Editor’s Note: Dennis Fassett is a former corporate finance executive turned real estate investing “Cash Flow Mercenary.” Dennis specializes in single-family and multi-family cash flow properties and thoroughly enjoys assisting his fellow investors with their own strategies, including how to buy your first apartment building.
As an ongoing contributor to Mogul’s “Market News Updates,” Mr. Fassett provides us with his own unique, lively, and thought-provoking commentary on the timely industry news and events of today that are impacting our industry. And be sure to check out his other super-helpful Market News Updates. For now, enjoy...
From Dennis Fassett, Cash Flow Mercenary...
For this update, I found an article in the New York Post that argued that while things look overheated, the consensus is that we’re not in a bubble.
The piece started by stating the obvious, that:
“While trends diverge profoundly from place to place — for all sorts of economic, geographical and lifestyle reasons — a good many of the nation’s metropolitan locales have experienced record appreciation.”
And that:
“Inventory is 9 percent lower than it was in 2016.”
Then they looked at several areas of the country and reported what’s happening there, and tried to put it in context with what happened in the crash.
-
Cities such as Las Vegas, where development was overstretched and unsustainable, and which is still struggling to bounce back.
-
Places such as Portland and Silicon Valley, where NIMBY regulations limit how much construction can happen, meaning fewer homes are available to buy. As a result, there’s a real lack of housing where the jobs are.
-
Cities such as Seattle, Denver, San Francisco and Austin show double-digit spikes in house prices.
-
Cities such as South Bend, Baton Rouge and Atlantic City report dwindling numbers.
Overall, NAR reported that on average, 87% of the 150 housing markets they track experienced rising prices in 2016, up from an average of 75% in 2014.
But wait, there’s more
The article continued by looking at areas that were hard hit by the housing bubble, and found that current market trends vary, and not all of the data is rosy:
-
In Tampa, thousands of homes have been lost to foreclosure during the past decade. Today, the city appears to be recovering. It has the 4th highest population growth in the country. The unemployment rate was 4.1% and the median house price is $244,500, which is just about the national average.
-
In Las Vegas, which suffered the highest foreclosure rate in the country following the housing crash, sales and prices have been edging back, but thousands of people are still reeling. Those who borrowed against their homes or bought at the height of the market may not see a return on their initial investment. Some still owe more than their homes are worth, 15% to 20% by some estimates. Add to the mix a 6.4% unemployment rate and low-selling homes owned by investors, and a full recovery seems a tall order.
-
Westport, Connecticut has 31 more houses on the market today than it did last year and a median sale price that’s been fairly flat for the past 2 years.
The article went on to say that in total, about 64% of Americans own their own homes, compared with 68% a decade ago.
And that one problem prospective buyers face is that there aren’t enough houses out there for everyone who wants one. This low housing stock drives prices up. In some cities, prices, even at the low end of a market where inventory is most scarce, are unaffordable for first-time buyers.
Yet more numbers to consider
They quoted NAR as saying that 32% of home sales today are going to maiden purchasers, compared to 40% historically. Typically, this buyer is 32, earns $72,000 and pays $182,500 for a home. A two-income couple pays $208,500, on average.
NAR also pointed out a number of trends they see that significantly impact the real estate market:
-
Homeowners are staying in place longer, limiting the number of existing homes for sale.
-
Low unemployment rates are keeping them from leaving town in search of work.
-
High home prices are inspiring them to remodel rather than relocate within their communities.
-
First-time buyers who can afford it might buy a home that can accommodate two kids instead of one, precluding a move a couple years after their purchase.
-
Grandparents are staying put to live near their kids, rather than flying off to retirement far away.
So there are still lots of signs that point to this market going either way...
Stay tuned.
What say you?
I’d love to hear your take on this. Share below.
Dennis Fassett
earned a BS in Economics and followed that up with an MBA in finance. After working and corporate finance and banking for several years, he started buying single family houses, and quickly built a very nice portfolio of cash flowing rentals. When the credit markets started to dry up and he couldn’t get any additional single family mortgages he shifted his focus to apartment buildings. He now has over $3 million in rental real estate. He manages most of it his self and still has a day job. Dennis has even created his own Private Equity fund to buy apartment buildings.