BYTHE NUMBERS
BYTHE NUMBERS
HOUSING CRISIS
LOCAL MARKET MONITOR
High-Dollar Options SOMETIMES, RENTERS WILL PAY THE PRICE TO LIVE THE SUBURBAN DREAM.
Adding It All Up WHAT DOES THE ‘NEW HOUSING CRISIS’ MEAN FOR THE ‘REAL’ REAL ESTATE MARKET? pen any browser window to any news outlet of just about any persuasion and the headlines will scream at you: The Bust is Coming! The Next Housing Crisis! Read the coverage associated with these headlines and you’ll learn that the “new” housing crisis is composed of two separate but entwined issues: a lack of affordable housing in many of the country’s most desirable metro areas and buyer certainty that historically low interest rates create the only market environment in which they can possibly purchase a home, regardless of current financial circumstances or their long-term plans for ownership. About one in every two Americans considering buying a home “spontaneously mentions” low interest rates, according to data released in conjunction with the University of Michi- gan’s most recent Consumer Sentiment Survey. UM researchers say this figure indicates nearly half of all Americans believe their ability to buy hinges almost entirely on the Federal Re- serve keeping interest rates low. In fact, half of the home-buying population actually tends to view housing prices as largely irrelevant to the timing of their purchase decisions, the UM survey showed. Only 25 percent of Americans said that low housing prices were a good reason to buy a home. It’s a good thing, too, since housing prices, particularly in the existing single-family home sector, continue to head skyward with limited new inventory in most metro areas, meaning that low interest rates are increasingly the linchpin in keeping housing affordable and accessible to families earning median income. With developers opting more and more frequently to add inventory in the second- and third-home market sectors rather than the “starter home” sector, this trend is likely to continue and even spiral out of control in particularly hot markets like those on the West Coast, where median home prices in some metro areas hover near $1 million. So how do these issues combine to create the threat of an- other housing crisis? A lack of inventory accessible to first-time buyers creates an inherently top-heavy market, while buyers making purchases because of external factors, like low interest rates, rather than “internal” fiscal readiness in their checking by Carole VanSickle Ellis O
by Ingo Winzer
any people like to live in a house with a lawn and a spot for the grill, but in a lot of places in America, buying that house has become too expensive. In addition, many M
Our Top 10 list shows places where the average home price is high com- pared to rents (but not too high, as is true in San Francisco, for exam- ple) and the local economy is
these 10 markets you’ll be able to resell easily if being a landlord is not for you—and the extra expense is worth the higher returns. •
and savings accounts, create a population of homeowners per- petually poised on the brink of disaster. According to the MacArthur Foundation’s 2016 “How Hous- ing Matters” survey, more than half of all Americans (53 per- cent) have struggled at some point in the past three years to pay their mortgage or rent. The real crisis looming is not necessarily another housing bust (although certain regions of the country certainly could experience such in the next two to five years), but that even an incremental increase in unsustainably low inter- est rates could bring about an abrupt halt to housing growth. Another looming housing crisis is a potential crisis of afford- ability across the board. That is where real estate investors in today’s market can, will and should shine. In markets where starter-home inventory is lacking—or if and when interest rates begin to rise and scare off (or push out) conventional buyers—real estate investors can serve the com- munity in a real and also profitable way by providing creative access to affordable housing. Creative deal structuring both in purchase and rental terms will play a huge role in sustaining housing growth in the coming years. Also, as always, any market in distress will continue to represent serious opportunity for a well-prepared, well-researched investor. Cash-flowing, turnkey rental opportunities—particularly in the Midwest and Southeast—represent an ideally flexible, rev- enue-generating model for both active and passive investors. Investors hoping to participate in particularly tight markets may also leverage lease-options, seller-financing and even subject-to transactions to lower the barrier to entry for both themselves and their buyers. The strength of independent, entrepreneurial investors will be in the future, as it has always been, the key to housing sta- bility and growth on both national and local levels. •
people don’t even want to own a property and man- age a mortgage. Although investors have often been advised (by me, too) to seek out rental properties at the low- er end of the market because of the larger pool of renters,
growing rapidly. In these markets, a large number of people will be happy to pay above-average rent in order to have that house with the lawn. Higher-end rentals often need more attention. They need to be in good shape
IngoWinzer is president of Local Market Monitor, which analyzes conditions in 300 U.S. markets, using such economic data as home values and growth in employment and population. Winzer, who has analyzed
real estate markets for more than 20 years, was a founder and executive vice president of First Research, an industry research company that was acquired by Dun & Bradstreet in March 2007. He is a graduate of MIT and holds an MBA in finance from Boston Univer- sity. Winzer resides in Cambridge, Mass.
in some places it also makes sense to invest in properties at the higher end.
to begin with, and you need an elec- trician and plumber on standby. But in
www.localmarketmonitor.com
3-YEAR POPULATION GROWTH (%)
LATEST HOME PRICE INCREASE (%)
2014 POPULATION
AVG. HOME PRICE (000)
LATEST JOB GROWTH (%)
UNEMPLOYMENT RATE (%)
LOCAL MARKET MONITOR
1,943,299
$305
9
3.9
9
3.3
Austin-Round Rock, TX
2,839,550
$416
5.4
3.7
13
4.4
Seattle-Bellevue-Everett, WA
443,990
$272
4.1
3.7
12
5.9
Reno-Sparks, NV
2,754,258
$337
6.3
3.4
12
3.8
Denver-Aurora, CO
1,242,974
$254
7.1
3.1
7
4.4
Raleigh-Cary, NC
1,792,649
$249
6
3.1
10
4
Nashville-Davidson-Murfreesboro, TN
431,131
$295
3.7
3
9
5.9
Vallejo-Fairfield, CA
1,153,340
$277
4.1
2.9
8
3.9
Salt Lake City, UT
727,689
$315
6.8
2.8
10
4.9
Charleston-North Charleston, SC
Carole VanSickle Ellis serves as vice president of research and anal- ysis at the Self-Directed Investor Society, helping investors “declare independence fromWall Street.” Contact her at editor@bryanellis. com or visit sdiradio.com.
4,759,615
$374
4.0
2.6
4
4.0
Washington-Arlington-Alexandria, DC
Source :: Local Market Monitor
132 | think realty magazine november :: december 2016
thinkrealty . com / mag | 133
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