Residential Real Estate in 2012: Distressed inventory slows market
Key economic indicators include sales of existing single-family homes, median sale price, the number of homes under water, foreclosure notices and distressed inventory on the market. Due to stricter foreclosure requirements, a shadow inventory of distressed homes is increasing as owners give up and walk away from the asset.
Has The Housing Market Hit Its Bottom?
From a national standpoint the housing market is flattening out, but there continue to be pockets of instability and volatility. Consumer confidence is improving and retail sales increasing indicating more consistent and frequent home sales in 2012. According to Clear Capital, 40% of major metro areas will be stable in 2012, while other major metro markets will continue to experience decreases in value. Overall, the housing market is not expected to recovery until 2014.
Multifamily Energy Benchmarking Reports Reveal Challenges
Energy benchmarking for multifamily properties is now being mandated by some municipalities but the lack of significant data collection has become an issue. According to a study by Recap Real Estate Advisors, benchmarking data is being collected from only 2% - 3% of multifamily units nationwide. Currently there are no common standards and no requirement for most stakeholders to collect or report energy consumption information. There are four major cities that require reporting, New York, Seattle, Austin, TX and Washington, D.C. While these policies are expanding, they are fairly new and culture is resistant to change. Once stakeholders grasp the long-term reduction in consumption and costs as a by-product of this reporting, they will all be on board.
More Good Times Ahead for Multifamily in 2012
Multifamily emerged as the best performing commercial real estate property in 2011 and is expected to remain strong in 2012. Jobs is the driving force behind the U.S. economy and Grubb & Ellis reports the expected creation of 125,000 net new jobs per month in 2012. In addition vacancy levels continue to decline and rental rates are increasing. Strict loan requirements continue to limit new homebuyers from qualifying to purchase a home, further bolstering the rental market. Potentially, there is no downside to the multifamily market in 2012, unless someone purchases thousands of homes and turns them into rentals.
Single Family REITs – The Most Significant Trend in Residential Real Estate in 2012 and Beyond
http://www.ownamerica.com/single-family-reits-the-most-significant-trend-in-residential-real-estate-in-2012-and-beyond/
REITs have traditionally invested in large multifamily apartment buildings, commercial real estate with a residential end use. To benefit from the current market, REITs should invest in lots of single family homes. The demand for rental housing is resulting in rent increases which increases value and diminishes returns. Single family homes are valued based on comparable sales which are still in a downturn, not rent rolls or CAP rates. So there is a downward pressure on single family home prices while multifamily values are increasing. Seems like a no-brainer.
A Nation of Landlords and Other Trends for 2012
http://barrington-il.patch.com/articles/a-nation-of-landlords-and-other-trends-for-2012
Chicago-area real estate experts predict ten real estate trends for 2012:
1. Many homeowners will become landlords for the first time as their current home is under-valued and they only way they can move to a new home is to rent out their current home;
2. The number of renters will continue to grow as it continues to be harder to be a homeowner due to strict lending requirements;
3. It will be cheaper to buy than to rent due to the lower price of homes, lower interest rates and escalating rents;
4. Location tops the must have list for most buyers opposed to more space or high-end features during the boom market;
5. Smart functional and efficient kitchens are receiving increased focus;
6. Larger secondary bedrooms are important as most home buyers are now thinking long term;
7. Open floor plans with a simplified and streamlined design;
8. Smaller apartments with more space dedicated to common amenities;
9. Both buyers and renters are looking for more modern, updated/renovated spaces; and
10. Personal interaction is still best as real estate is truly a business built on relationships.
Flawed real estate appraisals create problems for buyers, sellers, refinancers
Realtors give accounts of sales hampered by low appraisals. “Polls by the National Association of Realtors also have documented widespread frustration over faulty valuations, and the association ranks them among thr major causes of contract cancellations.” Current market conditions, plus recent changes in federal rules that encourage banks to use in-house or affiliated appraisal management companies are magnifying the problem. Stakeholders need to be proactive and, as Federal rules allow, provide appropriate comparables of recently sold properties. If all else fails and the deal still falls apart, file a complaint with the state appraisal board.
Real Estate Appraisal Scope of Work and The Appraiser’s Data Request
This article provides an excellent explanation of the real estate appraisers scope of work and data required to complete a credible appraisal. To quote the author, James R. MacCrate, “The valuation of real property interests is an orderly process that has been developed over the years to produce credible results.” According to the scope of work as defined by the Uniform Standards of Professional Appraisal Practice, an appraiser must collect and analyze information about the subject property, the real estate market and competitive sales and leases that are necessary to properly develop the appraisal, appraisal review or appraisal consulting assignment. All stakeholders in a real estate transaction should have a good understanding the actual role of the appraiser.
Goldman's New York
Goldman Sachs Group, Inc. paid $215 million for Manhattan’s Park Central Hotel in 2004 and sold it for #396 million in 2011. On the face of it, this looks like a good deal for Goldman. However, there is more to the story. Goldman indebted the hotel to a total of $465 million, taking out all of its equity plus $150 million in profit. The hotel generated enough cash to service the debt until the debt came due in 2010. This same scenario is expected to play-out with other commercial borrowers who, like homeowners who refinanced and took out large second mortgages, used inflated values to overleverage real estate.
Rates of Return on Office Buildings in Manhattan vs. Other CBDs
Manhattan has a reputation for being a safe place to invest in income properties with higher prices per square foot and lower cap rates in comparison with other CBDs. The article shows that over the long term, office buildings in Manhattan command lower returns in comparison to other CBDs. The author concludes that investors seek less risk in office buildings in Manhattan as an investment.
