purchase the home for $472,035 after one year and would have to pay $573,762 if it waited five years before purchasing, a markup of 28% from the initial list price.

The monthly rent on the property would start at $2,810 a month and escalate to $3,256 in the fifth year.

For consumers, that likely means that they are paying a premium over renting or buying a typical home. Monthly payments on a 30-year conventional mortgage on the same house would be around $1,800. The average rent for a single-family home in San Diego is $2,270 a month, according to Moody’s Analytics—although typical single-family rentals are likely smaller and in less desirable areas.

Home Partners officials say that the increases are in line with the rapid rise in home prices in markets such as California and rents are typically within 5% to 10% of comparable properties in the market. The S&P/Case-Shiller Home Price Index, covering the entire nation, rose 4.4% in the 12 months ended in May, slightly greater than a 4.3% increase in April. Home prices in San Diego climbed 4.8% year-over-year in May 2015, according to the index.

Home Partners also notes that the consumer can decide not to purchase if the home is more expensive than comparable properties in the area. If price growth slows and the consumer thinks buying a home is a bad deal, they can walk away with no penalty and Home Partners would re-rent the home. The company says that they expect about half of their renters to ultimately purchase.

Tiffany Morgan, who works in marketing in Sugarland, Texas, turned to Home Partners 2013 after a divorce destroyed her credit. When she first heard about the program, she thought it was a scam. “I thought no way…it’s some scheme that I’m going to fall into,” said Ms. Morgan, who is in her mid-30s with a 7-year-old son.

Home Partners purchased the home for around $205,000 and she rented it for about a year for $1,730 a month. That same year she improved her credit and bought the house for $215,000. She thought, “What’s the worst case? I’ll lease it for a while and then if I fall in love with it I’ll do what I need to do to make it happen.”

For consumers, the advantage is that the homes tend to be in nicer neighborhoods with better school districts than most single-family rental properties. It also guarantees that if house prices escalate faster than that, the price is guaranteed when they go to purchase the home.

Sarah Edelman, a senior policy analyst at the Center for American Progress, a Washington-based nonpartisan policy institute, said that it is early to tell if Home Partners’ rent and home price bumps will prove to be in line with the market.

“All things equal this could be a really great opportunity for consumers,” she said, referring to the cost of Home Partners program versus the rest of the market. “But all things need to be equal.”

So far, Home Partners operates only in 30 metropolitan areas in 15 states, including California, Florida and Texas. It currently doesn’t operate in the Northeast. But Home Partners is teaming up with Berkshire Hathaway Home Services and Realogy Holdings Corp., which operates several real-estate brokerage franchises including Century 21 and Coldwell Banker, which will give it national reach.

A motivating factor for home buyers to use a rent-to-own program is the combination of government policies and banks’ increased cautiousness have made mortgages much more difficult to get, even for middle-class Americans. Buyers typically must have higher credit scores than were needed even in the early 2000s, before the subprime boom. The homeownership rate for middle-income Americans has fallen to 63% from 69% in 2000, according to Zillow.

Home Partners isn’t alone in seeing a profitable niche in the rent-to-own space. New York City-based HomeLPC, started by a former Lehman Brothers banker, launched about a year ago and has expanded to three states, where it has bought two dozen homes. It plans to expand into five more states by the first quarter of 2016. Premium Point Investments, a New York-based asset manager, is in the midst of testing a rent-to-own business focused on the South and Southeast.

Whether rent-to-own will prove to be profitable remains to be seen. A number of companies that rent out single-family homes have found that few renters have become buyers, either because they haven’t been able to restore their credit or haven’t been able to save enough for a down payment. But Home Partners said its credit screening targets middle-class and affluent clients who have steady jobs and an overall financial history that makes it likely they will be able to repair their credit and save money for a down payment within a few years.

http://www.wsj.com/articles/rent-to-own-homes-make-a-comeback-1438108813

Residential income property market surges in South Florida

As South Florida apartment rental prices rise to record highs, the residential income property market — a niche that consists of duplexes, triplexes and fourplexes — is surging in Miami-Dade, Broward and Palm Beach counties.

Investors who want to own small rental buildings with two, three or four units are snapping up properties at an increased pace to take advantage of strong lease rates and low vacancies in South Florida.

Many of these residential income properties cater to tenants who aspire to be homeowners but are struggling to purchase their own places for a variety of reasons, including a still challenging mortgage environment and rising real estate prices in South Florida.

It is against this backdrop that sales of South Florida residential income properties are up 7 percent on a year-over-year basis to about 1,380 transactions in the first 10 months of 2015 compared to fewer than 1,290 deals during the same January through October period in 2014, according to data from the Southeast Florida MLXchange.

A year earlier in 2013, buyers acquired fewer than 1,275 residential income properties in the tricounty region.

Even as the number of transactions has steadily increased, the prices of residential income properties have surged at a double-digit pace annually during the last three years in South Florida.

In 2015, residential income properties are selling at an average price of $124 per square foot. By comparison, residential income properties sold for an average price per square foot of $112 in 2014 and $90 in 2013.

The South Florida market for residential income properties has spiked since 2010 — near the end of the last real estate cycle — when 1,069 deals transacted at an average price of $61 per square foot.

In fact, today’s prices for residential income properties have more than doubled in the last five years.

Even with the recent jump in prices, South Florida’s residential income property market has not yet recovered to the levels experienced during the peak of the last real estate cycle.

Back in 2006, more than 1,080 residential income properties sold at an average price of about $181 per square foot. This means that today’s prices for this category of residential property are still down more than 30 percent from a decade ago.

Based on the current resale market, investors are optimistic that residential income properties have an upward trajectory at a time when other housing sectors are slowing down from the rapid transaction pace of a few years ago in South Florida.

For instance, year-over-year resales in South Florida are down 1 percent in the condo and townhouse sector while the single-family house category is up about 5 percent in the first 10 months of 2015, according to the Multiple Listing Service data.

At this time, more than 800 residential income properties are on the South Florida market at an average asking price of $191 per square foot, according to the data.

The current average asking price reflects nearly a 6 percent premium over the levels achieved in 2006.

Before dismissing the current asking price levels as overly optimistic, it is important to consider that South Florida has about 5.8 months of supply of residential income properties on the market.

In residential real estate, a six-month supply of properties is typically considered to be a balanced market. Fewer months of supply generally suggest a seller’s market, and more months of supply indicate a buyer’s market.

The bullishness about South Florida’s residential income property sector is rooted in rising rental prices.

Consider that the median rental transaction price for a residential property is $1.47 per square foot monthly in South Florida during the first 10 months of this year, according to the data.

By comparison, the median rental price per square foot in recent years was $1.35 in 2014 and $1.25 in 2013.

Currently, South Florida has about 2.5 months of supply of rental properties actively available for lease at a median asking price of about $1.98 per square foot, according to the data.

The unanswered question going forward is whether rental prices will continue to increase at record levels in the months and years ahead as tens of thousands of new apartment and condo units are currently in the development pipeline in South Florida.

Peter Zalewski is a principal with the Miami real estate consultancy Condo Vultures. Zalewski, a licensed Florida real estate professional since 1995 and founder of CVR Realty and Condo Vultures Realty LLC, advises developers, lenders and institutional investors. Zalewski also runs the preconstruction condo project website CraneSpotters.com in conjunction with the Miami Association Of Realtors.

Fla.’s Realtors predict price increases will top 5%….Now Is The Time To Buy!

WASHINGTON – Nov. 5, 2015 – Most Realtors® remain “strongly” confident that the single-family home market will perform better over the next six months than it did a year ago, according to the latest Realtors Confidence Index, a survey of more than 50,000 practitioners.

And in a state-by-state comparison, Realtors in Florida have the highest expectation for home price increases. Job growth and low interest rates – the 30-year fixed-rate mortgage is holding below 4 percent – are helping to buoy demand, the survey indicates.

Nationwide, Realtors expect home prices to rise an average 3.2 percent over the next 12 months. However, “Realtors expect the recent strong price growth to moderate as rising prices have made homes unaffordable for many, with home prices almost on par with their levels prior to the housing downturn,” according to the report.

The median price of all existing homes in August was $230,200, which nearly matches the peak price of $230,900 in July 2006.

Realtors in Florida predict that state home prices will rise 5-6 percent over the next 12 months – the only state where members expect an increase greater than 5 percent. In addition, only three other states’ Realtors expect a price increase in the 4-5 percent range: Washington, Oregon and Colorado. Realtors predict a 3-4 percent increase in 19 states, and 2-3 percent increase in 27 states. No state predicted an increase less than 2 percent.

Survey respondents report that their biggest market challenges continue to be tight inventory, decreasing affordability, tight mortgage availability, and slow, excessively conservative appraisals.

Many respondents also express concerns over the difficulty to obtain financing for condo purchases, since many condos aren’t eligible for FHA loans or ones backed by Fannie Mae or Freddie Mac.

Source: “REALTORS® Confidence Index: Report on the September 2015 Survey,” National Association of REALTORS® (Oct. 22, 2015)

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