Housing-News-Report-September-2017

NAMED THE NATION’S BEST NEWSLETTER BY NAREE

SEPTEMBER 2017 VOL 11 ISSUE 9

MY TAKE BY MICHAEL MAHON PRESIDENT, FIRST TEAM REAL ESTATE P10 

ELEVATING REAL ESTATE DATA TO THE CLOUD BY RICHARD SAWICKY, CHIEF DATA OFFICER AT ATTOM DATA SOLUTIONS P22 

MARKET SPOTL IGHT ATLANTA, GEORGIA P15 

Contents

FEATURED ARTICLE

Today’s real estate marketplace is a wonder to behold. With rising home prices, bargain mortgage rates, and millions of would-be buyers waiting in the wings what’s not to like? But is it possible that today’s soaring real estate values might soon end with a shocking and thunderous drop that demolishes the housing sector and torches much of the economy? Are we watching a bubble in the making? P1 LOOMING HOUSING BUBBLE IS IN THE EYE OF THE BEHOLDER

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P10 MY TAKE: WHERE HAS ALL THE RESIDENTIAL REAL ESTATE GONE?

First Team Real Estate President Michael Mahon explores the multi-faceted answer to this question and then provides real-life antidotes to the low inventory challenge from several of the 1,735 sales associates who are part of the nation’s 16th largest volume brokerage, based in Southern California.

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P15 MARKET SPOTLIGHT: ATLANTA REAL ESTATE TRANSITIONS FROM SEXY TO SUSTAINABLE

Once the poster child of sexy rental returns for institutional investors buying distressed homes during the downturn, Atlanta’s housing market has transitioned into a slow-and- steady growth pattern — less appealing for real estate investors but more sustainable for the long term.

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P22 ELEVATING REAL ESTATE DATA TO THE CLOUD

Richard Sawicky, Chief Data Officer at ATTOM Data Solutions, explains how cloud technology has brought game-changing possibilities to data analytics by offering unprecedented on-demand computing power and storage capacity to a wide range of users. Sawicky argues that having access to a dynamic data platform will be essential to keep up with the onslaught of data from old and new sources because the scope of data required to obtain timely, deep insight in today’s housing industry is expanding.

HOUSINGNEWS REPORT

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LOOMING HOUSING BUBBLE IS IN THE EYE OF THE BEHOLDER

BY PETER MILLER AND DAREN BLOMQUIST

Today’s real estate marketplace is a wonder to behold. With rising home prices, bargain mortgage rates, and millions of would-be buyers waiting in the wings what’s not to like? But is it possible that today’s soaring real estate values might soon end with a shocking and thunderous drop that demolishes the housing sector and torches much of the economy? Are we watching a bubble in the making?

It depends on whom you ask.

Home prices increased to a new all-time high nationally in June 2017, 4.3 percent above the pre-recession peak in June 2006, according to the S&P CoreLogic Case-Shiller National Home Price Index. ATTOM Data Solutions shows that U.S. median home prices in the second quarter of 2017 increased 8.9 percent from a year ago to a new all-time high of $245,000 — 1.8 percent above the pre-recession peak of $240,750 in the third quarter of 2005.

Many economists and other national real estate experts continue to see clear skies ahead for U.S. residential real estate, while the opinions tend to be less optimistic among local market participants on the frontlines of their respective housing markets. Home Prices at All-Time High Before getting to those disparate opinions, here’s some recent data on home prices to help set the stage.

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U.S. HOME PRICES AT NEW ALL-TIME HIGH YOY PCT CHANGE MEDIAN SALES PRICE

We’re definitely not in a bubble. We have a handful of markets that are frothy and probably have hit an affordability wall of sorts but the fact of the matter is, while prices nominally have surpassed the 2006 peak, we’re not talking about 2006 dollars.”

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RICK SHARGA EXECUTIVE VICE PRESIDENT TEN-X.COM IRVINE, CALIFORNIA

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Home Price Appreciation Accelerating And home price appreciation accelerated in both the first and second quarter of 2017 after slowing in all four quarters of 2016. Out of 108 metropolitan statistical areas analyzed by ATTOM in its Q2 2017 Home Sales Report, 68 markets (63 percent) have exceeded pre-recession peaks. Strong home price appreciation is making homes less affordable than historic norms in a growing number of markets — 45 percent of 464 U.S. counties analyzed in the ATTOM Q2 2017 Affordability Index were less affordable than their historic norms, an eight-year high. Economists See Clear Skies Ahead Despite admitted affordability headwinds, national housing market experts continue to see clear skies

“We’re definitely not in a bubble,” Rick Sharga, executive vice president at Ten-X.com, an online real estate marketplace, told Seeking Alpha in August. “We have a handful of markets that are frothy and probably have hit an affordability wall of sorts but the fact of the matter is, while prices nominally have surpassed the 2006 peak, we’re not talking about 2006 dollars.” Even at the local level in Los Angeles County — one of the nation’s hottest housing markets where affordability levels have dropped below their historical averages for two consecutive quarters in the first half of 2017, according to the ATTOM Q2 2017 Affordability Index — local experts don’t see even a hint of a housing bubble.

ahead, dismissing concern about a repeat of the housing boom-bust of the last decade. “Housing remains a bright spot,” said Freddie Mac in its June 2017 economic outlook. “Year-to-date total home sales and housing construction are the highest in years.” “Home prices continue to climb and outpace both inflation and wages,” said David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “Housing is not repeating the bubble period of 2000- 2006: price increases vary across the country unlike the earlier period when rising prices were almost universal; the number of homes sold annually is 20 percent less today than in the earlier period and the months’ supply is declining, not surging.”

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EQUITY RICH HEAT MAP Q2 2017 SHARE OF TOTAL PROPERTIES WITH A MORTGAGE WITH 50% OR MORE EQUITY 9.3% 52.0%

“There is no direct or indirect sign of any kind of bubble,” said Christopher Thornberg, founding partner at Los Angeles-based Beacon Economics, in an interview with Housing News Report in February. “Steady as she goes. Prices continue to rise. Sales roughly flat. … ‘Overall this market is in an almost boring place.” Median home prices in Los Angeles County have moderated recently, rising 6.1 percent on a year-over-year basis in the second quarter of 2017, down from a 7.5 percent annual increase in the first

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Risk #2: Income Contraction The sensitivity to rising interest rates is very strong today because incomes are in a rut. “Median household income,” says the latest Census Bureau income report, “was $56,516 in 2015, a 5.2 percent increase from the 2014 median in real terms, but 1.6 percent lower than the median in 2007, the year before the most recent recession, and 2.4 percent lower than the median household income peak that occurred in 1999.” The Bubble Danger: Homes prices are rising while incomes are stalled if not falling. A study by economists Thomas Piketty, Emmanuel Saez, and Gabriel Zucman estimates that half of all workers saw incomes flatline in real terms between 1980 and 2014. If incomes can’t keep up, and if mortgage rates increase, then at some point prices and sales will stall.

Risk #1: Rising Mortgage Rates Rising finance costs have traditionally been a barrier to entry for the obvious reason: higher mortgage rates mean steeper monthly payments and less ability to qualify for financing. In today’s market rates are around 4 percent and few people realize that the annual rate for 2016 – just 3.65 percent – was the lowest on record according to Freddie Mac. The Bubble Danger: In February, Lawrence Yun, Chief Economist with the National Association of Realtors (NAR), noted that “every 10 basis point rise in mortgage rates can shave off approximately 35,000 in home sales annually.” If we apply the Yun equation generally, then going from mortgage rates of roughly 4 percent to 5 percent means we might lose 350,000 transactions nationwide. Go from 4 percent to 6 percent and we’re talking about 700,000 fewer sales. With mortgage rates at the long-time average of 8.6 percent more

10 Housing Risks to Watch

If the housing market is so solid at the macro level amongst national analysts then why is there an unsettled, um, nervousness, a sense that despite rising home prices and strong sales all is not quite right at the micro level among frontline foot soldiers? Is there reason to believe that the real estate market might once again be subject to a sudden and terrible reversal? It’s worth asking not because inherent demand for real estate is slowing — people still want to live indoors — but because the wider economy is in flux. A lot of the “givens” upon which the marketplace depends are no longer so certain. The real estate market is now prosperous and growing, but can real estate avoid a sharp slowdown or even a crash when its basic foundations are shifting? Here are 10 real-world trends to watch.

than 2 million sales might be lost, enough to shut down much of the housing market.

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Housing Risk #3. Rising Homeownership Tenure

Everyone is taking more and more risk. The core has done extremely well, but it’s the core.… People are starting to move out.”

U.S. homeowners who sold in the second quarter of 2017 had owned an average of 8.05 years, a record high going back as far as data is available, Q1 2000, according to ATTOM Data Solutions. Longer homeownership tenure translates into fewer move-up sales and less inventory for first-time homebuyers. “Existing homeowners,” said Mark Fleming, Chief Economist with First American, a provider of title and settlement services, “are increasingly financially imprisoned in their own home by their historically low mortgage rate. It makes choosing a kitchen renovation seem more appealing than moving.” The Bubble Danger: If owners are less inclined to sell that means fewer units will be available for purchase, there will be less supply, and a good reason for prices to rise. As mortgage rates go up the importance of preserving legacy financing at 4 percent or less will become more significant, thus keeping additional homes off the market.

CHRIS RICHTER CEO, AUDANTIC REAL ESTATE ANALYTICS

quarter and down from a 7.1 percent annual increase in Q2 2016.

We’re not buying any big properties, anything close to a million and trying to flip those … we couldn’t cash flow that,” Southern California investor Brett Chotkevys told Housing News Report in March. Chotkevys is co-owner of Helpful Home Solution, which he said flips about 75 properties a year all across Southern California. “If I was doing a couple flips a year I wouldn’t worry about it. But when you are doing 20 at a time … it’s more of a risk management. …I don’t think it’s going

to drop, but nonetheless I want to have a backup plan on all my properties.”

Less Optimism on the Frontlines But some real estate investors on the frontlines of the Los Angeles housing market are hedging against a market correction they believe is almost inevitable given the cyclical nature of real estate in the region.

A somewhat similar sentiment was expressed by veteran Seattle real estate investor Chris Richter, who also runs real estate data and analytics firm Audantic, about what is arguably the nation’s hottest housing market — far and away the metro with the highest year-over-year increase in the June Case-Shiller index.

“With us being where we are in the cycle, and us being very near the top.

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Housing Risk #4. The Construction Void Available for-sale housing inventory

I think it’s going to continue for a bit,” he said, noting that the last housing bubble was inflated by a lot of “stupid” people — including himself in that category — who relied on high-risk loans. Still, Richter sees some evidence of high-risk lending creeping back into the market, along with affordability constraints pushing more buyers further from the Seattle core with its high-paying jobs — another hallmark of the last housing bubble. builders faced in 2016 and expect to face in 2017 is the Cost/Availability of Labor, a significant issue for 78 percent of builders in 2016 and one that has significantly grown in importance since 2011.” Second, new homes are expensive. The medium sale price for a new home in June was $310,800 versus $263,800 for existing homes, meaning that for many potential buyers new homes are simply beyond reach. Housing Risk #5. Too Much Money Speaking in New York, Achim Steiner, Administrator of the United Nations Development Programme, explained in July that “by some estimates, the official sector and asset managers currently hold as much as $8.5 trillion in sovereign bonds earning negative interest rates, and $40 trillion earning very low returns -- given the recent efforts by many central banks to have zero, or even negative, interest rates.” If you’re a borrower this sounds pretty good. The world is flooded with cash, money moves easily across borders, and low rates are likely to be with us for a long time. Alternatively, if you’re a major investor do you really want to drop a few

“Everyone is taking more and more risk,” he said, providing as examples the emergence of “peer-to-peer lending” and foreign money flowing into the market. “The core has done extremely well, but it’s the core.… People are starting to move out.” That migration of homebuyers away from the Seattle core is evident in the ATTOM Q2 2017 Pre-Mover Index, which shows likely third quarter homebuyers billion dollars into long-term financing at a time when rates are so low? So far this massive storehouse of cash earning little or negative interest has not exerted enough pressure on real estate lending to loosen lending standards. But the pressure to open the credit box is increasing. “Only the best borrowers are getting loans today,” said Laurie Goodman with the Urban Institute, who estimates that some 5.2 million people who traditionally would have gotten a real estate loan cannot qualify for financing today., “and these loans are so thoroughly scrubbed and cleaned before they’re made that hardly any of them end up going into default. A near-zero-default environment is clear evidence that we need to open up the credit box and lend to borrowers with less-than-perfect credit.” The Bubble Danger: The potential hazard is that underwriting standards will loosen excessively. This might happen in time if people forget that the mortgage meltdown was created in part through the widespread marketing of “affordability” loan products such as option ARMs, financing with little or nothing down, interest-only financing, and no-doc loan applications.

is so low in part because of the aforementioned lengthening

“Stuff here they’ll pay $500,000 for one little lot,” said Richter. “It baffles me when I drive around.” A Soft Landing? Richter doesn’t necessarily anticipate the current Seattle housing boom will end in a bursting bubble akin to what occurred about 10 years ago thanks to a strong foundation of good jobs along with the absence of overly risky lending. homeownership tenure, in part because of institutional investors who acquired hundreds of thousands of single family homes as rentals near the bottom of the market and are continuing to hold onto those homes, and in part because there isn’t much new supply in the pipeline. If anything, we’re falling behind. HUD and the Census Bureau estimate that we’re likely to market 610,000 new single-family homes this year based on June sale figures. That’s about the same production rate we saw in February 1964, but back then we had about 192 million people versus a population of 320 million people today. The Bubble Danger: With a supply shortage, home prices can quickly rise thus reducing the pool of qualified borrowers and cutting sales. Even if new home demand soared it’s likely that much additional production is now impossible for two reasons: First, the building industry has a huge labor shortage. As the National Association of Home Builders points out, “topping the list of problems

“I don’t think it’s going to turn real hard.

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are more active in applying for loans to buy homes in Snohomish County (north of Seattle) and Pierce County (south of Seattle) than in the central King County. Drive to Afford That drive-to-afford trend in the Seattle area is concerning to Matthew Gardner, chief economist at Seattle-based Windermere Real Estate. “Housing affordability does concern me quite a bit … it pushes people further out of the King County market,” said

Gardner. “You have to drive to buy. … (which) can actually push the prices of the suburban market up. The affordability crunch concerns Gardner because at some point it could cause companies that are considering expanding to Seattle – which is still priced at a substantial discount compared to the Bay Area – to go to other markets such as Spokane, Washington, or Boise Idaho, which would slow economic growth in Seattle.

But Gardner does not think the affordability crunch in and of itself indicates that the Seattle market is in a bubble. “Is it a bubble, no. Every data point I look at shows lending is robust,” said Gardner, who also chairs the board of trustees at the Washington Center for Real Estate Research at the University of Washington. “We’re giving mortgages to people who can actually afford to make those mortgages. Housing Risk #6. Tax Policies Mortgage interest is not deductible in such countries as Canada, France, or Great Britain. In the U.S. mortgage interest as well as property taxes are generally deductible from federal income taxes, something which the real estate industry has always seen as essential. Now things may be changing. Both President Trump’s tax reform plan and the proposal of House Speaker Paul Ryan, R-WI, keep the MID so neither can be accused of dumping a sacred write- off. However, both plans also devalue mortgage interest deductions and property tax write-offs to the point where millions of property owners are unlikely to claim them. The Bubble Danger: The real estate industry – correctly – argues that tax write- offs are a big financial advantage and effectively reduce the cost of ownership. They are also an important marketing tool, a reason to buy rather than lease. If tax write-offs are effectively removed after more than a century then the case for ownership becomes much tougher so demand – and home values – are likely to decline, and renting may be seen as increasingly attractive in comparison.

WHERE HOMEBUYERS ARE MOVING IN Q3 2017 Q2 2017 PRE-MOVER INDEX (100 IS NATIONAL AVG)

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Is it a bubble, no. Every data point I look at shows lending is robust. We’re giving mortgages to people who can actually afford to make those mortgages.” MATTHEW GARNER CHIEF ECONOMIST, WINDERMERE REAL ESTATE

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Housing Risk #7. The (Non- Mortgage) Debt Bomb The weird thing about mortgage debt is that we have less of it. Between 2008 and the start of 2017 mortgage debt declined from $9.99 trillion to $9.08 trillion, a drop of $910 billion according to the Federal Reserve Bank of New York. Given that we have had consistently rising home prices during the past five years it’s surprising to see less mortgage debt. “Total household debt achieved a new peak in the first quarter of 2017,” explains the New York Fed, “rising by $149 billion to $12.73 trillion – $50 billion above the previous peak reached in the third quarter of 2008. Balances climbed in several areas: mortgages, 1.7 percent; auto loans, 0.9 percent; and student loans, 2.6 percent. Credit card balances fell 1.9 percent this quarter.” The Bubble Danger: The explosive growth of non-housing debt can smother the first-time buyer market and with it a good part of the housing sector. Between 2008 and this year student debt rose from $640 billion to $1.34 trillion. Auto lending increased from $790 billion to $1.17 trillion. Potential mortgage borrowers saddled with a lot of non-housing debt may not qualify under generally used debt-to-income ratios (DTI). The solution? Some mortgage programs now allow higher DTIs, say a 50-percent DTI instead of 43 percent. Is this a formula for excess risk? We’ll find out in the next few years. Meanwhile overall debt is increasing.

HOME SELLER PROFITS BY METRO Q2 2017 AVG HOME SELLER PCT RETURN SINCE PURCHASE -10.3% 74.5%

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An External Threat But Gardner suspects the threat to the housing market will likely not rise from inside the market but from outside. “If we see a recession in 2019, which I’m expecting, it will not be driven by housing. What it will be driven by is unknown,” he said. “What exogenous shock will come that will cause that bubble to burst?”

Along with lending standards, Gardner keeps a close eye on average home equity rates and speculation as the best predictors of a bubble. None of those indicators are pointing to a bubble at this point, although Gardner said that could change. “Could this come off the rails? Yes it could, if banks start egregiously lowering the mortgage standards,” said Gardner, who noted he is seeing some early evidence that non-traditional bankers are “starting to rear their ugly head again.”

In the meantime, Gardner takes solace in the reality that Seattle housing is still

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Housing Risk #8. We May Be Counting Wrong

The last seven sales I’ve had have all been to out-of-state buyers. Out of the last seven I’d say five are from California.”

Researcher Allan Weiss, writing in The Washington Post in 2015, explained that “most consumers rely on monthly market reports based on market-wide medians to track changing home values. In these reports, micro home value trends remain invisible and even a metro level divide will wash out and reveal next to nothing. Moreover, the report only includes the homes that actually sold. This is barely more than 1 percent of all homes per quarter. If certain neighborhoods or house types are under-represented, the median sales price will not reliably reflect their price trends.” The Bubble Danger: Owners who sell and do not obtain the lofty prices reported for their general area may blame their real estate broker or appraiser for a “failed” result. They may come to perceive ownership as unattractive and lament the loss of fictional gains, thus reducing demand and contributing to softer prices.

PAUL SCHEMMEL VETERAN REAL ESTATE INVESTOR, DENVER, COLORADO

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After

Denver real estate investor Paul Schemmel purchased this home on South Garfield Street for $400,000 in 2016, demolished the existing structure and built a new home on the lot for $675,000, and then sold the new home for $1,325,000 in August of 2017.

a relative bargain compared to the Bay Area of California.

not far behind Seattle on the housing market heat index. The Case-Shiller Home Price Index for Denver was up 7.6 percent in June, fourth highest behind Seattle, Portland and Dallas. “The last seven sales I’ve had have all been to out-of-state buyers. Out of the last seven I’d say five are from California,” said Paul Schemmel, owner of Argentum Group LLC, a Denver-based real estate investing firm. Schemmel said the average price of the homes he sells is about $1.5 million.

Schemmel said he’s bought and sold hundreds of properties in Denver since he started investing in October 2008, constantly evolving his investing strategy to adjust to the shifting Denver market — most recently deciding to move out of the traditional home flipping market, which was becoming highly competitive. “Why don’t I just buy at full price, scrape the lot and build a new house,” said Schemmel, explaining his thought process in shifting strategies. “And

Seattle housing is “still a 50 percent discount on housing costs from the Bay Area,” he said. “A software engineer will make 4 percent less here than they will in the Bay Area thanks to the fact that California has a state income tax and we don’t. But the house will be half price.” Banking on California Buyers The reliance of migrating California buyers willing to pay higher housing prices is a theme repeated in Denver,

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then I started making money again. I don’t even rehab any more. I demolish and I build a new home.” Two to Four Years Left Schemmel, whose typical deal takes nine to 12 months from purchase of existing home to sale of new home, said he’s still sees plenty of runway left in the Denver housing boom. “I keep hearing all these naysayers saying there’s a bubble. I agree that there are cycles, but we’re not there yet. … I think we still got two to four Housing Risk #9: Regulation For all the complaints about “Washington” and “regulation” the bottom line is very simple: in 2016 FDIC- insured institutions had profits of $171.3 billion versus $87.5 billion in 2010, the year Dodd-Frank was passed. According to the Institute for Local Self- Reliance, giant banks had a 32 percent market share in 2000 versus 59 percent in 2014. As to smaller banks the news is less thrilling, the 2016 Republican platform noted there are now fewer than 2,000 small banks left, down from 13,000 in 1985. The Bubble Danger: Regulation has worked very well for the nation’s largest banks and yet there are endless calls to dump Dodd-Frank, de-fang the Consumer Financial Protection Bureau, and privatize Fannie Mae and Freddie Mac. The worry is that by tinkering with the system now in place bad things might happen. David Stevens, CEO of the Mortgage Bankers Association, told USA Today in 2013 that “you have to assume that almost in any future model being drafted,

years,” he said, noting that he thinks the tax cuts proposed by President Trump could extend the boom longer by pumping more money back into the economy. “You got Google coming here, Amazon, building these huge monster facilities … you’ve got marijuana … and it means jobs, and they’re well-paying jobs. …People don’t like it, but it sure is helping this economy in Colorado.” Still Schemmel does expect the music to stop at some point in the future, and he wants to be ready when it does. loans will be more expensive.” Higher mortgage costs, of course, are a sure formula for fewer loans and greater risk. Housing Risk #10: The Robot Revolution The job market is now in flux. With new technologies the nature of employment is rapidly changing and the result is that millions of jobs – and millions of mortgages and homes – may be at risk. The last revolutions of similar scope took place a century ago when cars replaced carriages and light bulbs outshined candles. Not only were the new technologies better, they also created enormous numbers of new jobs and vastly increased productivity. But with artificial intelligence, robotics, and a data-based economy we know that productivity will improve while portions of the current job base will contract. What we don’t know is how many replacement jobs will be created. The Bubble Danger: “A ballooning freelance workforce, said Time in

“I think you’re going to have another crisis. …. I think it’s going to be something else other than mortgages,” he said, “Two years from now I’m going to start backing off. I do 25 to 30 homes a year right now, in two years I’m going to probably cut it in half … because I want to have a chair when the music stops.”

2015, “means a permanent state of non-permanent wages, adding more uncertainty to an economic environment saddled by stuck income.” But maybe not. Entire new industries with new jobs are being created such as Tesla’s Gigafactory in Sparks, Nevada. Will new and better jobs replace the lost jobs of the old economy? Will mortgage applications standards change to accommodate changing income patterns? The housing sector in most areas is now doing great with strong sales, rising prices, low mortgage rates, and plenty of pent-up demand. But looking toward the future how will real estate respond to traditional hurdles such as rising mortgage costs, steeper home prices, and reduced affordability? And most curious of all, how will the housing market fare in the coming era, a time of massive and quick-moving change throughout the economy? Buckle up, this should be an interesting ride, regardless of who – or what -- is driving.

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MY TAKE

WHERE HAS THE RESIDENTIAL REAL ESTATE INVENTORY GONE?

BY MICHAEL MAHON PRESIDENT, FIRST TEAM REAL ESTATE

As we approach the fourth quarter of 2017, consumers, real estate agents, and real estate brokers are in search of answers to the same question; “where has the available residential real estate inventory gone?” According to housing statistics released by the National Association of Realtors, “at the end of July 2017, there were 1.92 million existing homes available for

their introductory economics courses, residential housing inventory in low supply means housing prices continue to escalate to settle the appetite of consumer demand. “The median existing-home price for all housing types in July 2017 was $258,300, up 6.2 percent from July 2016 ($243,200). July’s price increase

purchase across the diverse markets of the United States. This amount reflected an inventory 9 percent lower than July 2016 (2.11 million), and highlights an available residential inventory in decline and contraction, year over year, for 26 consecutive months.” Straight out of textbooks of universities across the country, providing education of the laws of supply and demand within

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MY TAKE

AGE OF HOUSING STOCKS: 2005 VS 2015 2005 2015

seeing properties attracting multiple offers immediately upon going on the market, adding to the emotional tension of buyers looking to make a home purchase, and further driving price increases across many markets. As homeowners stay in homes longer, we are seeing our national housing inventory increase in average age. This trend is due to the lack of introduction of new home starts to mitigate the pent-up demand of buyers in the housing industry. According to a study conducted by the National Association of Home Builders (see chart on left), “The share of housing stock built 45 years ago or earlier increased significantly from 32 percent in 2005 to 38 percent in 2015. However, the share of new construction built within the past 5 years declined to 3 percent in 2015, compared to 9 percent in 2005.” As our housing inventory across the country ages, so too does the costs of deferred home maintenance, particularly impacting homeowners living on fixed retirement incomes and homeowners getting low returns on fixed savings accounts -- all contributing factors to why homeowners are residing in homes longer. “For first-time home buyers”, said Valerie Neeley of First Team Real Estate in Mission Viejo, California, “down payment resources are limited, due to home buyers’ outstanding student loan debts, as well as employer’s inability to

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45 years old or more Source: National Association of Homebuilders 35-45 25-35

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As homeowners stay in homes longer, we are seeing our national housing inventory increase in average age. This trend is due to the lack of introduction of new home starts to mitigate the pent-up demand of buyers in the housing industry.”

marks the 65th straight month of year- over-year gains,” as further reflected in recent reports of the National Association of Realtors. The symptoms of higher sales prices across U.S. markets, as well as a low supply of listing inventory limiting sellers’ choices as to what they could purchase if they sold their home, are two critical factors causing homeowners to stay in their homes longer.

in Huntington Beach are leveraging their relationships and brokerage’s market share of available listings in neighborhoods to identify potential home sellers months in advance of those potential sellers placing their homes on the market. Real estate professionals like Campbell are also leveraging their list of a pent-up demand of buyers to often place the home under contract without having to inconvenience sellers with a multitude of showings. Additionally, because of this same pent-up demand, we are

Real Estate professionals such as Lily Campbell of First Team Real Estate

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compensate employees at increasing rates that would keep up with the rate of increased housing costs.” With an inability to purchase, the pool of potential first-time homebuyers continues to add to the demand for rental housing in many communities, thus increasing the prices of rents being paid by consumers while also taxing the ability of these potential first-time homebuyers to save for down payments. The increased pricing in rental housing also motivates institutional investors to retain their investments in residential housing across the country, maintaining the largest inventory of investor-owned residential housing our country has ever experienced, and limiting residential inventory available for purchase.

“Down payment assistance programs, grant programs for inner city housing, and government-backed FHA and VA financing are fast becoming the vogue methods of financing in assisting first- time home buyers, as well as veterans,“ said Neeley. “So long as real estate agents can find the inventory.” According to a 2015 ACS study of the National Association of Homebuilders (see chart below), “homeowners with higher family incomes tend to live in the newer residential units. In 2015, the average household income for owner-occupied homes built after 2010 was $ 121,577, which was higher than the $86,328 average family income for those living in homes built before 1969. Moreover, younger homeowners are more likely to live in newer homes. Homes built after 2010 are headed by homeowners with a median age of 44

years, compared to homes built prior to 1969 owned by householders with a median age of 58.” These statistics imply a growing market for renovations for older homeowners who can afford the cost of renovations to stay in place, and also show that younger home buyers are electing to purchase newer inventory homes, likely at least in part to avoid the added costs of deferred home maintenance that comes with older homes. While increasing prices have caused many homeowners to remain in homes longer, there is one sector of the market that has seen improvement in increasing inventory and sold transactions. The national luxury housing sector has experienced an increase in available inventory as

WHO IS OCCUPYING DIFFERENT HOUSING STOCK? HOUSING INCOME (LEFT AXIS) AGE OF HOUSING HEAD (RIGHT AXIS

With an inability to purchase, the pool

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of potential first-time homebuyers continues to add to the demand of rental housing in many communities, thus increasing the prices of rents being paid by consumers while also taxing the ability of these potential first-time homebuyers to save for down payments.”

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55

60

120,000

50

50

100,000

44

40

80,000

30

60,000

20

40,000

10

20,000

0

0

1969 or earlier

1970 to 1979

1980 to 1989

1990 to 1999

2000 to 2009

2010 or later

12

JULY 2017 | ATTOM DATA SOLUTIONS

HOUSINGNEWS REPORT

MY TAKE

demand has stabilized and a slight decline in pricing has reduced average days on market to 162 days, as evidenced by the recently released August 2017 luxury housing report published by the Institute for Luxury Home Marketing. “The coastal luxury homes market of Southern California has been strong over the course of this summer,“ states Jody Clegg of First Team Real Estate in Huntington Beach, California. “Luxury home sellers have experienced an increased demand for their homes due to increasing consumer confidence in the economy, increasing jobs in mid- to senior-level employment positions, as well as an ability to cash in on awesome returns from the stock market. “Couple these positives with the fact that luxury home sellers have a larger inventory to choose from, increased relocation opportunities for senior

level employees, as well as conforming loan limits being raised to $625,500 earlier in the year,2017 has been the year of the consumer within the luxury marketplace,” Clegg added. In close, the market is today as the market was yesterday, and as it will be tomorrow. Our markets are the result of supply and demand. As we prepare for 2018, increasing jobs across the country, improving lending restrictions of the past decade, reduction in overall income tax rates, increasing opportunities of down payment assistance, and greater deferment of student loan debt, are all external factors that can and will fuel growth of listing inventory and opportunity across the U.S. housing market. Without changes in any of these such factors, growth across the U.S. housing market will likely remain stable to positive for the coming year, with

moderate overall increases in unit transactions, and flat in overall pricing volume. Jobs…Jobs…Jobs…is where the answer lies, and if this becomes the reality for our U.S. economy in 2018, all bets will be on a robust housing market to close out this decade.

MICHAEL MAHON

As president of First Team Real Estate, the 16th largest volume brokerage in the country, Michael Mahon operates with the mentality that relationships are the driving force behind every successful real estate brokerage in the industry, and is honored to support the organization’s 1,735 sales associates throughout California markets. Mahon has more than 26 years of comprehensive real estate experience spanning the residential and commercial sectors.

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JULY 2017 | ATTOM DATA SOLUTIONS

HOUSINGNEWS REPORT

SECTION TITLE

P r Public Records T a Tax Assessor D e Deed F c Foreclosure P m Plat Maps C I Cost of Living Index

L s Landslide E q Earthquake F i Fire N h S h Sinkholes P b Parcel Boundaries Natural Hazards

ATTOM Table of Data Elements

M I Mortgage Loan

F I Flood S p Spills H h Health Hazards A v Assessed Values

P f Pre-foreclosure

O w Ownership S c Schools C r Crime

E r Environmental Risks N c Neighborhood Characteristics C o Criminal Offenders

S f Superfund Sites D I Former Drug Labs

B f Brownfields A q Air Quality H c Home Condition

R p Registered Polluters U v UV Index B p Building Permits

U t Underground Storage Tanks R d Radon H v Home Values

F t FCC Towers

D g Demographics

P c Property Characteristics

P v Pre-mover

U S Utility Score

MLS Analytics M s

Coming Soon

Coming Soon

Coming Soon

Public Records Environmental Risks

Property Characteristics Neighborhood Characteristics

Natural Hazards Health Hazards

www.attomdata.com 1-800-462-5125

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JULY 2017 | ATTOM DATA SOLUTIONS

HOUSINGNEWS REPORT

SECTION TITLE

SPOTLIGHT: ATLANTA

ATLANTA REAL ESTATE TRANSITIONING FROM SEXY TO SUSTAINABLE

BY JOEL CONE, STAFF WRITER

Once the poster child of sexy rental returns for institutional investors buying distressed homes during the downturn, Atlanta’s housing market has transitioned into a slow-and-steady growth pattern — less appealing for real estate investors but more sustainable for the long term. Overall investor interest in Atlanta has waned in recent years. The number of non-owner-occupied purchases in the city of Atlanta were down to 13.2 percent for 2016, a significant decline from its peak of 33.1 percent in 2009, according to ATTOM Data Solutions.

INVESTOR SHARE OF HOME PURCHASES WANING IN ATLANTA

ATLANTA, GEORGIA

BIRMINGHAM, ALABAMA MEMPHIS, TENNESSEE

CLEVELAND, OHIO

60.0%

50.0%

40.0%

30.0%

20.0%

10.0%

Meanwhile the share of investor purchases is continuing to grow in

0.0%

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

15

JULY 2017 | ATTOM DATA SOLUTIONS

HOUSINGNEWS REPORT

SPOTLIGHT: ATLANTA

Ready for a Downturn Longtime Atlanta real estate investor Andy Heller knows why the institutional investors and other real estate investors have drastically curtailed their purchases in the region: the deals have dried up. “Today it’s very difficult to buy properties at the type of discount that I normally seek,” said Heller, who has been investing in the Atlanta market with his business partner, Scott Franks, for 25 years. Unlike some investors who might think it’s time to abandon Atlanta for other pastures such as Memphis, Tennessee, or perhaps Birmingham, Alabama, Heller is staying put with the properties he has. He’s just choosing not to buy more at this time.

lower-priced markets such as Memphis, where 51.2 percent of homebuyers were non-owner occupants in 2016, Cleveland (42.1 percent), and Birmingham (41.2 percent). Institutional investors purchasing at least 10 properties a year — many of them backed by Wall Street hedge funds and private equity firms — descended in droves upon Atlanta in the wake of the Great Recession, gobbling up discounted foreclosure properties by the thousands. These institutional investors collectively purchased more than 62,000 single family homes and condos in the Atlanta metro area between 2012 and 2014, accounting for more than one in every five home purchases (23 percent) during those three years, according to data from ATTOM. So far in 2017 institutional investors have accounted for just 4 percent of all home purchases in the Atlanta area.

… We think there’s going to be a down cycle in the near future and we’re kind of getting ready for that,” said Heller, who also coaches other real estate investors. “I tell my students at seminars today that we’re at the tail end of a significant upswing. This is the time you want to position yourself to invest. There will be an opportunity in the near future that will be great for investors.” From Sexy to Sustainable Heller’s observation that the housing market is on the upswing is certainly backed up by data. The August 2017 report from the S&P Corelogic Case- Shiller Home Price Index declares that the index reached an all-time high in June. The home price index for the Atlanta region rose 5.3 percent on an annual basis in June, according to Case-Shiller.

“I know there will be an opportunity around the corner and I’m ready for it.

THE RISE AND FALL OF INSTITUTIONAL INVESTORS IN ATLANTA INSTITUTIONAL INVESTOR PURCHASES PCT INSTITUTIONAL INVESTOR SALES

Today it’s very difficult to buy properties at the type of discount that I normally seek … We think there’s going to be a down cycle in the near future and we’re kind of getting ready for that.”

25.0%

25,000

20.0%

20,000

15.0%

15,000

10.0%

10,000

ANDY HELLER ATLANTA REAL ESTATE INVESTOR AND TRAINER

5.0%

5,000

0.0%

0

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

16

JULY 2017 | ATTOM DATA SOLUTIONS

HOUSINGNEWS REPORT

SPOTLIGHT: ATLANTA

BUY OR RENT IN ATLANTA? MORE AFFORDABLE TO BUY OR RENT IN 2017? BUY RENT

CLICK HERE TO VIEW INTERACTIVE VISUAL

Balanced Supply and Demand The combination of slow-and-steady increases in both home sales and home prices is a good indication of a well- balanced housing market, according to Dr. Rajeev Dhawan, director of the Economic Forecasting Center at Georgia State University. “I think the demand and supply are pretty much in balance,” he said. “It’s not like the oversupply we had back in 2004 to 2007 when we were doing 70,000 housing permits with job growth of 50,000.” Dhawan is forecasting an overall drop of 6.1 percent in total housing permits for Atlanta in 2017 due mainly to a large decrease in multi-family permits compared to a much smaller gain in residential permits. Even as the pipeline of new housing supply in Atlanta is contracting, more jobs in 2017 should translate into increased demand for housing.

I think the demand and supply are pretty much in balance. It’s not like the oversupply we had back in 2004 to 2007 when we were doing 70,000 housing permits with job growth of 50,000.”

DR. RAJEEV DHAWAN DIRECTOR OF THE ECONOMIC FORECASTING CENTER AT GEORGIA STATE UNIVERSITY

The metro area’s median home price of $198,000 in Q2 2017 was a new all-time high, according to ATTOM Data Solutions. Median home prices in Atlanta are now 17 percent above the pre-recession peak of $169,900 in Q3 2005. But the pace of annual home price appreciation in Atlanta has slowed dramatically in the last two years. It was at 4.2 percent in Q2 2017, the eighth consecutive quarter of single-digit increases following nine consecutive quarters of double-digit increases — peaking at a whopping 38 percent in

Q3 2013 in the midst of the Atlanta investor gold rush.

And sales activity continues to climb, indicating still-strong demand despite the departure of many investors. The Georgia MLS reported for June that the Atlanta metro area saw a 4.61 percent increase in residential units sold year-over-year. The number of residential listings decreased 2.03 percent and residential inventory declined 8.69 percent to a three- month supply from the level reported in June 2016.

17

JULY 2017 | ATTOM DATA SOLUTIONS

HOUSINGNEWS REPORT

SPOTLIGHT: ATLANTA

ATLANTA HOME PRICE APPRECIATION MODERATING ANNUAL PCT CHANGE MEDIAN HOME PRICE

$250,000

50%

Georgia is booming because we’re a second Hollywood. We’ve opened so many movie studios here.”

40%

$200,000

30%

20%

$150,000

10%

$100,000

0%

NORM ITSKOV VICI REAL ESTATE, SUWANEE, GEORGIA

-10%

$50,000

-20%

-30%

$0

In its latest economic update, the J. Mack Robinson College of Business at Georgia State University is forecasting that the Atlanta metro will gain 65,500 jobs during calendar year 2017 (17,400 of them classified as “premium jobs”). The Bureau of Labor Statistics reported a 0.3 percent decline in the Atlanta metro area’s unemployment rate to 4.8 percent for June 2017 — holding steady at 4.8 percent in July 2017. “One of the things I emphasize is don’t be blinded by the number of jobs being created. Look at the quality of the jobs,” cautioned Dhawan, who added that rents in the metro area are increasing but are still reasonable compared to other areas of the country, which is another good variable for investors to factor in. “For a young person getting a job at $40,000 to $60,000 a year, they can nicely afford an apartment.”

percent of average wages across 17 Atlanta-area counties analyzed in the ATTOM Data Solutions 2017 Rental Affordability Report. That’s about on par with the national average of 39 percent, but buying is still more affordable than renting in 14 of the 17 counties analyzed. Commerce reports that the metro is home to 26 companies among the 2017 Fortune 1000, 15 of which are also listed in the 2017 Fortune 500. They include companies such as NCR Corporation, The Home Depot, Delta Airlines, The Coca-Cola Company and United Parcel Service. “That’s another reason why people are looking for properties here,” said Realtor Norm Itskov with VICI Real Estate in Suwanee. “Also, Georgia is booming because we’re a second Hollywood. We’ve opened so many movie studios here.” A Second Hollywood The Metro Atlanta Chamber of

According to the annual study conducted by FilmL.A. for 2016 production, Georgia had the most feature films shot on location at 17 followed by the United Kingdom (16), Canada (13), California (12) and Louisiana (6). It’s another avenue of potential job growth for the metro area as a whole. Although Crystal Canaday believes Atlanta is a great place for investors, she is well aware of how tough the competition is for existing properties. It requires some out-of-the-box creativity. “If you’re an investor you have to find a property that is not on the market. The values are going up like crazy,” said the sales associate for RE/MAX Around Atlanta Realty in Alpharetta. Competition Spurs Creative Investing Strategies

And that is exactly what investor Peter Vekselman has been doing for the

Fair market rent for a three-bedroom property requires an average of 40

18

JULY 2017 | ATTOM DATA SOLUTIONS

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