Part Time REI » market conditions

Market Watch: Healthiest Housing Markets in US

Erik Hitzelberger — Wed, 17 Sep 2014 15:58:45 +0000

As you are probably aware as an investor, markets have their ups and downs. Some recover more quickly than others. Also as an investor, it is your duty to know where those markets are. How is your farm area’s health?

Recently Zillow ranked the healthiest real estate markets in the US. The “health” of housing markets is ranked on a scale of zero to 10. The rating takes into account several sets of data, including home value increases or decreases and the average number of days homes remain on the market.

It is amazing that all but one of these markets is in the same state. One would expect that the Sand States would be on the list. Check out the top 5 healthiest market right now in the US and some might surprise you.

#1 Pittsburgh, Pennsylvania (9.72)
We’re #1! Did this really surprise anyone? Despite the longest average time to sell a home on this list at 111 days, Pittsburgh takes the title of the “Healthiest Market in America”, thanks to having some of the most responsible and financially solid homeowners in the country. Not to mention they have been riding the recovery wave all year long.

With the lowest rate of mortgage delinquency on the list, (less than 4%) Pittsburgh homeowners are sitting pretty. When you combine this with an extremely low foreclosure rate and a very affordable market (average home value is $123,300), it’s not a bad time to be a Pittsburgh homeowner.

#2 San Jose, California (9.69)
In addition to being the healthiest market in California, San Jose is also one of the most expensive in the nation, with an average home value of $815,000. Can you imagine??

The high home prices make the fact that the average home sells in just over six weeks even more impressive. And, only 6.7% of homeowners have negative equity in their homes, which is one of the lowest rates in America.

#3 Santa Rosa, California (9.53)
Santa Rosa is the largest metropolitan area near California’s north coast, and makes up much of Sonoma County in California’s wine country.

Demand for homes is booming in the area, causing rapidly rising prices. The population is growing quickly too, with the population expected to grow almost 17% through 2020. Over the past year alone, home values in the Santa Rosa area have increased by more than 21%, and are expected to grow another 11.6% this coming year.

#4 San Francisco, California (9.11)
SF is among the healthiest markets for a couple of reasons. For one thing, homes are selling incredibly fast. Despite gaining 14% since this time last year, the average home in San Francisco only sits on the market for an average of 47 days, or less than seven weeks.

Additionally, homeowners in San Francisco are in pretty solid financial shape, and just 10.5% of homeowners with a mortgage have negative equity in their homes. This indicates the post-recession rebound has been very strong in the area.

#5 Los Angeles, California (9.04)
Despite LA having its average home worth almost $540,000, the second largest metropolitan area in the US is doing very well.

Home values have risen by 15% over the past year, and are projected to gain another 8.8% over the next 12 months. Los Angeles has a very low level of foreclosures on the market. Lastly, about 88% of homeowners make money when they sell their homes.

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Market Watch: Rise of The Renting Market

Erik Hitzelberger — Wed, 27 Aug 2014 16:25:05 +0000

Is your investing strategy “buy and hold”? Many flippers start their cash flow out that way; purchase a house, fix it up quickly and start renting right away. Seems like a smart move since many new studies are showing that renting is the way to go for more and more American families. But why is the renting market becoming so hot? With families needing the space of a home but not being able to afford one or unwilling to commit to a mortgage, there is ample opportunity for investors to make money in the rental industry Many investors are buying up houses and converting them into rentals, and government policymakers say it makes sense to encourage this. A smart investing move is flipping affordable rental units that not only help with your cash flow, they could help working families with low incomes, while also helping to revive residential construction jobs in your area. Seems like a win-win situation, right?

The rental market is for sure taking off. And you can see the growth with rental property management companies growing too. One company added 5,830 new properties nationwide through the second quarter this year. The rapid growth has been primarily fueled by real estate investors, both large and small, who purchase single-family homes as rental investments.

Even though homes seem very affordable now by many official measures, one of the most notable features of post-crash America is the rise of the renter. People who have lost their good credit record, lost their confidence in the housing market, or lost secure jobs have been shifting from being owners to renters. Young people who in prior decades might have been buying first homes are living with parents or renting.

While this is positive news for investors, others ask if it is a troubling trend. Despite a sharp plunge in home prices and the conversion of many properties from “owned” to “rented,” the typical family looking to rent has to pay more than 30 percent of its income for a typical apartment, according to an annual survey released Monday.

For the 1 in 4 renters who have very low incomes, moreover, it’s common to spend more than half their earnings on rent. By 2010, a US Census measure of homeownership had fallen from record levels of near 70 percent of households to about 65 percent. And even many home buyers could justly be called renters for now because sunken home values have erased any buildup of equity when they make their monthly payments.

The pendulum shift is partly a reversion to the norm. But it also hints at a hard reality of housing: Affordability is still a big challenge – even at a time of low interest rates.

Renting can have many advantages over buying, the recent surge in demand, rising rents, and falling incomes have caused an increasing number of households to pay a crushing share of their income for housing. What do you think?

Zillow-Trulia, The Future Of Real Estate?

Erik Hitzelberger — Wed, 20 Aug 2014 16:14:36 +0000

Over the past few years, some might say the real estate directory giants Zillow.com and Trulia.com have quietly taken over control of the real estate market in the United States. While this may not be the view everyone has, including ourselves, one thing is for sure: Zillow and Trulia are amongst the most visited websites in the US.

Sure it has become far more common for home buyers to find their price first through a site like Zillow and only involve a real estate agent once they are ready to buy. Homeowners are now able to both view and sell houses and rentals online rather than having to go through “MLS listings”, a traditional real estate agent, or Realtor.com. These websites are beginning to completely displace old networks of Realtor and real estate agencies as more and more sellers, buyers, and agents are conducting business through these sites. Both market places create the majority of their revenues by selling marketing and premier services to realtors.

For most of 2014, Zillow has been a solid performer in the stock market, gaining by more than 80% as compared to Trulia’s 20% gains. It is hard to identify a reason for the disconnect. From an operational standpoint, the two companies are very similar, although Zillow is larger. For example, Zillow ended June with 83 million users, far more than the 53 million that Trulia had at the end of that same month. Examining these metrics from a year-over-year growth perspective, Trulia’s 55% increase outpaced Zillow’s 49% user growth.

With that said, Trulia is outperforming Zillow on many different fundamental metrics, mainly revenue growth. Looking ahead to the next two years, Zillow is expected to grow revenue by 57% and 35%, respectively. Meanwhile, Trulia should grow 76% and 32%, respectively, during the same two-year period.

At first glance, the two sites appear to be twins. However, they have less in common than it seems. As Zillow is favored by property buyers, Trulia is the BFF of sellers. Interestinly, two-thirds of Zillow’s visitors do not use Trulia. Zillow is widely know for its “Zestimate” of how much a property is worth, while Trulia offers more analytical tools, such as detailed information on local criminal activity. And Trulia is faster-growing.

But here’s the twist.

In what it seems as real estate’s first wave of technology firms consolidation, the acquisition of Trulia by competitor Zillow, for $3.5 billion in stock has made headlines. The San Francisco and Seattle companies will remain independent brands, with Trulia‘s CEO reporting to his Zillow counterpart. But they will create a giant capturing 71% of unique visitors to real estate websites. Zillow reported 83 million users for June 2014, and Trulia 54.

The logic behind the merger acquisition is simple: while Zillow and Trulia focus on home buying, they are really media companies, not brokerage businesses. As such, they generate revenues through advertising, and need high traffic. It seems cost-cutting, network effects and pricing power are the financial dynamics behind the merger.

Do you use Trulia or Zillow for your investment deals? What do you think of the merger?

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Market Watch: New York City

Erik Hitzelberger — Wed, 13 Aug 2014 15:50:11 +0000

There is some good and bad news coming out of the Big Apple here lately. Home flipping in New York City it seems, has dropped sharply this year, according to data from RealtyTrac.

The firm’s recent data showed just 3.66 percent of home sales in the five major neighborhoods were flips during the first quarter. The percent dropped from 12.39 in the first quarter of 2013. “Even though there are a lot of distressed properties [on the market], there’s not as much margin for them to work with, in terms of home prices rising quickly,” said Daren Blomquist, a vice president at RealtyTrac.

Broken down by borough, RealtyTrac data shows that 2.31 percent of Bronx sales were flips; 1.3 percent of sales were flips in Brooklyn; 7.69 percent of sales were flips in Manhattan; 2.75 percent of sales were flips in Queens and 8.39 percent of sales were flips in Staten Island. Nationwide, the percentage of single-family home sales that were flips dropped to 3.7 percent in the first quarter, compared with 6.5 percent a year earlier, according to RealtyTrac. In general, flipping is down nationwide because there are fewer distressed properties on the market as home prices have increased, after bottoming out in March 2012, Blomquist said.

But what is the reason behind this not so great news for New York flippers? Two statistics will help us understand this.

1. The average sales price for NYC residential real estate (co-ops, condos and 1-3 family sales) reached a record $975,441.

2. The average sales price for NYC residential real estate excluding Manhattan reached a record $542,216.

Record sales? This is great news for home owners. With confidence in the market being back up, home owners now feel like they can get more for their homesteads, and they are right.

In contrast, flipping reached a low point in the first quarter of 2012, when 1.27 percent of sales were flips – a reflection of investors’ lack of confidence.

Don’t count the Big Apple out yet though. There are still deals to be found in neighborhoods like Harlem or parts of Brooklyn. There’s ample flipping at trophy apartments, particularly in new development buildings, where the mentality of “the more you spend, the more you make” exists. Go big or go home, right?

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Market Watch: Denver, CO

Erik Hitzelberger — Wed, 06 Aug 2014 16:18:38 +0000

The Denver housing market has been hot for quite some time now. As it emerged from the ashes of the housing crisis of ’08 like a phoenix, the largest city and capital of the Colorado is now soaring.

Earlier this summer Denver was listed as one of the top 10 best markets in the country for millennial homebuyers by the National Association of Realtors. According to the association’s research, 15.7 percent of the Denver metro population in the years between 2010 and 2012 were millennials — typically defined as people born after 1982 — and the growth in private payroll jobs from May 2013 to May 2014 was 2.7 percent, contributing to an overall unemployment rate of 5.9 percent.

However, the availability of homes continues to be a problem for young homebuyers in Denver, with a 20 percent drop in inventory year-over-year in May.But the ever-increasing population of people under 35 in the area means that millennials will inevitably become part of the home-buying equation.

What is happening in Denver though is a classic case of supply and demand. Prices have skyrocketed over the last few years leaving many new home buyers, including the millenials wondering if they can afford a new home. Metro-area home values hit another all-time high in May — good news for people who already own houses but bad for businesses trying to lure workers from other cities.

The S&P/Case-Shiller Home Price Indices reported Tuesday that Denver’s home price index reached 152.58, ticking past previous highs of 150.58 in April and 148.18 in March, and up 8.2 percent from May 2013.

The Case-Shiller Index, a closely watched measure of real estate values, tracks the resale of houses in three price tiers over time and does not include condominiums. The 152.58 level means that home values in May were, on average, 52.58 percent higher than in January 2000, the benchmark month.

“If you live here and own a house, it’s great news,” said Metro Denver Economic Development Corp. CEO Tom Clark. “If you are trying to come in from the Midwest or Texas, it’s a challenge. For many folks it can be sticker shock.”

Bottom line, rising house values mean it is a great time to sell your house in Denver, but if you are trying to invest in the area, don’t expect any great deals just yet. According to data provided by Zillow, home prices averaged $253,000 in metro Denver in May exceeding the pre-recession peak.

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Market Watch: The Future for Flippers in SF?

Erik Hitzelberger — Wed, 30 Jul 2014 16:23:45 +0000

As the city of San Francisco has proven time and time again, voting for change provokes public opposition. Next on the ballot this November is the huge tax that is being proposed on flippers. The tax rate, should it get approved at the ballot in November, starts at 24 percent, if the sale takes place in the first year, and falls to 14 percent after five years.

But why such a huge tax and why now? San Diego house flippers grossed an average of $113,800 per home in 2013, according to real estate firm Redfin. But San Francisco turned out to be in a league of its own. There the average house flipper gained just under $200,000—which is to say, a better payday than the total annual earnings of 95% of households in America. Seems amazing doesn’t it?

The measure, placed on the ballot by supervisors John Avalos, David Campos, Jane Kim and Eric Mar, is designed to deter house flipping. Why do they say flipping is bad for the Bay area. According to the supervisors, the practice of buying, renovating and then quickly selling property they say is reducing the amount of rental properties on the market at a time when demand is increasing.

Opponents said a tax on housing will not make housing more affordable or plentiful. Is such a high tax the right answer? Other objections, voiced during a rally on City Hall steps recently, include that some people flipping property are “mom and pop” investors, not just big-money speculators.

“It’s the wrong thing to do at a time when there is a shortage of housing,” said Noni Richen, president of Small Property Owners of San Francisco Institute. “Raising the cost of housing raises the cost of rent.”

The idea of imposing an anti-speculation tax was first backed by former Supervisor Harvey Milk in the 1970s. It was one of the final pieces of legislation he was working on prior to his assassination, according to the San Francisco Anti Displacement Coalition, a group of tenant organizations backing the measure.

The idea got new life recently amid the rising outcry over escalating home prices and renter evictions that sometimes precede home sales. Also helping fuel the outcry were the recent reports from Redfin spot lighting the high returns investors gained in 2013. Supporters hope that curbing the financial incentive for flipping may help slow the forces that are helping to drive up property prices. What do you think?

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Real Estate Investment Success With REI Advisors

Erik Hitzelberger — Wed, 25 Jun 2014 16:11:52 +0000

With the rising popularity of flipping houses, a new trend is emerging within the investment world. Recent market watch data has showed Real Estate Investor Advisors are being added to financial adviser teams. But why have real estate professionals advise at a financial firm?

The real estate industry is booming. More and more investors are choosing real estate as their main investment for their retirement accounts. Based on recent polls and surveys, real estate has been voted by Americans as the most viable and the best long term investment option. The stability, low risk, and high income characteristics of this investment type makes flipping houses very appealing to even traditional retirement investors. We have seen many news reports on stock investing in which these investors are switching to this kind of investment. However, not everyone is familiar with how real estate works. Many investors may not know what to suggest to their clients. This is primarily why the market is seeing a shift with plan providers of retirement plans bringing in professional and seasoned real estate advisors on their team.

There are many reasons why the market industry shift makes sense. Experienced and professional real estate consultants have worked with numerous buyers and sellers and they know the different needs of their clients. They know what to provide and they know what will be beneficial for them. It’s not entirely about buying and selling but it is also about making sure that the service being offered could provide for the needs of the client.

They know the different types of real estate investments and how the processes for each type are. An expert real estate advisor would be willing to discuss these types of real estate investments and helps individuals to start their own according to what suits them the most. They would also have key bit of information about the potential investing farm area and be able to recommend a certain neighborhood or area of town.

In the end it is the bonus of communication that is relevant. A professional real estate advisor knows that prompt communication in a turn key venture is one of the crucial steps to being successful at investing in real estate.

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Second Quarter Top Flipping Market

Erik Hitzelberger — Wed, 11 Jun 2014 16:06:16 +0000

Thanks for checking back with us on our count down for the Top Flipping Markets Q2. If you have been keeping up with us the last couple of weeks then you know we have been counting down the best markets to invest in real estate. We started off this series a few weeks ago with Part 1 and then moved on to markets 7, 6 and 5 on our list. Last week we took at peek at 4, 3 and 2…and now on to #1!

1. Reading, Pa.

Reading’s Location

Return on investment: 131%
Avg. gross profit: $100,667 (18th highest)
Flipped price: $177,733 (39th lowest)
Number of flips: 76
Flips, pct. of home sales: 11.9% (18th highest)

Who would have thought it! Pennsylvania’s 5th largest city, Reading, was the most profitable area in the U.S. for

A view of the city.

home flippers in the first quarter putting it at the top of our list for best area to flip homes in Q2. Home flippers made an incredible average 131% return on investment in the first quarter, with an average dollar return of $100,667. Their economy is recovering, always a good sign for investing opportunities. Higher property values and a dropped unemployment rate to 6.3% at the end of March, also makes it attractive to flippers. We are anxious to see the reports at the end of the second quarter to see if Reading can keep its position as the number one flipping market.

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Second Quarter Top Flipping Markets Part 3

Erik Hitzelberger — Wed, 04 Jun 2014 16:00:38 +0000

Well we are down to our top 4 best cities to flip in. If you have been keeping up with our blog the last few week then you know we are taking a look at the second quarter of the year and counting down the best cities to invest in real estate. We started off this series a few weeks ago with Part 1 and then moved on to markets 7, 6 and 5 on our list. This week we will take a peek at what cities are at numbers 4, 3 and 2…stay tuned for #1!

4. Omaha-Council Bluffs, Neb.-Iowa

Return on investment: 59%
Avg. gross profit: $37,425 (30th lowest)
Flipped price: $100,912 (ninth lowest)
Number of flips: 271
Flips, pct. of home sales: 12.2% (16th highest)

Who knew, Omaha? With a larger growth than other metro areas, the Omaha metro area average return on investment increased by more than 10 percentage. However, the dollar amount gained from flipping declined substantially, from $55,546 last year to just $37,425 in the first quarter of 2014. The area is chalked full of distressed homes and also plummeting home prices, more so here than most other areas. Last year, flippers purchased homes for an average price of $116,171. This year, the average pre-flip purchase price was just $63,486, much lower than half the national average price of $183,276. It is also a prime place to flip homes as its unemployment rate of 4.5% in March is considerably lower than the national rate meaning more potential buyers.

3. Deltona-Daytona Beach-Ormand, Fla.

Return on investment: 68%
Avg. gross profit: $45,030 (38th lowest)
Flipped price: $110,812 (13th lowest)
Number of flips: 72
Flips, pct. of home sales: 4.2% (35th lowest)

Cheap homes and gorgeous beaches seem to be enticing REI to the Deltona area.. With an average purchase price of a flipped home $65,782 in the first quarter of 2014, it puts the area far below the national average on home prices. Because tourism is one of the top industies for the beach area, a lot of flippers are selling to out of town people looking for vacation and rental homes. As their local economy improves, Deltona’s unemployment rate fell to 6.3% as of March, 1.2 percentage points below what it was in March 2013. It also has a history of high return on investment nearly doubling the national average each year.. Despite this, flips accounted for just 4.2% of home sales in the last quarter, roughly in line with the 3.7% nationwide.

2. Pittsburgh, PA

Return on investment: 89%
Avg. gross profit: $48,806 (46th lowest)
Flipped price: $103,755 (11th lowest)
Number of flips: 90
Flips, pct. of home sales: 2.2% (ninth lowest)

Largest growth nationwide on distressed home sales? Pittsburgh definitely tops the list. Distressed homes in Pittsburgh were sold at exceptionally higher prices in the first quarter compared with a year ago. With just 2.2% of home sales being flips last quarter, one would not expect investors to turn nearly a 90% profit. Profits were considerably higher from a year ago, when flippers earned just 53% on their investments. Even though the home prices are up in Pittsburgh and in much of the nation, REIs can find initial investments for just $54,949 on average, less than a third of the national average of $183,276 during the first quarter.

Be sure to check back next week to see what we think is the #1 market to flip in. Do you live near it?

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Second Quarter Top Flipping Markets Part 1

Erik Hitzelberger — Wed, 21 May 2014 16:01:27 +0000

As we enter into the second quarter of the year we figured it was time again to assess the flipping market. At the beginning of the year we shared our picks for best flipping cities but it is always good to know your market and stay on top of trending cities. We will do a count down starting with the 10th best city and work our way up to # 1.

Experts every where are saying the national housing market continues to rebound. While some reports show flippers loosing money, most markets show they earned a decent return on their investment with most at least a 48% profit in the first quarter, according to RealtyTrac figures. Lower prices seem to be the key to making these housing markets more affordable for investors.

We took some numbers from 24/7 Wall St. who reviewed return on investment figures from RealtyTrac. These figures are based on the pre-flip and post-flip average price for homes, where RealtyTrac defines as “any transaction that occurred in the [past] quarter where a previous sale on the same property had occurred within the last six months.”

So let’s take a look at some markets that are on fire for flippers right now.

10. Seattle-Tacoma-Bellevue, Wash.

Return on investment: 48%
Avg. gross profit: $97,388 (22nd highest)
Flipped price: $300,454 (23rd highest)
Number of flips: 317
Flips, pct. of home sales: 4.2% (37th lowest)

In the city that has made our best list, 2.6% of its homes that were sold in February 2014 were sold at in a foreclosure auction, among the highest rate in the country. In addition, 6.2% of homeowners sold their houses in a short sale in February — selling their homes for less money than what they owed on it — also among the higher rates in the country. Perhaps making the area even more attractive for flippers is the fact that the value of homes in the Seattle metro has gone down in the past five years. The composite value of homes in the area has decreased by 1.2% over the past five years, among the larger decreases in the U.S., according to the FHFA’s Home Price Index.

9. Detroit-Warren-Livonia, Mich.

Return on investment: 48%
Avg. gross profit: $32,733 (25th lowest)
Flipped price: $100,734 (eighth lowest)
Number of flips: 368
Flips, pct. of home sales: 3.2% (18th lowest)

The Detroit metro area was one of the hardest hit by the housing crisis in 2008. House flippers swooped into the area in the fourth quarter of 2012, raising the percent of home sales due to flipping to 13.6%, well above the nationwide rate of 7.1%. That percentage has since fallen to 3.2% in the first quarter of this year, slightly below the nationwide rate of 3.7%. But the city is still an attractive place for house flippers to find deals.

8. Memphis, Tenn., Miss.-Ark.

Return on investment: 51%
Avg. gross profit: $35,651 (28th lowest)
Flipped price: $105,176 (12th lowest)
Number of flips: 156
Flips, pct. of home sales: 5.0% (48th lowest)

Home flipping tends to be more profitable in economically distressed areas, which may partly explain its popularity in the Memphis area. The city made our market watch list just a few weeks ago. The area’s unemployment rate was 8.2% in March 2014, well above the national rate of 6.8%. Flipped homes were purchased for an initial average price of $69,524 last quarter, up from slightly more than $60,000 in the same period last year. Despite the increase, the return on investment from flipping rose 11 percentage points, to 51%. Low prices in the region likely made it easier for flippers to pay in cash with more than 50% of sales were paid in cash this past February

Source: 24/7 Wall Street

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