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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...
This real estate market continues to confound all analysis.
Some indicators are up, others are down. Then the next month they switch. The back and forth has continued since the “rebound.” The good thing, though, is that the trend has been very favorable for real estate investing.
But you know the old saying… what goes up, must come down.
The big question that everyone is asking is: Does that apply to the real estate market?
Unfortunately, the jury is still out on that one. I mean, just a few weeks ago I wrote a piece on reading the tea leaves on the real estate market. The author had to struggle a bit to come up with some positives but didn’t struggle at all to find negatives.
It was hardly conclusive, though, which brings me back to the main point that it’s all up in the air right now.
So I wanted to pass along an article I read on Mainstreet.com regarding home sales. It wasn’t good.
They said that the U.S. residential real estate market has hit a rough patch, and that has lead some “industry insiders” to scale back on their positive outlooks for the housing market.
What was the reason? The release of Realtor.com's monthly home sales data report. It shows a marked decline in residential sales activity.
According to them, home sales fell by 12% from August to September, and June and July figures were revised downward to fall into negative territory as well.
Not good.
The article quoted an economist who said:
"The new home sales report covering September released today shows a rate well below the consensus estimate and indicates that real issues emerged late this summer in the new homes market, questioning the supposedly strong growth signals that were previously interpreted by many. Last year we picked up momentum in the late summer and fall. This year seems to be the opposite - we are losing momentum."
He went on to say that:
"The median new home price had been declining since the end of last year, which is what we would need to see if builders were aiming to grow sales to first-time buyers by providing more affordable, entry-level homes. However, the shift up this summer and fall reflects that few builders are able to offer product to first-time buyers."
He said that’s an important clue as to why growth seems to be stalling out.
Existing Homes
Another indicator comes from the existing home market, where industry analysts saw a decline in pending sales and existing home closings in August.
The reason? That decline was likely a result of the stock market declines in August and September. Since builders are not focusing on first-time buyers, they are focusing on the segments most likely to be disrupted by declines in stock portfolios and retirement plans.
Other industry experts say the housing market is "difficult" to predict, but some broad brushstrokes are in play.
One East Coast mortgage executive said that:
"Our loan officers are in constant contact with real estate agents across 37 states, which gives us a very wide view of the situation.”
And that:
“Though the Federal Reserve rate is still at zero and rates are still very low in general, we've noticed the market hasn't really taken off over the last year, and is actually showing signs of slowing down. This could be a bad sign of things to come, since the Fed can't stimulate the economy by lowering rates if we fall into another recession."
As usual, where you live can significantly influence the direction of home prices, even as other locales experience stable home prices.
Another “industry insider” was quoted as saying:
"Two real estate markets to watch in 2016 are San Francisco and Seattle. Both have been white-hot and both have been driven by the technology boom and foreign buyers from China. If the tech boom peaks in 2016, so will their home prices."
Again, as usual, your mileage may vary on real estate deals in your hometown. But in a broader sense, we may be in for a quieter housing market for the next few months.
What Say You
What’s your take on analysists’ home market forecasts? Share below, REI friends.
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.