MARKET & TRENDS
CREATIVE INVESTING
home in the Portland metro area was $367,000 in the first quarter, a 2.8 percent increase from a year ago and up 93 percent from the ar- ea’s post-recession bottom price of $190,000 in the first quarter of 2012. In its May 2019 release, the S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index re- ported a 2.6 percent yearly increase in home prices for the Portland metro area as of March 2019. SEATTLE: SEEKING BALANCE IN THE MARKET The U.S. Census reported a popu- lation of almost 3.9 million for 2017 in the Seattle metro area, an area that came in at number nine on the U.S. News list of Best Places to Live. Headquarters to both Amazon and Tableau, a software firm just sold to Salesforce for $15.3 billion, Seattle is an area where home prices are higher because incomes are higher, Gardner noted. Unemployment is staying low, down to 3.4 percent as of April 2019. But even with those gains in both population and employment, on the housing front, questions remain about housing affordability in particu- lar due to lack of available land due to King County’s urban growth boundary regulation that limits the land supply, resulting in higher prices for land that is available for development. “You have to look at land, labor, materials and regulations,” Gardner said. “We’re not going to be expand- ing those boundaries. We’re not digging into agricultural land at all.” In his Q1 2019 edition of The Gardner Report for Western Wash- ington, Gardner’s charts show a 10.6 percent drop in home sales for King County between the first quarter of 2019 and the same quarter last year, and a 0.1 percent decline in annual sales prices for
the same period. “Home price gains continue to slow,” said David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “The patterns in the last year or more continue: year-over-year price gains in most cities are consistently shrink- ing. Double-digit annual gains have vanished. …one year ago, Seattle had a 13 percent gain. In this report Seattle prices are up only 1.6 percent.” With interest rates remaining low, Gardner is forecasting that rates will not go above five percent until 2021. That, combined with a slower home price appreciation and an in- crease in housing inventory denotes a move toward a more balanced housing market in Seattle. For investors, however, this trend means more competition for avail- able inventory and difficulty finding properties. “Flipping is down. Investors es- sentially have to pay retail. Foreclo- sure activity is very low. There are no cheap deals to buy anymore,” he said. “On the investor side we’re seeing a slowing in all cash pur- chases given the fact of increasing home prices. What we did find is a lot of investors actually selling. They’re trying to time the market.” Flipped properties in the Seat- tle metro area accounted for 4.7 percent of all home sales in 2018, down 15.9 percent from a year ago but up 38.9 percent from 10 years ago, ATTOM reported. Investors pur- chased properties to flip in 2018 at a median price of $271,000 and sold them for a flipped price of $392,000 for a 44.6 percent gross return on investment. It took an average of 197 days to complete a flip in 2018. Total distressed sales — REO sales, short sales and third-party foreclosure auction sales com- bined — in the Seattle metro area
were down 2.8 percent between the first quarter of 2019 and the same quarter last year. The median sales price for a home in the metro area was $437,000 in the first quarter, up 2.8 percent from a year ago and a 94 percent increase from the area’s post-recession bot- tom price of $225,000 reported in the first quarter of 2012. Even with low unemployment, investor Nova Shank, managing broker at Champions Real Estate Services, sees homelessness as a problem that may affect both local investors and those coming into the area from other locations. “Even with the buy and hold strategy I’m seeing people having fantasies of what they want in rental return,” Shank said. “The home- lessness situation is so bad that people can’t afford rent. It’s pushing people out of any affordability. Un- employment is low, but wages are even lower. Wage growth hasn’t im- proved substantially for 30 years.” Prices are down for both condos and single family homes. For inves- tors looking to flip a property, Shank tells them that in this market those properties will sit if they are not fixed up to a livable condition.
Creative Investing for Passive Returns EXPLORING THE SINGLE-FAMILY RENTAL SECTOR IN A POTENTIAL ECONOMIC DOWNTURN.
by Gary Beasley
A
fter more than 10 years of a bull market, investors are
on the horizon. As perhaps the fastest-growing segment of the US housing market, SFR properties are unique because they have char- acteristics of both bonds (current income) and stocks (appreciation potential), with returns historically being similar to those generated by the stock market, albeit with much less volatility. A proprietary study from Roof- stock showed that SFR returns are largely uncorrelated to equities, meaning they don’t move in lock- step. Correlations between S&P and SFR returns from 1994 through 2008 are at near zero, meaning that the two measurements are unrelated. For this reason, SFR is considered a good defensive play for those investors who may be nervous about the outlook for the stock market and are hedging their bets by seeking a portion of their returns from current yield as opposed to relying principally on
changes in stock prices. SFRs have a strong track record, even during periods of stock market declines. Notably, during the Great Recession (from 2007 to 2011), SFR rents never declined on average de- spite a national decline in home prices of over 30 percent and stock market losses that took 4 years to recoup. This meant that owners of those rental homes generally experienced improv- ing yields on their invested capital, despite home prices falling. What’s more, some 9+ million families lost their homes between 2006 and 2014, which bolstered fundamental demand for rentals as these families suddenly became long-term renters. THE NEWRENTER PROFILE It’s clear that the profile of the average renter has changed, too. According to a recent study from Freddie Mac, Millennials and Boom- ers are choosing to opt out of home
increasingly considering how to prepare for the potential impact of the next economic downturn -- especially those concerned about volatility. While they shouldn’t panic (from my point of view, the next recession will be more of a dip than a crash), many investors are looking for an intelligent way to adjust their investment portfolios to be well positioned to weather the next downturn. It’s clear that, as we approach notching the lon- gest economic expansion in recent history, a little defensive thinking is in order.
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Joel Cone is a freelance business writer based in Southern California. His articles have appeared in California Real Estate magazine, Real Estate Southern California, OC Metro, GlobeSt.
com, Foreclosure News Report, the Los Angeles Daily Journal and the Smarter Investor blog for U.S. News & World Report, as well as many other print and online publications. Contact him at sno- cone1030@gmail.com. As a founding partner at Anderson Business Advisors & Law Group, Clint Coons is a real estate asset protection expert and an avid real estate investor. He wants to help every investor create a well-balanced plan so they can continue to grow their portfolio and have their capital and invest- ments protected.
THE SFR OPPORTUNITY Investing in the burgeoning
single-family rental (SFR) sector presents a potentially compelling option when the stock market feels overheated or a recession may be
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