US house price trends. A national market bottom?
Home Prices Fall Again – WSJ.com
“Home prices fell to new lows in January, but the rate of decline appeared to be easing, offering the latest hint that prices may be at or near a bottom.”
Photo: AP
“Prices dropped 0.8% in the three-month period that ended in January, according to the Standard & Poor’s/Case-Shiller index that tracks 20 U.S. metro areas.”
Later in the article is an important point.
“The Case-Shiller index trails the housing market considerably. It reports sales contracts that were recorded for a three-month period that ended in January, which means it reflects sales activity from the autumn of 2011.”
“More recent indexes have reported modest stabilization for home prices.”
The market overhang appears significant. The article reports:
“Housing markets face significant headwinds. Nearly 11 million homeowners owe more on their mortgages than their houses or apartments are worth, and more than one million homes could sell out of foreclosure this year, putting pressure on prices. Credit standards are tight and show few signs of easing, leaving housing markets with fewer buyers at a time when more will be needed to soak up the excess supply.”
At the same time a different article makes the point that housing markets where employment is good to strong show very different trends compared to markets where the employment trends are weak. Phoenix, at one time in the top three cities for foreclosures, is now showing rising prices.
Social Housing REIT Plan
Thursday’s Evening Standard had an article in the Business section titled “Social Housing REIT Plan” by Russell Lynch. The main points included the UK Government’s launch of a consultation period and how there is a need for social housing investment. The assumption is charities organised as housing associations could offer better returns to investors if they set up as REITs.
I am going to see what I can find out about the consultation. REITs in the UK are 5 years old, for the most part the residential sector has avoided using REITs as an investment vehicle. Even more startling to the US investors is the lack of Multi-Family Residential (MFR) investment opportunities. In the UK there are very few apartment blocks where the building or buildings are owned as one freehold (one title to the whole property with multiple residential units available for rent). The closets the UK has to a MFR investment opportunity is ‘student housing’ where a purpose built property is let for residential use to a specific class of users, students.
For the UK reader, MFR in the USA means a property with 5 or more residential units, all self-contained with no shared facilities other than hallways, outside walkways, parking, etc. A MFR property is valued using the income model which is more or less saying the value of the building is based on the net income stream divided by the yield. Unlike UK residential conversations where the BTL investor uses gross yields, we are talking about net yield to determine price.
A while back a housing leader in one of the political parties asked me to write a paper on how to create the MFR investment class in the UK. I had explained that yield compression and a lack of planning support is the key to the sector. Let’s see how the consultation turns out. Unless there are planning restrictions, the economics will drive the sector and no amount of pass though tax treatment will change that. REITs be a polished solution for pass through tax treatment.
How to improve home remodeling, Toyota style
Toyota’s Lean Production Methods Help Build Homes for Displaced Katrina Victims
http://www.cleanmpg.com/forums/showthread.php?t=43002
Since Toyota came on board, St. Bernard Project has seen the following results:
- Time it takes to rebuild a home has dropped from an average of 116 days to 60 days – a 48 percent improvement.
- Amount of houses being rebuilt per month has jumped from 8.6 to 12.8.
- Improved processes: the collaboration has consisted of sharing TPS know-how and working closely with St. Bernard Project’s professional staff, skilled construction supervisors and AmeriCorps members to improve homebuilding efficiencies.
One challenge was to develop a better way to schedule the hundreds of volunteers and construction contractors who work on the houses. While there was no organized system before, today, as you enter St. Bernard Project’s headquarters, “management boards” track everything from volunteer/worker schedules to inventory to status reports on homes being rebuilt.
Private Rental Sector vs. Social Housing
In the Friday’s Bricks & Mortar section of the Times (of London) is an article indicating rents are down slightly in the Uk as a whole. The reason given is a temporary rush to beat the change in the stamp duty. In other words, the article thinks rents will level or rise in future months.
At the end of the article is the following quote:
“Government figures show that the gap between those renting privately and people living in social housing narrowed to just 200,000, from more than three million 30 years ago. Ludlowthompson, a London letting agent, estimates that more people will be living in private rented accommodation than in social housing by the end of the year.”
I have two questions.
Does anyone have a handle on the total size of the rental sector and the size 30 years ago? While a shift from social housing to the PRS might be interesting, I think the shift lives in a bigger context. The PRS did not exist in any real sense 20 years ago given the eviction laws and other restrictions on the fundamentals of the PRS business model.
My second question is broader. Who has a good definition of social housing. Other than people are social, what defines social housing vs. housing that is not part of the category? Is it nothing more than the status of the owner (charity, government, private party)? Does social housing have to be housing rented at below market rents (subsidised in some fashion)?
My first Real Estate Investing (REI) survey
I created a survey today using Survey Monkey. Survey Monkey is not difficult to learn. At this time I have a free account so I created a simple survey with 7 main questions. A paid account comes with more options for how the survey works. Maybe something to consider at a later date.
The survey’s purpose is to better understand what people want to see discussed during 2012 at the monthly real estate meetings I run in London (The London Real Estate Buying & Investing MeetUp Group). In November I announced that there will be 12 topics for the year and that I will bring in guest speakers for most of the topics.
For January, I have lined up an investor who operates a number of HMO properties in west London. All the properties were set up over the last year to 18 months. In none of the cases does the investor own the building. He was able to create a strong positive cash flow business with limited initial capital.
For the readers outside the UK, an HMO is a House in Multiple Occupation. Think boarding house with some shared facilities. Technically any property with more than 2 unrelated occupants is an HMO in the UK. Up to a certain point no HMO license is required. Independent of the license requirement, planning permission comes into play once the property reaches a specific size based on the number of rooms being rented.
If you have about 5 minutes, fill out the survey. Even if you have no plans to attend a physical meeting in London, the feedback will help me understand what people want to learn concerning real estate investing (REI). I am expecting to produce a number of articles plus the book mentioned yesterday will also be shaped by the survey results.
As I said, there are only 7 questions so it should be pretty quick. You can find the survey here
Welcome to 2012
The new year started today. Happy New Year!
I expect a few things to be different during 2012. Rather than spill the beans and tell you everything all at once I will be announcing things when they are ready for prime time.
What I will say right now is I am working on a book. One one level, the book is a way to collect my thoughts on real estate investing. In addition, the content which will form the book will be the starting point for courses, for monthly discussions in London and other ways to to engage with others. Thinking about it, the book is closer to a roadmap for the year and a way to make it easy to share what I know so others can benefit.
I have been using the holiday period to flush out much of the detail for the book. Progress was good up until a couple of days ago when I took off some time while visiting my sister and her family. Having just flown back earlier this evening I will be getting back to work tomorrow, Monday Jan 2nd. It will be a further week before I fly back to London. I expect to make a great deal more progress before getting on the plane.
I am targeting the 15th of this month for the completion of the first draft. Maybe draft is the wrong term as it will be an outline with all the text minus any of the editing that will make it really flow.
I am interested in sharing the main topics I expect to cover so you can let me know if there is anything else you want reviewed. The initial list of topics came from a monthly meeting I hold in London where other investors (newbies and experienced people). I created the partial list and they suggested changes and additions. I will share the list of topics tomorrow. I need to work on the formatting before posting it here.
Questions or comments?
Sale And Rent Back
The UK’s Financial Services Authority (FSA) has published the new rules and guidelines for what is called Sale And Rent Back (SARB).
Most any serious real estate investor in the US avoids buying from an owner occupant and then renting the property back to the same party.
For a few years the combination of SARB deals with same day refinancing produced a rapid rise in investors or firms offering SARB package deals to people under financial stress. All the cowboys piled in. Some sellers found that their tenancy was not as they had expected.
FSA press announcement
FSA advice
FSA consultation paper and request for feedback on the permanent regulations
Bubbles & Banks – Krugman
Bubbles and the Banks
January 8, 2010
NYTimes.com
Paul Krugman wrote recently that his upcoming columns in the NY Times will be focusing on banking reform. He starts by asking a question:
“What should reformers try to accomplish?”
He starts out by making an observation.
“A lot of the public debate has been about protecting borrowers.”
“But consumer protection, while it might have blocked many subprime loans, wouldn’t have prevented the sharply rising rate of delinquency on conventional, plain-vanilla mortgages. And it certainly wouldn’t have prevented the monstrous boom and bust in commercial real estate.”
“Reform, in other words, probably can’t prevent either bad loans or bubbles. But it can do a great deal to ensure that bubbles don’t collapse the financial system when they burst.”
Think about it. One of the top economists in the US is stating that you can not prevent bad loans or bubbles. We have to accept that both will happen and it is not practical to create regulations to stop either condition.
A bit later in the article Krugman compared the dot.com meltdown when the losses experienced by stock investors was largely the same in magnitude as the losses that have happened as a result of the housing meltdown. If both events were equal in magnitude why the difference in terms of the impact to the US economy?
“The short answer is that while the stock bubble created a lot of risk, that risk was fairly widely diffused across the economy. By contrast, the risks created by the housing bubble were strongly concentrated in the financial sector. As a result, the collapse of the housing bubble threatened to bring down the nation’s banks. And banks play a special role in the economy. If they can’t function, the wheels of commerce as a whole grind to a halt.”
“Why did the bankers take on so much risk? Because it was in their self-interest to do so. If the concentration of risk in the banking sector increased the danger of a systemwide financial crisis, well, that wasn’t the bankers’ problem.”
So what is the solution Krugman is proposing. He only provides the high level as the real details will be shared in future columns. Below is a quick summary of the main points.
“The test for reform, then, is whether it reduces bankers’ incentives and ability to concentrate risk going forward.”
“Transparency is part of the answer. Before the crisis, hardly anyone realized just how much risk the banks were taking on. More disclosure, especially with regard to complex financial derivatives, would clearly help.”
“Beyond that, an important aspect of reform should be new rules limiting bank leverage.”
I am not a fan of Krugman when it comes to the more populist or political points of view. I do think he clearly articulates some of the key issues using language many can grasp. As a way to get a dialog going Krugman makes it pretty easy.
-John Corey