SEPTEMBER 2019 THINKREALTY.COM/HNR
IN PARTNERSHIP WITH ATTOM DATA SOLUTIONS
STRATEGY GSE REFORM: HOUSING FINANCE SAVIOR OR LOOMING DISASTER?
BUSINESS FUNDAMENTALS SHIFTING FROM
SELLING TO RENTING? HOW TO MIND THE GAP
MARKET & TRENDS IS FLORIDA AT RISK OF ANOTHER REAL ESTATE CRISIS?
MY TAKE | 16 What is Property Data API? MARKET SPOTLIGHT | 19 The Southeast DATA IN ACTION | 28 The Home Affordability Struggle BIG DATA SANDBOX | 32 Home Affordability Maze: The Search to Buy a Home
The New Path Toward Tomorrow's Real Estate Profits
Real estate is constantly changing and with those changes comes new opportunity. Both the tax code and our personal values have continued to shift as the U.S. becomes increasingly more urban, older, single and green. There’s a number of interesting changes underway – trends which suggest new market patterns and potential profits to go with them. THE NEW PATH TOWARD TOMORROW’S REAL ESTATE PROFITS 06
Simplified Real Estate Financing Solutions To Meet Your Client’s Goals
What is Property Data API? APIs are behind all of your favorite apps and platforms. From Google Maps to Instagram, APIs are used to securely retrieve and deliver relevant data to and from applications. But what is API, exactly? ATTOM Data Solutions' Chief Product and Technology Officer Todd Teta gives us a quick primer on APIs, property data APIs, and how they can be used to retrieve data on anything you’ve ever wanted to know about a property. 16 MY TAKE
19 MARKET SPOTLIGHT The Southeast
28 DATA IN ACTION
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The Home Affordability Struggle According to ATTOM Data Solutions’ Q2 2019 U.S. Home Affordability Report, median home prices in the second quarter of 2019 were not affordable for average wage earners in 353 of 480 U.S. counties analyzed in the report (74 percent). We look at the data to identify the top ten counties that require over 30 percent of their annualized weekly wages to buy a home, as well as the top ten that required less than 30 percent.
Metro areas throughout the Southeast have prospered in terms of key economic indicators and real estate market trends since the end of the Great Recession. All are positive signs for continued investment in real estate; although, some changes are occurring. Housing News Report looks at how investors are adapting to the changing trends and finding potential in Atlanta, Miami and Nashville.
The Home Affordability Maze: The Search to Buy a Home 32 BIG DATA SANDBOX
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According to ATTOM Data Solutions’ Q2 2019 Home Affordability Index, annual home price appreciation increased less than five percent in the second quarter of 2019 – one of the more moderate
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annual gains we’ve seen in awhile. This and other factors have created a competitive housing market, albeit one that remains less affordable for the average wage earner. We identify the counties that are most and least affordable in the U.S. for the average wage earner.
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The New Path Toward Tomorrow’s Real Estate Profits
SIZE MATTERS Consider home sizes. Bigger homes were something treasured in the past, evidence of status and accomplishment. Today such prop- erties hold less allure. The Wall Street Journal reports that before retirees were rushing to build elaborate, five or six-bedroom houses in warm climates, fueled in part by the easy credit of the real estate boom. Many baby boomers poured millions into these spacious homes, planning to live out their
golden years in houses with all the bells and whistles. “Now,” said the Journal, “many boomers are discovering that these large, high-maintenance houses no longer fit their needs as they grow older, but younger people aren’t buying them.” Despite public preferences, large homes continue to dominate the marketplace. Homes with less than 1,800 sq. ft. now represent 22 percent of all new home construction, down from 40 percent in 1999 according to the Urban Institute. And big homes? They’ve gone from 32 percentof the market to fully 50 percent. The market continues to con- struct the very products large num- bers of buyers simply don’t want. And, the sales results are what you would expect. In 1982, we had a national popu- lation of 232 million people versus 327 million last year. Given such a huge population increase you might expect that new home construction would soar. However, that’s not the case. According to The New York Times , the U.S. produced 1.2 mil- lion new housing units in 2018, the same number we built in 1982. Where’s the opportunity? The housing stock is increasingly out-of- step with population needs and pub- lic preferences. The opportunity is in smaller homes. As Zillow reported in 2018, during the past five years, the “people who own starter homes have seen their equity grow by 44.4 per- cent, while owners of top-tier homes have gained 26.6 percent.” ARE MCMANSIONS DEAD? There sure are a lot of big houses. CNBC defines large single-family homes as those with about 2,900 square feet to 4,000 square feet. They represent 25 percent of all listings on Realtor.com but “receive 12-45 per-
cent less views on Realtor.com than the typical home in each market.” What can we do with the invento- ry of larger homes now in place? There will always be someone who wants a bigger home, especially if less demand means a lower cost. But may- be the larger properties we see today should be viewed as something else. As a result of finances, culture, preferences, and convenience, fam- ilies are increasingly living togeth- er. Roughly 64 million people lived in multi-generational households as of 2016, a number that grew from 51.5 million in 2009 according to the Pew Research Center. Big houses with few people are expensive to finance, heat, cool and maintain. Such homes can make economic sense if two or three family generations can live in them together. Each family unit can have space and privacy and divid- ing costs among more than one or two bread-winners can produce impressive economies. There can also be built-in baby sitters, adult caregivers, and shared meals.
W e tend to think of real estate as permanent and perpetual. The stuff beneath our feet is always there, the pyramids haven’t moved in thousands of years, and people in- variably want to live indoors. So, why worry about real estate change? The answer is that real estate
actually does change. It’s not so much that someone has invented better dirt, but rather the idea is that societies evolve, creating new opportunities in the process. As a country, we’re becoming more urban, older, increasingly single, and greener. We spend more time online.
Both the tax code and our personal values are in flux. There’s a lot going on and each transition represents an opportunity. A number of interesting changes are now underway – evo- lutionary trends that suggest new market patterns and the potential profits that go with them.
As a country, we’re becoming more urban, older, increasingly single, and greener. We spend more time online. Both the tax code and our personal values are in flux. There’s a lot going on and each transition represents an opportunity.
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FEATURED ARTICLE: The New Path Toward Tomorrow's Real Estate Profits
that more than 300,000 Airbnb res- ervations allegedly violated zoning laws. Those same reservations also generated host revenues worth $304 million. Such laws raise a question: Why were short-term rentals banned in the first place? There’s obviously a demand for such lodging. Airbnb estimates that two million people a night find accommodations through its system. Moreover, it’s obvious that the bans are holding down real estate values and rental rates, which is hardly a normal zoning goal. The answer comes in two forms. First, the hospitality industry — ho- tels and motels — have long sought to protect their interests as any special interest would. Their argu- ment is that, with the use of zoning to restrict competition, they can attract more investment, hire more employees, and pay more taxes into local treasuries. Second, there are winners and losers with zoning changes. Stron- ger sales prices and higher rental rates are good for owners but hurt home buyers and renters. So how has the battle for the over- night traveler turned out? Airbnb – which bills itself as “a new resource for middle class families” – has led the attack on restrictive zoning with support from legions of homeowners seeking bigger incomes and higher sales prices. Importantly, these are homeowners who vote. In many cases the company has been able to work out accommoda- tions with local governments by as- suring that occupancy taxes will be paid. As to the hotels and motels which once had a zoning monopoly, they’re now involuntary members of the sharing economy. Where’s the opportunity? Ride the wave. Short-term rentals are not going away. Look for trav-
el-destination properties with separate master bedrooms and accessory units in jurisdictions where such rentals are taxed and not banned. RESILIENCE ITEMS While it used to be that “sea- sons” meant such things as spring and summer, the new definition includes the hurricane season, the fire season, the flooding season, and the tornado season. Climate change is both real and costly. According to the government's National Centers for Environmen- tal Information (NCEI), there have been 246 billion-dollar weather and climate disasters since 1980. The total cost in today's dollars? More than $1.6 trillion. "Natural disasters are occurring with growing frequency and intensi- ty, and across the United States res- idential development has expanded in recent decades closer and closer to vulnerable wildlands," said Zillow senior economist Aaron Terrazas. "The result is that more and more Americans are discovering — some- times painfully too late — that their homes are at risk.” “Policymakers,” Terrazas contin- ued, “are struggling to find solu- tions to protect their communities and often face a difficult trade-off between new building regulations and infrastructure investments that can drive up housing costs and tax- es, or requiring insurance that also raises costs to homeowners and, in some cases makes taxpayers liable for the bill. There are no easy solu- tions, but the one outcome that is clear is that residents of the most at-risk communities will ultimately pay the cost in one way or another." Much of the U.S. housing stock is built to older standards, constructed
“It's no surprise that the U.S. saw an uptick in multi-generational living as a result of the Great Reces- sion, when living with multiple peo- ple under one roof provided certain economic advantages, but there are other trends that have caused this increase,” explains ValuePenguin. “Immigration is one. Two groups who comprise more than 50 percent of immigrants living in the United States today, Hispanics and Asians, are more likely to live in multi-gen- erational homes than white fami- lies, at a rate of 22 percent and 25 percent, respectively, compared to 13 percent for whites.” If it sounds as though multi-gen-
story of shifting norms,” says The Atlantic . “Fifty-plus years ago, a one-bathroom house or a bedroom that slept multiple siblings might have felt cramped — but it also probably felt normal. Today, many Americans can afford more space, and they’ve bought it. They just don’t appear to be any happier with it than with what they had before.” Where’s the opportunity? There’s no reason big houses must only be shared by families. Shared homes and apartments are entirely common in high-cost areas. Think of big city townhouses with “En- glish basements” code for rental units. In a sharing economy, the
same concept can work with Mc- Mansions – especially if that’s the best way to sell or rent them.
erational living might provide too much closeness, consider how times have changed. According to the University of Michigan: • In 1950, the typical home included 983 sq. ft. and was occupied by 3.37 people. That’s 292 sq. ft. per person. • In 2017 the typical new home had 2,599 sq. ft. and was occupied by 2.54 people. That comes out to 1,023 sq. ft. per person.
THE ZONING GOLD RUSH Zoning regulations — once virtu- ally impossible to overturn — are now in flux. The result is a real estate gold rush where once-mun- dane residences are turning into cash cows. Airbnb and similar companies have forced an end to long-stand- ing zoning bans on short-term rentals. The results have been illu- minating. A 2014 report by the New York State Attorney General found
“The story of American home sizes in the past half century is a
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FEATURED ARTICLE: The New Path Toward Tomorrow's Real Estate Profits
at a time when the waters were less threatening and the winds less vio- lent. Property damage worth billions of dollars could be reduced if homes are strengthened and reinforced. The problem is that it can cost big money to update. However, Freddie Mac has a new and inter- esting approach called the Choice- Renovation mortgage. Like the FHA 203(k) and Fannie Mae HomeStyle mortgages, the Freddie Mac loan is a form of combo financing. You can use it to acquire a property with one to four units and – at the same settlement – obtain money for repairs, improvements, and reno- vations. The repair money is paid out after closing as improvements are completed. Because there’s no need for a second loan, there is also no need for a second closing, thus saving thousands of dollars. Owner-occupant borrowers need just 3% down to participate in the pro- gram. Investors with 15% down can use it for one-unit properties only. What sets the ChoiceRenovation mortgage apart is that it can be used to finance so-called “resilience items” such as surge barriers and retaining walls, protections that can help fend off natural disasters. Where’s the opportunity? Will buyers pay more for a better proper- ty and enhanced security? Of course! Who wants to be dislocated the next time it rains? Will insurance costs fall? Absolutely! Insurance compa- nies love the idea of fewer claims. Will there be interest in the Freddie Mac loan? You bet! Harvard’s Joint Center for Housing Studies esti- mates that $424 billion was spent on remodeling in 2017 alone.
affordable single-family units on ‘adjacent’ land currently dedicated to non-residential uses.” Where’s the opportunity? Big city markets will have to revise selected zoning restrictions or stop enforcing them. You can already find cracks in the system. There are more to come. If California, with 12 percent of the nation’s population, can add almost 800,000 accessory units, you can imagine that the national poten- tial might total somewhere in the millions. So, what’s the problem? One reason homes today are so large and expensive is that zoning ACCESSORY DWELLING UNITS & MORE
and community rules often have minimum size requirements. Mc- Mansions sprout up because local standards do not allow for anything smaller. The origin of these rules was often anything but benign. According to the Century Founda- tion, “many localities have adopted exclusionary zoning ordinances – sometimes referred to as ‘snob zoning’ rules – that forbid build- ers from developing apartment buildings or townhouses in certain areas, reserving them instead for detached, single-family homes. While this practice may seem harmless upon first consideration, some of these ordinances actu- ally had racist origins and were designed to exclude low-income African Americans specifically.”
McKinsey says California is now short 3.5 million housing units, but even that state might actually have a surplus. “California,” says McKinsey, “could add more than five million new housing units in ‘housing hot spots’ – which is more than enough to close the state’s housing gap. In aggregate, there is capacity to build as many as 225,000 housing units on vacant urban land that is already zoned for multifamily housing; 1.2 million to three million housing units within a half mile of major transit hubs; nearly 800,000 units by allowing homeowners to add units to their homes; nearly one million units on land zoned for multifamily development but un- derutilized; and more than 600,000
Q2 2019 U.S. Home Affordability Heat Map Q2 2019 U.S. HOME AFFORDABILITY HEAT MAP
158 Q2 2019 Affordability Index* (Under 100 is Less Affordable Than Historic Average)
Q2 2019 Median Sales Price $78,000 $500,000 $1,000,000 $1,420,000
© 2019 Mapbox © OpenStreetMap
live only where housing is scarce and expensive. In chic metro cores and nearby suburbs, many house- holds are being squeezed out by high rental rates and soaring home prices. In too many cases, those who stay are becoming house poor, devoting inordinate amounts of their income to housing. According to ATTOM Data Solu- tions’ most recent Home Afford- ability Report, median-priced homes were not affordable for average wage earners in 74 percent of U.S. housing markets in Q2 2019. Among the 480 counties analyzed in the report, 323 (67 percent) require at least 30 percent of their annual- ized weekly wages to buy a home in the second quarter of 2019. The affordability issue is not only a problem for the poor and the
middle class, but also a problem for the upper crust. No matter how rich you may be, you want a community that is economically in- clusive. You may have a penthouse above the clouds, but somebody still has to pick up the garbage, drive the ambulances, teach the children, fix the plumbing, and put out the fires. In California, says the McKinsey Global Institute, there’s a “$50 billion to $60 billion annual hous- ing affordability gap. Virtually none of California’s low-income and very-low-income households can afford the local cost of housing.” And the situation is hardly restrict- ed to California markets. Manhat- tan, DC, Boston, Portland, Seattle, Fairbanks, and Honolulu are also plagued with affordability woes.
THEY’RE NOT MAKING LAND ANYMORE While there’s no land shortage in America, a lot of people want to
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FEATURED ARTICLE: The New Path Toward Tomorrow's Real Estate Profits
“The laws do not specifically mention race,” said the Washington Post in 2017, “but because African Americans and Latinos have on average far less wealth and income than white people, the laws do tend to drive people of color out and keep neighborhoods more uniform- ly white. That’s in keeping with the racist history of ‘snob zoning.’” Legacy size requirements mean that, by definition, smaller homes are automatically not up to code and therefore cannot be built. However, there are now efforts to overturn older standards, especial- ly in New Hampshire, California, and Florida. In New Hampshire, a law has been passed that allows proper- ty owners to construct accessory dwelling units (ADUs) up to 750 sq. ft. in size regardless of local zoning rules. In other words, the new law allows a second dwelling unit on a property with a traditional and conforming home. The new units can house family members, guests, or be used to provide short-term rental income. ADUs are becoming a big busi- ness. The National Association of Home Builders (NAHB) says that in the first quarter “one-fifth of remodelers undertook projects that created an ADU by converting an existing space over the past 12 months, and close to that percent- age created an ADU by building a new addition.” In too many cases we think of “real estate” as a single-family home on a quarter-acre lot. That’s too little home on too much land in our most desirable locations, one reason for soaring home prices in top metro areas. The New Hamp- shire law is likely the first of many that see traditional lots as un- derutilized.
potential, a zoning revolt could very likely gain traction. Maybe that unused space at the end of the driveway will become three storage units. Perhaps someone will create a list of private storage sites by ZIP codes. And so it goes. MONEY & THE NEWATTITUDE There has been a wholesale shift in the way Americans view money. Prior to the mortgage meltdown, many thought it was okay to borrow as much as possible. Prudence was for suckers. Financing with little down and even nothing down was all the rage. Instead of requiring an equity cushion, lenders were mak- ing loans where the initial debt was equal to more than the underlying value of the property. A property worth $300,000 could secure a $330,000 mortgage – or more. And why not? The presumption was that home prices always rose so there was little downside risk. If loan payments became overwhelm- ing, you could just sell the property. No harm, no foreclosure. The whole system was like a legalized Ponzi scheme. It relied on rising prices, tolerable monthly payments, and the abandonment of traditional lending standards to be sustained. It could not continue. As I told the Association of Real Estate License Law Officials in a 2006 speech, “looming in the back- ground is the potential for financial disaster that will impact home values nationwide, spur foreclosure rates to new highs and devalue insurance funds, pension holdings, and investor accounts. The value of your home, no matter how you financed, is at stake.” And it was. Today equity is something to be hoarded, not exploited.
In California, proposed legis- lation SB. 50 would have allowed additional construction on land currently limited to single-fami- ly homes. While SB. 50 has been killed for this year, the bill has gotten a lot of support and will likely be re-introduced next year. Perhaps more importantly, it has opened up the idea of greater den- sity in California’s most desirable metro cores. “At SB 50’s core,” said Mother Jones, “is ‘upzoning,’ overriding local zoning laws that prohibit high- er-density housing construction in residential areas. Currently, zoning requirements in 80 percent of Cali- fornia forbid building anything other than single-family residences (with some allowances for in-law units). SB 50 would open up some of those areas – particularly those near major transit hubs, job clusters, and good schools – to higher-density residential construction. Develop- ers would be allowed to build taller buildings with more units, with a requirement that a certain number must be rented below market rate.” Meanwhile, in Florida, prop- erty owners are now allowed to have vegetable gardens on their front lawns, something previously prohibited by city and county rules. This marks in a big change to the status quo and a blow to the mow- ing industry. Households will now be able to get fresh food and lawn care costs can be reduced. Looking ahead, one can imagine that neigh- borhood co-ops will emerge. Picture 500 households with small gardens that provide food for community kitchens and local restaurants. Where’s the opportunity? It’s just starting to emerge. In the same way that Airbnb and other short-term rental companies have shown that residential real estate has income
EQUITY RICH PROPERTIES (LTV 50 OR BELOW)
Figures from ATTOM Data Solutions show that we had 9.1 million equity rich property owners at the end of 2013 – “equity rich” meaning that equity represented at least 50% of a home’s fair market value. By the first quarter of this year, the number of equity rich households totaled 14.4 million, a 58% increase.
Senior home equity reached a record $7.14 trillion in the first quarter according to the National Reverse Mortgage Lenders Association. Equity is growing because home values in most markets are increasing. What isn’t growing is the use of reverse mortgages. HUD figures show there were 112,154 FHA Home Equity Conversion Mortgages (HECMs) originated in FY2008. A decade later, originations fell to 48,359.
“Approximately 10 million consumers are expected to originate a home equity line of credit (HELOC) between 2018 and 2022,” said TransUnion in 2017. “This would more than double the 4.8 million HELOCs originated in the previous five-year period (2012-2016).” What actually has happened is that the number of HELOC accounts has been declining since 2008.
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FEATURED ARTICLE: The New Path Toward Tomorrow's Real Estate Profits
Perhaps most amazingly, the National Association of Realtors reported that in May the median existing home prices reached $277,700, “the 87th straight month of year-over-year gains.” With such consistent price increases surely housing debt must have increased, right? No. According to the Federal Reserve Bank of New York, housing debt reached $9.65 trillion. That’s less than the housing debt outstanding in 2008! But why is it that homeowners are not, as the expression goes, “putting their equity to work”? “It’s probably not one thing in particular,” says Clear Capital. “Interest rate movements, tax law changes, lender restrictions, and an upcoming election year may be to blame. Consumers could be leaning toward the security of fixed-rate home equity loans over the unpredictability of adjust- able-rate HELOCs. And there may be another, simpler explanation: Consumers are still feeling the emotions, experiences, and im- pacts from the Great Recession, and are wary of taking on debt linked to their homes.” Part of the reason for the fall-off in borrower demand is that many consumers are more interested in experiences rather than stuff. “Experiences become a part of our identity,” explains Dr. Travis Bradberry, writing for The Huffing- ton Post. “We are not our posses- sions, but we are the accumula- tion of everything we’ve seen, the
ing a room overnight, selling back solar-power energy from a roof array, or cutting costs with a front-lawn garden – are increasingly with us. • When it comes to additional debt, the widespread attitude is “thanks, but no thanks.” People are increasingly follow- ing the guidance of such books as Small is Beautiful and The Millionaire Next Door. Real estate change is here and with it new opportunities to profit and flourish. As auto executive Lee Iacoc- ca long ago said, the choices are to “lead, follow or get out of the way.”
things we’ve done, and the places we’ve been. Buying an Apple Watch isn’t going to change who you are; taking a break from work to hike the Appalachian Trail from start to finish most certainly will.” Where’s the opportunity? It’s time to re-think the old playbook.
• Big isn’t automatically better.
• Existing properties can be revitalized with new uses.
• Zoning is under siege; the stan- dards of yesterday are in flux. • Income-producing residential homes – whether from rent-
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What is a Property Data API?
BY ATTOM DATA SOLUTIONS' CHIEF PRODUCT AND TECHNOLOGY OFFICER TODD TETA I f you’ve ever spent any time around developers, the term ‘API’ may have come up. If you’re not fluent in computer
to real-time data on millions of prop- erties across the U.S. Property data APIs can be used to directly power real estate data for online platforms, mobile apps, and applications. For example, property data APIs are now used by the majority of lead- ing real estate portals to pool and upload data on properties that may be of interest to their users. Property data providers typically source this data from national public records. WHAT ARE THE BENEFITS OF PROPERTY DATAAPIS? If you’re the owner of a real estate platform or application, you may have wondered, “What’s a hassle-free way to get more infor- mation on a particular neighbor- hood?”, or, “How can I quickly dig up a property’s sales history?” A real estate API enables you to efficiently retrieve and upload property data straight to your site or application – no elaborate software or hours of manual labor required. Property data APIs can be used to retrieve extensive data on every- thing you ever wanted to know about a property. The most comprehen- sive property data APIs cover:
speak, you may have been left won- dering: “What exactly is an API?”. APIs are regularly used by busi- nesses to power all of your favorite apps and platforms. From Google Maps to Instagram, APIs are used to securely retrieve and deliver rele- vant data to and from applications. Property data APIs are increasing- ly growing in popularity in the real estate field, and are currently used by several industry leaders. Property data APIs do the deep dive into real estate data on property sales history, home valuations, tax assessments, demographic data, and more. WHAT IS AN API? API is an acronym for Application Programming Interface and refers to a software intermediary that passes data directly between two applications. For example, when you check the weather app on your phone, your app sends data to a server; this data is then retrieved, interpreted, and delivered to your app in the form of decipherable icons, imag- es, and digits.
• Property characteristics • Plat maps • Neighborhood information
At CoreLogic, Todd led research and development teams that developed the company’s first mobile and mapping visualization products. He also led the company’s professional services organization and technology teams for multiple markets, including credit reporting and tenant screening. Todd graduated summa cum laude from the University of Southern Califor- nia with a degree in Computer Engi- neering and Computer Science.
and product teams. Prior to joining ATTOM Data Solu- tions, Todd led the product develop- ment and technology organization at Meyers Research. Todd began his career with Andersen Consulting, where he helped clients leverage data and technology to drive business results. Subsequently, he co-founded sever- al startups, including VisionCore, a product and service company serving the mortgage and real estate data and analytics markets. He eventually sold VisionCore to CoreLogic, the largest provider of residential real-estate infor- mation services.
PROPERTY DATAAPIS: WHERE TO GO FOR THE BEST? Property data APIs are quick- ly building up a reputation in the real estate space. They speed up and simplify data acquisition and retrieval – seamlessly delivering real-time data to your real estate platform or application.
From the ATTOM Data Solutions API to the Zillow API, you can find several real estate APIs on the market today. As a market leader in property data APIs and real-estate data solutions, ATTOM’s Property Data API warehouses in-depth data on millions of U.S. properties and delivers data directly to our clients’ software, website, and applications.
Todd Teta serves as ATTOM Data Solutions' Chief Product & Technology Officer where he leverages two decades of
• Ownership history • Sales history • Liability information • Tax history
WHAT ARE PROPERTY DATAAPIS? Property data APIs provide access
experience in technology and product innovation to lead ATTOM's technology
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Spotlight: The Southeast Investment potential still exists despite changing trends.
BY JOEL CONE, STAFF WRITER
L ike many parts of the country, metro areas throughout the Southeast have prospered in terms of key economic indicators and real es- tate market trends since the end of the Great Recession. All are positive signs for continued investment in real estate; although, some changes are occurring. “The Southeast is strong. The cost of living is very attractive compared to other parts of the country,” said Gregg Logan, Managing Director of RCLCO Real Estate Advisors. “If you look where the greatest growth potential continues to be, it’s the Southeast in terms of population and job growth, relative affordability and build- er sentiment. The cost of living is very attrac- tive compared to out West and the Northeast.” Still, the winds of change are in the air. As a result, some veteran investors with significant track records in the business are starting to hedge their bets, modifying their business strategies somewhat to align more closely with what they see as a potential downturn in what might otherwise still be a relatively healthy marketplace. ATLANTA: A TIME FOR CAUTION? It has the fourth fastest growing population in the nation, according to the US Census Bureau and it’s the home to the world’s busiest airport, Hartsfield-Jackson Interna- tional Airport. It’s also the headquarters of 26 companies on either the Fortune 500 or Fortune 1000 lists, and has an unemployment rate of 3.3 percent as of May 2019. For real estate entrepreneur Ken Corsini, those are all good reasons why Atlanta has been a great location to grow his business as CEO of RED BaRN HOMES.
Neighborhood of townhomes in Atlanta, GA
The Southeast is strong. The cost of living is very attractive compared to other parts of the country. If you look where the greatest growth potential continues to be, it’s the Southeast in terms of population and job growth, relative affordability and builder sentiment. The cost of living is very attractive compared to out West and the Northeast.
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MARKET SPOTLIGHT: The Southeast
Corsini, who along with his wife Anita, star in the HGTV show Flip or Flop Atlanta , have seen their en- terprise expand well beyond investing and new home construction into a retail brokerage business. “I’ve actually got two different lenses from which to look at the market right now – the broker lens and the investor lens,” said Corsini. “Prices are up five percent in metro Atlanta so it’s a strong economy and a strong market. Inventory is also up 14 percent in the detached market so business is still strong for our agents. “As a real estate investor, especially in the markets we’re investing in – the transitional neighborhoods we flip houses in – what’s happened in those neighborhoods is we’re seeing way more inventory than even a year ago. There’s less absorption going on. As investors, we’re in the habit of getting in and out of a market as fast as possible.” As a result, Corsini believes there is a level of uncer- tainty in the market that has him concerned, as well as feeling cautious, for at least the short term. “Investors in the state are a little cautious. Even us.
We’ve really slowed down our investment activity. We’re mostly doing wholesaling right now. We’re waiting to see what happens with this economy. Maybe consum- ers are being a little more cautious as well.” With hedge funds still plucking the best properties they can find in the marketplace, Corsini said he has decided to stay on the sidelines for the most part in terms of both buy and hold and flipping at least for the remainder of this year. “We’re doing very little flipping and not much buy and hold right now. We’re a little risk adverse. When you have a gut feeling that things have been good for a while and inventory is increasing, you don’t want to be the guy holding the bag when the market turns.” For the first quarter of 2019, ATTOM Data Solutions reported that flipped homes accounted for 9.6 percent of total home sales in the Atlanta metro area, a 28 percent quarterly increase and up 38 percent from the same quarter last year but 75 percent below the met- ro’s peak for flips in the second quarter of 2006.
Investors in the state are a little cautious. Even us. We’ve really slowed down our investment activity. We’re mostly doing wholesaling right now. We’re waiting to see what happens with this economy. Maybe consumers are being a little more cautious as well.
When it comes to flipped homes, ATTOM reported a purchase price of $147,100 and a sales price of $194,000 during the quarter, a 31.9 percent gross return on in- vestment. The average flip took 154 days to complete. Still, Corsini sees Atlanta as a strong and steady market and a good place to be investing in real estate and to run a real estate brokerage. And it’s a metro area that is attracting strong demand from buyers. “I think Atlanta is one of the main markets for ibuy- ers. There must be confidence that Atlanta is a strong market or they wouldn’t be buying here. They’re going to continue to take market share.” Foreclosures in the area have declined precipitously over time. For 2018, ATTOM reported 11,831 proper- ties with foreclosure filings, a downward spiral from the metro’s peak of 95,145 properties with foreclosure filings reported for 2010. In all 2,828 properties with foreclosure filings were reported in the Atlanta metro area for the first quarter of 2019, a 25.50 decline from the same quarter a year ago. The metro area ranked one in every 87 housing units with a foreclosure filing for the quarter.Likewise, distressed sales, which investors at one time count- ed on for discounted deals, now only account for 17.6 percent of all home sales in the metro area for the quarter, down two percent from a year ago. There was no change reported for third party foreclosure auction sales at 1.8 percent, while short sales were up slightly and REO sales declined during the period. Homes in the metro area sold for a median price of $201,300 during the first quarter, a 4.8 percent year over year increase, and 121 percent above the post-re-
ATLANTA-SANDY SPRINGS-ROSWELL, GA MSA HISTORICAL PERCENT OF HOME FLIPS
cession bottom price of $91,000 reported for the first quarter of 2012. “From a high-level perspective, if you look at what drives real estate demand and makes assets attractive in a market like Atlanta, I would say it continues to be a strong market. It has some fairly desirable stats like good weather and the fact that prices and rents have risen quite a bit since 2010,” Logan said. Rent for a three-bedroom home in Atlanta is $1,522 so far in 2019, up 6.3 percent from the year before, according to ATTOM. For residential investors, Logan noted that the good news is growth in rental income has been “off the charts” as he put it. Yet he’s not sure how sustain- able that growth will be. As for flipping, he sees good opportunities remaining in the market; although, home prices are growing at a slower pace than a year ago. In the meantime, for Corsini, when he does make purchases to flip or buy and hold, he buys them off-market, utilizing direct marketing to locate deals. For the most part though, he is wholesaling a lot of homes to other investors. “We’ve been on this run for a long time. Nobody wants a repeat of ’07 and ’08. As an investor I want to buy at the bottom not the top. I’m biding my time to see how things play out,” he said.
0.0% Q1 2005 Q4 2005 Q3 2006 Q2 2007 Q1 2008 Q4 2008 Q3 2009 Q2 2010 Q1 2011 Q4 2011 Q3 2012 Q2 2013 Q1 2014 Q4 2014 Q3 2015 Q2 2016 Q1 2017 Q4 2017 Q3 2018
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You can still find deals on the MLS, but it’s very challenging. Prices are pretty stable. We’re still seeing some appreciation, but it’s nothing like two years ago when we saw 20 to 30 percent appreciation. It’s very normal appreciation.
available, Broward County is essentially built out; although, Palm Beach County has land available in its Western region. “You have a lot of people moving into the Southeast Florida market because it is desirable, there’s no state income tax, the weather is a draw and it has a growing economy. People moving into this county have a big housing problem. They’ll trade housing where they are for weather out here.” As for Garcia, he is doing some buy and hold but mostly wholesaling at this point, estimating that he will do somewhere around 110 wholesale deals this year. From an investor’s perspective, he looks for invest- ment-grade properties off-market through his direct mail and on-line advertising efforts, taking them down and flipping them. According to ATTOM, flips accounted for 7.2 percent of total home sales in the Miami metro area during the first quarter of 2019, a four percent increase from the same quarter last year. Median purchase price for a flipped property in the quarter was $173,550 while flipped prop- erties sold for $250,000 for a gross return on investment of 44.1 percent. The average flip reported for the quarter took 189 days.“You can still find deals on the MLS, but it’s very challenging. Prices are pretty stable. We’re still seeing some appreciation, but it’s nothing like two years ago when we saw 20 to 30 percent appreciation. It’s very normal appreciation,” he said. Foreclosures, which were a staple for investors in the metro’s real estate market during the recession, have reduced dramatically. For 2018, the metro area reported a total 19,272 properties with foreclosure filings, a freefall from the 171,704 properties with foreclosure filings reported in 2010, and the metro area with the 18th highest foreclosure rate in the nation, according to ATTOM.
With the majority of its population employed in the service sector – largely tourism – the metro’s second largest employment is in the import/export sector, so it’s not surprising that Miami-Dade County is the home to the nation’s eighth largest port, according to Jack Winston, principal at Goodkin Real Estate Consulting. “We’re one of only two ports on the Eastern Seaboard capable of taking the super container ships that go through the recently reconstructed Panama Canal. Plus, we have the largest air cargo airport in the country. All of that makes Miami-Dade County the largest import/ export center in the Southeast,” he said. “It also has the reputation of being the gateway to Latin America.” Despite population and job growth, however, and de- mand for housing, the metro does face a housing crisis due in large part to unaffordability. “We have the second highest rental market in the U.S., so that’s a very severe crisis. And we don’t have a big supply to meet the demand for market-grade
housing. Renters are spending 40 to 50 percent of their income on rent,” he said. In Miami-Dade County, rent for a three-bedroom home so far in 2019 is running $2,072, while in Broward County the rent for a similar home is $2,224 and in Palm Beach County it is $2,109 a month. As a result, Winston said even with the demand for housing under $300,000 there is no resale inventory to be had. So market availability starts at the $400,000 price point and goes up from there. “The bulk of the market is primarily first-time home- buyers and there’s little being done to respond to that demand,” he noted. “The market for foreclosures and for Wall Street companies that are trying to buy dis- counted properties has pretty much dried up. You can’t find many resales under $300,000, and that favors the Wall Street group because they pay all cash.” Another big problem is availability of land. As for Miami-Dade County there is no more large scale land
MIAMI: FACING AN AFFORDABILITY CRISIS With a population of six million and an unemployment rate that dropped to 3.1 percent in May 2019, the Miami metro area continues to see an influx of migration, es- pecially from Latin America and South America, particu- larly in Broward County, according to real estate investor Gabriel Garcia with Florida Cash Home Buyers LLC. “The market has gotten better. The high-end market and condo markets are still not as good, but the single family first-time homebuyer market is cranking along right now,” Garcia said. “Things got slow in the fourth quarter last year and people were panicking. Right now things are humming along.” The largest of the three counties that comprise the metro area, and accounting for nearly half of its pop- ulation, the economy of Miami-Dade County remains strong, according to the most recent report published by The Washington Economics Group, Inc.
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MARKET SPOTLIGHT: The Southeast
MIAMI-FORT LAUDERDALE-WEST PALM BEACH, FL PROPERTIES WITH FORECLOSURE FILINGS
no boundary regulations in place to restrict develop- ment, the metro’s stock of land is getting used up and so land prices have risen dramatically. “The big picture of Nashville has evolved to a neat city of pocket neighborhoods and each neighborhood has developed its own character,” he explained. “Af- fordable housing is very much an issue here. We have the double whammy of not having enough housing stock to begin with, along with gentrification of the old- er areas that have evolved into higher-end markets.” While he constantly gets phone calls from institution- al investors looking for multi-family products of 200 units plus, smaller investors are still active as well. “There’s still plenty of active house flipping going on, but they’re getting more narrow margins,” he said. Of all the homes sold in the Nashville metro area during the first quarter, 9.6 percent of them were flips, according to ATTOM. Numbering 691 in all, total flips were 16 percent above the number reported for the same quarter a year ago, but are down from their peak of 933 flips in the second quarter of 2006.The median purchase price for a property to be flipped was $175,000 while flipped properties were sold for a median price of $229,000, a 30.9 percent gross return on investment. Not on anybody’s radar for its number of foreclosure properties leading up to the national market crash and the recession that followed, in 2018 the Nashville metro area reported a total 1,768 properties with foreclosure filings, a rate of one foreclosure filing per every 415 housing units, a 29. 43 percent increase from 2017.
Nashville is the cool kid on the block right now so we have a lot of population growth. The business environment is phenomenally good, and there’s no state income tax. The tourism thing just really took off. We are blessed with a very healthy auto sector here. One of our strengths is we do have a very diverse economy.
In the first quarter of 2019, the metro area reported 5,537 properties with foreclosure filings, a foreclosure rate of one in every 18 housing units with a foreclosure filing in the first quarter, and a 24.43 percent increase from the same quarter last year. Another major source of potential deals during the recession – total dis- tressed sales – now represents only 13.1 percent of all home sales in the metro area for the quarter, a 7.4 percent decline from the same quarter of 2018. The percentage of REO sales, short sales and third party foreclosure auctions were down slightly. ATTOM reported the median sales price of $256,000 for a home in the Miami metro area during the quarter, a two percent yearly increase, and up 150 percent from the post-recession bottom price of $102,500 reported for the first quarter of 2011. With a lot of overpriced properties on the market, Garcia suggests that new investors to the area seek out good wholesalers to work with so they can find proper- ties that properly meet their investment criteria.
NASHVILLE: A TOUGHER PLACE FOR NEW INVESTORS
Known as Music City, USA, the state capitol of Nash- ville was named the fastest growing city in the state of Tennessee in 2019 by 24/7 Wall Street. In 2018, Forbes ranked the metro area 17th on its list of “Best Places for Business and Careers”. Home to nearly one-third of the 1.8 million people who reside in the greater Nashville metro area, which posted an unemployment rate of 2.4 percent in May 2019. “Nashville is the cool kid on the block right now so we have a lot of population growth. The business en- vironment is phenomenally good, and there’s no state income tax,” said Martin Heflin, Faculty Director of the Real Estate Emphasis MBA program at Vanderbilt Uni- versity. “The tourism thing just really took off. We are blessed with a very health auto sector here. One of our strengths is we do have a very diverse economy.” A long-time developer by trade, and president of Ver- ta Development LLC, Heflin noted that while there are
The Nashville metro area reported 379 properties with foreclosure filings in the first quarter of 2019 for a foreclosure rate of one in every 1,973 housing units per foreclosure filing. In all the number of properties with foreclosure filings in the metro area decreased 32.56 percent from the same period last year. Distressed sales accounted for 9.5 percent of all home sales in the Nashville metro, a 20.4 percent decline from the first quarter of 2018. The number of REO sales and third party foreclosure auctions both showed quarterly declines while the number of short sales rose.
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