Archive for October, 2011
Fix Housing, Fix the Economy…
There are two factors that are currently plaguing the housing market and ultimately hampering the economy as a whole. The first is clearly an excess in supply of owner-occupied housing. Excess supply leads to a reduction in housing values as there is underutilized capacity. Second, there is a serious problem with “negative equity” in the homes that are currently owned. This is the classic case of the underwater mortgage that is so prevalent in America right now. Peter Orszag, former CBO and OMB Director in the Obama Administration, says, “Dealing with excess inventory by shifting vacant properties into the rental market would help to stabilize prices and thereby mitigate, to some degree, the negative equity issue.”
A novel way to stimulate demand for home purchases proposed by Kyle Jividien of Alamo Appraisal Group in San Antonio and economist William Wheaton of MIT among others would be to “provide a tax write-off to investors who buy vacant houses and rent them out.” The catch here is that investors would have to hold on to the properties as rentals for an extended period of time. Fostering this kind of investor behavior will most likely spur demand for the rental market and encourage the use of professional property managers. This type of creativity that seeks to incentivize investors is what the economy needs right now.
You can read more about this here: Peter Orszag’s article on Bloomberg.
Noteworthy Trends in the Rental Arena
Here is a recent article from DSnews.com regarding the multifamily sector. There are several interesting facts about the overall trend of the rental market in this piece. Below are a few noteworthy points that deserve mention:
There has been a reversal in homeownership trends, and as this rate falls, demand for rental properties increases. As a result, apartment vacancy rates have declined and rates for rentals have increased.
Vacancy rates among professionally managed buildings are at their lowest levels since 2007.
Freddie Mac’s chief economist Frank Nothaft states, “The improvement in the economics of apartment management has prompted an increase in structure values, property sales, and new construction for larger buildings.”
Decline in homeownership has been greatest among the under-30 demographic.
An increased demand for apartments has pushed up the price of rents since the recessionary period of 2008-2009.
(Image sourced from DSnews.com)
Foreigners Chase Domestic Real Estate Opportunity
The American real estate market has recently been the recipient of money flowing from foreign countries that have not been hampered by the recent economic downturn. Howard Blum, a real estate investor, says that “More than 25% of all homes sold today are bought by foreign cash buyers,” based on data sourced form Fannie Mae, Freddie Mac, NAR and other sources. Lured by the potential of steady rental income streams and safe long-term investments, this class of investors views the United States real estate market as an opportunity to purchase valuable assets at bargain-basement prices.
According to an article in this October’s Housing Wire Magazine, “Foreign executives temporarily working in the United States…may also purchase homes.” These houses are often subsequently leased to colleagues and employees. Another common scenario for foreign investment involves parents purchasing a house with the intent to rent it out until the family’s child is ready for college, at which time he or she will reside in the property.
No matter what the specific circumstances surrounding their specific investments, foreign investors spell good news for property managers looking to expand their business, as these investors, who often spend relatively little time in the U.S. themselves, are anticipated to drive up the demand for local property management services in the coming months and years.
